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Preferred Bank Reports First Quarter Results

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LOS ANGELES, April 22, 2014 (GLOBE NEWSWIRE) -- Preferred Bank (Nasdaq:PFBC), an independent commercial bank focusing on the diversified California market, today reported results for the quarter ended March 31, 2014. Preferred Bank ("the Bank") reported net income of $5.2 million or $0.38 per diluted share for the first quarter of 2014. This compares to net income of $4.0 million or $0.30 per diluted share for the first quarter of 2013 and compares to net income of $5.9 million or $0.44 per diluted share for the fourth quarter of 2013. Net income for the fourth quarter of 2013 was aided by $2.6 million in gains on sales of OREO partially offset by $1.1 million in losses on sales of investment securities.

Highlights from the first quarter of 2014:

  • Quarterly net income was $5.2 million
  • Linked quarter loan growth was $46.5 million
  • The net interest margin expanded slightly to 3.87% from 3.85% linked quarter
  • ROA was 1.17%
  • ROBE was 10.10%
  • Efficiency ratio was 44.7%

Li Yu, Chairman and CEO commented, "Our Bank continues to grow in 2014. On a linked-quarter basis, total loans grew by 3.5% and deposits grew by 2.1%. The loan pipeline is stable at present.

There seems to be renewed pressure on the Bank's net interest margin. Several larger banks have recently refinanced out some of our loans with longer terms and fixed rates, which are also quite low. We have chosen not to compete not only because the risk adjusted returns are too thin, but also because this type of asset is not consistent with our interest rate risk management practices. We will however, remain alert and will be competitive whenever possible and we are also prepared to continue to expand our relationship staff to create more deal flow so that we can continue to grow while moderating any yield erosion.

Between mid 2013 and early 2014, our Bank has been building up our administrative, compliance and support staff . A number of highly trained professionals were recruited in areas such as BSA, Compliance, Operations, Credit Administration, Information Technology and Treasury. We are doing this in response to the increased compliance requirements and we are also preparing for our next stage of growth.

We are pleased with our first quarter efficiency ratio of 45%. Although there are a few areas whereby we can improve, expected improvements will be modest. We are dedicated however, as we always have been to maintaining a very efficient organization."

Operating Results

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses was $16.5 million compared to $14.7 million recorded in the first quarter of 2013 and a slight increase from the $16.4 million recorded in the fourth quarter of 2013. The increase over the first quarter of 2013 and over the prior quarter is due primarily to loan growth. The Bank's taxable equivalent net interest margin was 3.87% for the first quarter of 2014, a 2 basis point increase from the 3.85% achieved in the fourth quarter of 2013 and a 16 basis point decrease from the 4.03% recorded in the first quarter of 2013. The decrease in the margin from the first quarter of 2013 was primarily due to average cash balances which were $79 million higher in the first quarter of 2014 versus the same quarter in 2013. These cash balances only earn 0.25% so the level of cash on the balance sheet has a significant impact on the calculated margin. In addition, the average balance of our investment securities portfolio was also lower by $57.4 million in the first quarter of 2014 than the same quarter last year which also negatively impacted the net interest margin. These items were partially offset by an increase in average total loans of $212.2 million compared to the same quarter of 2013.

Noninterest Income. For the first quarter of 2014, noninterest income was $1,028,000 compared with $858,000 for the same quarter last year and compared to $214,000 for the fourth quarter of 2013. Service charges on deposits were down compared to the same period last year but Trade Finance income was up as was other noninterest income. In comparing to the fourth quarter of 2013; service charges were down slightly but Trade Finance income was considerably higher and there were no losses on investment securities compared to the $1.1 million loss last quarter. In addition, other noninterest income was considerably lower than the $598,000 recorded in the fourth quarter of last year due to a gain on the sale of loans of $514,000 recorded in that period.

Noninterest Expense.Total noninterest expense was $7.8 million for the first quarter of 2014, comparing favorably to the $8.8 million recorded in the same quarter last year but up significantly over the $5.2 million recorded in the fourth quarter of 2013 (Fourth quarter 2014 noninterest expense was reduced by a $2.6 million gain on sale of OREO). Salaries and benefits expense totaled $4.7 million for the first quarter of 2014 compared to $4.3 million for the same period last year and compared to $4.0 million for the fourth quarter of 2013. The increase over both comparable periods was due to higher bonus expense as well as higher staffing levels. Occupancy expense was $801,000 compared to the $768,000 recorded in the same period in 2013 and $801,000 recorded in the fourth quarter of 2013. The increase over both periods was due primarily to the new San Francisco branch occupancy costs and normal cost increases. Professional services expense was $761,000 for the first quarter of 2014 compared to $889,000 for the same quarter of 2013 and $899,000 recorded in the fourth quarter of 2013. Other real estate owned ("OREO") related and loans held for sale ("LHFS") expenses totaled $(78,000) for the first quarter of 2014 compared to $1.4 million for the same period last year and compared to $(2.1 million) for the fourth quarter of 2013. Other expenses were $1.2 million in the first quarter of 2014, a slight increase of $47,000 over the same period in 2013 and down from the $1.3 million recorded in the fourth quarter of 2013.

Income Taxes

The Bank recorded a provision for income taxes of $3.3 million for the first quarter of 2014. This represents an effective tax rate ("ETR") of 39.0% for the quarter. This is up slightly from the ETR of 38.8% for the fourth quarter of 2013. This small increase is due to the Bank's higher overall levels of profitability in 2014 relative to tax exempt income and deductible items.

Balance Sheet Summary

Total gross loans and leases (including loans held for sale) at March 31, 2014 were $1.38 billion, an increase of $46.5 million or 3.5% over the total of $1.33 billion as of December 31, 2013. The tables below indicate loans by type as of March 31, 2014 as compared to the end of 2013:

Loans by Type – Year over Year (000's)

Loan Type (000's) March 31, 2014 December 31, 2013 $ Change % Change
R/E – Residential/Multifamily $220,193 $228,490 $ (8,297) -3.6%
R/E – Land 15,113 15,161 (48) -0.3%
R/E – Commercial 653,146 627,888 25,258 4.0%
R/E – Construction 81,317 73,285 8,032 11.0%
Commercial & Industrial 400,419 378,607 21,812 5.8%
Loans Held for Sale 5,977 6,207 (230) -3.7%
Total $1,376,165 $1,329,638 $46,527 3.5%

Total deposits as of March 31, 2014 were $1.56 billion, an increase of $32.7 million from the $1.53 billion at December 31, 2013. As of March 31, 2014 compared to December 31, 2013; noninterest-bearing demand deposits decreased by $11.5 million or 3.4%, interest-bearing demand and savings deposits increased by $8.8 million or 1.8% and time deposits increased by $35.4 million or 5.1%. Total assets were $1.81 billion, a $39.2 million or 2.2% increase from the total of $1.77 billion as of December 31, 2013.

Asset Quality

As of March 31, 2014 total nonaccrual loans (excluding loans held for sale) decreased to $5.5 million compared to $7.8 million as of December 31, 2013. Total net charge-offs (recoveries) for the first quarter of 2014 were $967,000 compared to net recoveries of $25,000 for the fourth quarter of 2013. The Bank recorded a provision for loan losses of $1.25 million for the first quarter of 2014. Although nonperforming loan and economic trends continue to be positive, management believes that due to growth and other factors, this provision is appropriate in order to maintain an allowance level deemed sufficient. This compares to no provision recorded in the same quarter last year and compares to $1.8 million provision recorded in the fourth quarter of 2013. The allowance for loan loss at March 31, 2014 was $19.8 million or 1.44% of total loans compared to $19.5 million or 1.47% of total loans at December 31, 2013.

NPA Migration

Non-Performing Assets Migration – Q1 2014

Non Accrual Loans OREO
Balance, December 31, 2013 $7,837 $5,602
Additions 1,195 3,300
Transfer to OREO (3,300) --
Loans Cured -- --
Sales/Payoffs (206) --
Charge-off -- --
Balance, March 31, 2014 $5,526 $8,902

The tables above exclude loans held for sale and TDR's that are on accrual status. Performing TDR's totaled $401,000 as of March 31, 2014. The $6.0 million in loans held for sale consist of one loan which is current, on nonaccrual status.

OREO

Total OREO increased to $8.9 million compared to $5.6 million as of December 31, 2013. This was due to the foreclosure of and taking possession of a property securing a loan which had been on nonaccrual status for some time.

Capitalization

As of March 31, 2014, the Bank's tier 1 leverage ratio was 11.97%, the tier 1 risk based capital ratio was 13.65% and the total risk-based capital ratio was 14.90%. This compares to 11.80%, 13.78% and 15.03% as of December 31, 2013, respectively.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank's first quarter 2014 financial results will be held tomorrow, April 23, 2014 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 877-941-6009 (domestic) or 480-629-9819 (international). The passcode for the call is 4679259. 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 30, 2014; the passcode is 4679259.

About Preferred Bank

Preferred Bank is one of the larger independent commercial banks in California. 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, 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. Although originally founded as a Chinese-American Bank, Preferred Bank now derives most of its customers from the diversified mainstream market but does continue to benefit from the significant migration to California of ethnic Chinese from China and other areas of East Asia.

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 2013 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,
2014 2013 2013
Interest income:
Loans, including fees $ 17,342 $ 17,111 $ 14,939
Investment securities 1,389 1,380 1,550
Fed funds sold 19 22 --
Total interest income 18,750 18,513 16,489
Interest expense:
Interest-bearing demand 646 618 531
Savings 19 24 21
Time certificates 1,550 1,436 1,278
FHLB borrowings 32 33 --
Total interest expense 2,247 2,112 1,830
Net interest income 16,503 16,401 14,660
Provision for loan losses 1,250 1,800 --
Net interest income after provision for loan losses 15,253 14,601 14,660
Noninterest income:
Fees & service charges on deposit accounts 456 507 548
Trade finance income 299 128 207
BOLI income 82 84 82
Net gain (loss) on sale of investment securities -- (1,103) --
Other income 191 598 21
Total noninterest income 1,028 214 858
Noninterest expense:
Salary and employee benefits 4,735 3,960 4,273
Net occupancy expense 801 801 768
Business development and promotion expense 87 99 96
Professional services 761 899 889
Office supplies and equipment expense 338 278 307
Total other-than-temporary impairment losses -- -- 4
Portion of loss recognized in other comprehensive income -- -- --
Other real estate owned related expense (income) and valuation allowance on LHFS (78) (2,092) 1,364
Other 1,188 1,279 1,141
Total noninterest expense 7,832 5,224 8,841
Income before provision for income taxes 8,449 9,591 6,676
Income tax expense 3,296 3,723 2,646
Net income $ 5,153 $ 5,868 $ 4,030
Income allocated to participating securities (48) (34) (51)
Net income available to common shareholders $ 5,105 $ 5,834 $ 3,979
Income per share available to common shareholders
Basic $ 0.39 $ 0.45 $ 0.30
Diluted $ 0.38 $ 0.44 $ 0.30
Weighted-average common shares outstanding
Basic 13,365,166 13,196,071 13,071,223
Diluted 13,534,067 13,394,535 13,322,083
PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
March 31, December 31,
2014 2013
Assets
Cash and due from banks $ 184,430 $ 226,615
Fed funds sold 30,000 20,000
Cash and cash equivalents 214,430 246,615
Securities available-for-sale, at fair value 169,845 142,670
Loans and leases 1,370,188 1,323,431
Less allowance for loan and lease losses (19,777) (19,494)
Less net deferred loan fees (2,014) (2,562)
Net loans and leases 1,348,397 1,301,375
Loans held for sale, at lower of cost or fair value 5,977 6,207
Other real estate owned 8,902 5,602
Customers' liability on acceptances 868 2,061
Bank furniture and fixtures, net 4,183 4,205
Bank-owned life insurance 8,348 8,290
Accrued interest receivable 5,690 5,378
Investment in affordable housing 8,964 6,411
Federal Home Loan Bank stock 5,296 5,296
Deferred tax assets 22,716 22,879
Income tax receivable -- 2,236
Other asset 1,522 9,734
Total assets $ 1,805,138 $ 1,768,959
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand $ 327,036 $ 338,530
Interest-bearing demand 477,965 469,976
Savings 23,824 22,984
Time certificates of $250,000 or more 261,984 213,362
Other time certificates 471,250 484,462
Total deposits $ 1,562,059 $ 1,529,314
Acceptances outstanding 868 2,061
Advances from Federal Home Loan Bank 20,000 20,000
Accrued interest payable 1,153 983
Other liabilities 6,514 9,685
Total liabilities 1,590,594 1,562,043
Commitments and contingencies
Shareholders' equity:
Preferred stock. Authorized 25,000,000 shares; no issued and outstanding shares at March 31, 2014 and December 31, 2013 -- --
Common stock, no par value. Authorized 20,000,000 shares; issued and outstanding 13,430,736 and 13,280,653 shares at March 31, 2014 and December 31, 2013, respectively 163,408 163,237
Treasury stock (19,115) (19,115)
Additional paid-in-capital 27,429 25,974
Accumulated income 41,833 36,680
Accumulated other comprehensive income: -- --
Non-credit portion of loss recognized at March 31, 2014 and December 31, 2013 -- --
Unrealized loss on securities, available-for-sale, net of tax of $717 and $102 at March 31, 2014 and December 31, 2013, respectively 989 140
Total shareholders' equity 214,544 206,916
Total liabilities and shareholders' equity $ 1,805,138 $ 1,768,959
PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
As of or for the Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2014 2013 2013 2013 2013
Unaudited historical quarterly operations data:
Interest income $ 18,750 $ 18,513 $ 18,480 $ 16,243 $ 16,489
Interest expense 2,247 2,112 1,967 1,820 1,830
Interest income before provision for credit losses 16,503 16,401 16,513 14,423 14,659
Provision for credit losses 1,250 1,800 1,200 250 --
Noninterest income 1,028 214 213 718 858
Noninterest expense 7,832 5,294 7,671 7,218 8,841
Income tax expense 3,296 3,653 2,587 3,404 2,646
Net income 5,153 5,868 5,032 4,269 4,030
Earnings per share
Basic $ 0.39 $ 0.45 $ 0.38 $ 0.32 $ 0.30
Diluted $ 0.38 $ 0.44 $ 0.37 $ 0.32 $ 0.30
Ratios for the period:
Return on average assets 1.17% 1.33% 1.20% 1.09% 1.06%
Return on beginning equity 10.10% 11.62% 10.27% 8.90% 8.70%
Net interest margin (Fully-taxable equivalent) 3.87% 3.85% 4.10% 3.85% 4.03%
Noninterest expense to average assets 1.78% 1.18% 1.83% 1.84% 2.31%
Efficiency ratio 44.68% 31.44% 45.87% 47.67% 56.98%
Net charge-offs (recoveries) to average loans (annualized) 0.29% 0.20% 0.28% 0.83% 0.13%
Unaudited quarterly statement of financial position data:
Assets:
Cash and cash equivalents 214,430 $ 246,615 $ 190,405 $ 181,100 $ 158,657
Securities held-to-maturity, at amortized cost -- -- -- -- 979
Securities available-for-sale, at fair value 169,845 142,670 166,821 183,690 204,529
Loans and Leases:
Real estate - Single and multi-family residential $ 220,193 $ 228,490 $ 197,119 $ 190,037 $ 156,613
Real estate - Land for housing 13,574 13,611 9,149 23,079 23,091
Real estate - Land for income properties 1,539 1,550 1,560 1,571 1,581
Real estate - Commercial 653,146 627,888 610,764 549,907 502,589
Real estate - For sale housing construction 29,303 24,680 22,631 25,177 31,341
Real estate - Other construction 52,014 48,605 43,413 46,061 39,366
Commercial and industrial 353,017 338,681 346,261 328,676 349,615
Trade finance and other 47,402 39,926 48,067 49,917 52,924
Gross loans 1,370,188 1,323,431 1,278,964 1,214,425 1,157,120
Allowance for loan and lease losses (19,777) (19,494) (18,344) (18,011) (20,234)
Net deferred loan fees (2,014) (2,562) (2,429) (2,197) (2,175)
Loans excluding loans held for sale 1,348,397 1,301,375 1,258,191 1,194,217 1,134,711
Loans held for sale 5,977 6,207 11,329 14,685 15,670
Total loans, net $ 1,354,374 $ 1,307,582 $ 1,269,520 $ 1,208,902 $ 1,150,381
Other real estate owned $ 8,902 5,602 11,936 14,513 19,874
Investment in affordable housing 8,964 6,411 4,752 4,940 --
Federal Home Loan Bank stock 5,296 5,296 5,296 5,296 4,282
Other assets 43,327 54,783 52,439 58,872 49,067
Total assets $ 1,805,138 1,768,959 1,701,169 1,657,313 1,587,769
Liabilities:
Deposits:
Demand $ 327,036 $ 338,530 $ 338,579 $ 350,641 $ 409,253
Interest-bearing demand 477,965 469,976 409,319 378,360 337,523
Savings 23,824 22,984 23,223 21,713 21,953
Time certificates of $250,000 or more 261,984 213,362 203,579 213,494 204,212
Other time certificates 471,250 484,462 495,437 468,035 411,058
Total deposits $ 1,562,059 $ 1,529,314 $ 1,470,137 $ 1,432,243 $ 1,383,999
Advances from Federal Home Loan Bank $ 20,000 20,000 20,000 20,000 --
Other liabilities 8,536 12,729 10,743 10,630 11,461
Total liabilities $ 1,590,594 1,562,043 1,500,880 1,462,873 1,395,460
Equity:
Net common stock, no par value $ 171,722 $ 170,096 $ 169,925 $ 169,395 $ 168,845
Retained earnings 41,833 36,680 30,812 25,780 21,511
Accumulated other comprehensive income 989 140 (448) (735) 1,953
Total shareholders' equity $ 214,544 206,916 200,289 194,440 192,309
Total liabilities and shareholders' equity $ 1,805,138 1,768,959 1,701,169 1,657,313 1,587,769
Ratios as of period end:
Tier 1 leverage capital ratio 11.97% 11.80% 11.84% 12.18% 12.01%
Tier 1 risk-based capital ratio 13.65% 13.78% 13.34% 13.51% 13.61%
Total risk-based capital ratio 14.90% 15.03% 14.58% 14.76% 14.86%
Allowances for credit losses to loans and leases at end of period ** 1.44% 1.47% 1.43% 1.48% 1.75%
Allowance for credit losses to non-performing loans and leases 171.94% 138.80% 103.47% 71.79% 74.13%
Average balances:
Total loans and leases* $ 1,351,555 $ 1,283,583 $ 1,245,753 $ 1,198,818 $ 1,139,317
Earning assets $ 1,739,768 $ 1,695,758 $ 1,608,366 $ 1,520,024 $ 1,487,826
Total assets $ 1,783,384 $ 1,749,140 $ 1,665,591 $ 1,572,529 $ 1,545,400
Total deposits $ 1,540,369 $ 1,512,318 $ 1,436,385 $ 1,362,295 $ 1,344,983
* 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, 2014 December 31, 2013
(Dollars in 000's)
Allowance For Credit Losses
Balance at Beginning of Period $ 19,494 $ 20,607
Charge-Offs
Commercial & Industrial 111 4,158
Mini-perm Real Estate 858 1,668
Construction - Residential -- 2,438
Construction - Commercial -- --
Land - Residential -- --
Land - Commercial -- --
Others -- --
Total Charge-Offs 969 8,264
Recoveries
Commercial & Industrial 2 366
Mini-perm Real Estate -- 1,379
Construction - Residential -- 1,951
Construction - Commercial -- 163
Land - Residential -- 38
Land - Commercial -- 4
Total Recoveries 2 3,901
Net Loan Charge-Offs 967 4,363
Provision for Credit Losses 1,250 3,250
Balance at End of Period $ 19,777 $ 19,494
Average Loans and Leases* $ 1,351,555 $ 1,217,383
Loans and Leases at end of Period* $ 1,376,165 $ 1,329,638
Net Charge-Offs to Average Loans and Leases 0.29% 0.36%
Allowances for credit losses to loans and leases at end of period ** 1.44% 1.47%
* 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 Papke General Information (310) 663-8007 kpapke@finprofiles.com

Source:Preferred Bank

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