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Preferred Bank Reports First Quarter Results

LOS ANGELES, April 20, 2016 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ:PFBC), an independent commercial bank, today reported results for the quarter ended March 31, 2016. Preferred Bank (“the Bank”) reported net income of $7.8 million or $0.56 per diluted share for the first quarter of 2016. This compares to net income of $6.7 million or $0.48 per diluted share for the first quarter of 2015 and compares to net income of $7.5 million or $0.54 per diluted share for the fourth quarter of 2015. Net income for the fourth quarter was impacted by merger-related costs which totaled $658,000 on a pre-tax basis during the quarter.

Highlights from the first quarter of 2016:

-- Linked quarter loan growth $97.5 million or 4.8%
-- Linked quarter deposit growth $71.3 million or 3.1%
-- Return on average assets 1.21%
-- Return on beginning equity 11.94%
-- Efficiency ratio 44.1%
-- Net interest margin 3.79%

Li Yu, Chairman and CEO commented, “Our Bank continued its pattern of growth in the first quarter of 2016. Loans increased by $97.5 million or 4.8% on a linked quarter basis. On that same basis, deposits increased $71.3 million or 3.1%. Net income for the quarter was $7.8 million or $0.56 per diluted share. Net income was negatively impacted by the correction of an error in prior year’s interest income of $805,000. Without this and the partial offset of an interest recovery our net interest margin would have been 3.89% instead of the 3.79% we reported.

“Our efficiency ratio was 44.1% in the first quarter of 2016. First quarter expenses included full quarter expense for the New York operations as well as a $665,000 increase in employer-paid taxes related to bonus payouts which occur each first quarter. In addition, the Bank is continually adding front line personnel as well as personnel in compliance-related areas.

“The Bank’s allowance for loan losses increased by $1.02 million consisting of a provision for loan losses of $800,000 as well as a $223,000 loan recovery.

“All other aspects of our Bank are progressing according to plan and we feel strongly about our continued success through 2016.”

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses was $23.9 million for the first quarter of 2016. This compares favorably to the $19.4 million recorded in the first quarter of 2015 and to the $22.3 million recorded in the fourth quarter of 2015. The increase over both comparable periods is due primarily to loan growth, and was aided by the UIB acquisition which closed on November 20, 2015. The Bank’s taxable equivalent net interest margin was 3.79% for the first quarter of 2016, a 4 basis point decrease from the 3.83% achieved in the first quarter of 2015 and a 9 basis point decrease from the 3.88% recorded in the fourth quarter of 2015. During the quarter, we noted errors in the accrual of interest on several loans which had been charged-off as early as 2011. The amount involved was deemed to be immaterial and this event, which caused the late filing of our 10-K, was confirmed to be isolated after a review of all other loans like these. The total cumulative amount involved was $805,000 and this amount was recorded in the first quarter of 2016 as a reduction of loan interest income. Separately, interest income of $253,000 was collected from the payoff of a loan previously on nonaccrual status. Combining these two items, our net interest margin was impacted by approximately 10 basis points.

Noninterest Income. For the first quarter of 2016, noninterest income was $1,163,000 compared with $868,000 for the same quarter last year and compared to $954,000 for the fourth quarter of 2015. Service charges on deposits were primarily flat compared to the same period last year but were up by $40,000 over the fourth quarter of 2015. Trade finance income was $417,000 for the first quarter of 2016, an increase of $110,000 compared to the same period last year and a decrease of $36,000 compared to the fourth quarter of 2015. Other income was $331,000, an increase of $152,000 over the first quarter of 2015 and an increase of $169,000 from the fourth quarter of 2015. The increase over both comparable periods was due to the receipt of $153,000 in life insurance proceeds due to the passing of a former officer.

Noninterest Expense. Total noninterest expense was $11.0 million for the first quarter of 2016, an increase of $2.4 million over the same period last year and an increase of $1.1 million over the fourth quarter of 2015. Salaries and benefits expense totaled $7.0 million for the first quarter of 2016 compared to $5.3 million recorded for both the same period last year and the fourth quarter of 2015. The increase over the same period last year was due primarily to staffing/merit increases of $729,000 (much of that due to UIB), payroll taxes of $260,000 and an increase in the bonus accrual. The increase over the fourth quarter of 2015 was due to an increase in payroll taxes of $666,000, an increase in salaries/staffing of $461,000, and an increase in vacation expense of $248,000. Occupancy expense totaled $1.2 million compared to the $851,000 recorded in the same period in 2015 and the $1.0 million recorded in the fourth quarter of 2015. The increase over the prior year was due mainly to the addition of the New York office with the UIB acquisition as well as a new administrative office which the Bank opened in November 2015 in El Monte, California. Professional services expense was $962,000 for the first quarter of 2016 compared to $1.1 million for the same quarter of 2015 and $1.4 million recorded in the fourth quarter of 2015. The reductions were mainly a result of lower legal fees. The Bank incurred $199,000 in costs related to its one OREO property. This compares to OREO expense of $89,000 in the first quarter of 2015. Other expenses were $1.1 million for the first quarter of 2016 compared to $920,000 for the same period last year and $1.7 million for the fourth quarter of 2015. The fourth quarter of 2015 was impacted by $658,000 of acquisition-related charges.

Income Taxes

The Bank recorded a provision for income taxes of $5.4 million for the first quarter of 2016. This represents an effective tax rate (“ETR”) of 40.6% for the quarter. This is up from the ETR of 39.8% for the first quarter of 2015 but down from the 42.2% ETR recorded in the fourth quarter of 2015. The high level in the fourth quarter of 2015 was due mainly to tax adjustments associated with the UIB acquisition. The increase over the prior year is due primarily to the Bank’s growing profitability relative to tax exempt income and deductible items.

Balance Sheet Summary

Total gross loans and leases at March 31, 2016 were $2.16 billion, an increase of $98.6 million or 4.8% over the total of $2.06 billion as of December 31, 2015. The tables below indicate loans by type as of March 31, 2016 as compared to the end of 2015:

Loans by Type

Loan Type (000’s)March 31, 2016December 31, 2015$ Change% Change
R/E – Residential/Multifamily$ 401,708 $ 415,097 $ (13,389) -3.2%
R/E – Land 16,654 16,713 (59) -0.4%
R/E – Commercial 924,913 861,317 63,596 7.4%
R/E – Construction 148,789 131,404 17,385 13.2%
Commercial & Industrial 665,922 635,465 30,457 4.8%
Total$ 2,157,986 $ 2,059,996 $ 97,990 4.8%

Total deposits as of March 31, 2016 were $2.36 billion, an increase of $71.3 million from the $2.29 billion at December 31, 2015. As of March 31, 2016 compared to December 31, 2015; noninterest-bearing demand deposits decreased by $30.8 million or 5.5%, interest-bearing demand and savings deposits increased by $53.8 million or 6.9% and time deposits increased by $48.3 million or 5.1%. Total assets were $2.68 billion, an $84.5 million or 3.3% increase from the total of $2.60 billion as of December 31, 2015.

Asset Quality

As of March 31, 2016 nonaccrual loans totaled $1.0 million, down from the $2.0 million total as of December 31, 2015. Total net charge-offs (recoveries) for the first quarter of 2016 were ($223,000) compared to $1.7 million in the fourth quarter of 2015 and compared to $86,000 for the first quarter of 2015. The Bank recorded a provision for loan losses of $800,000 for the first quarter of 2016. 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 for probable incurred losses. This is an increase from the $500,000 provision recorded in the same quarter last year and to the $300,000 provision recorded in the fourth quarter of 2015. The allowance for loan loss at March 31, 2016 was $23.7 million or 1.10% of total loans compared to $22.7 million or 1.10% of total loans at December 31, 2015.

OREO

As of March 31, 2016 and December 31, 2015, the Bank held one OREO property, a $4.1 million multi-family property located outside of California.

Capitalization

As of March 31, 2016, the Bank’s leverage ratio was 10.29%, the common equity tier 1 capital ratio was 10.74% and the total capital ratio was 11.70%. As of December 31, 2015, the Bank’s leverage ratio was 10.46%, the common equity tier 1 ratio was 11.03% and the total risk based capital ratio was 12.0%.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank’s first quarter 2016 financial results will be held tomorrow, April 21st at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 866-652-5200 (domestic) or 412-317-6060 (international) and referencing “Preferred Bank.” 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 Nick Pi 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 877-344-7529 (domestic) or 412-317-0088 (international) through May 5, 2016; the passcode is 10084215.

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 eleven full-service branch banking offices in the California cities of Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Anaheim, Pico Rivera, Tarzana and San Francisco, and one office in Flushing, New York. 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.

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 2015 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 Quarter Ended
March 31, December 31, March 31,
2016 2015 2015
Interest income:
Loans, including fees $ 25,460 $ 23,792 $ 20,355
Investment securities 1,784 1,585 1,457
Fed funds sold 77 46 34
Total interest income 27,321 25,423 21,846
Interest expense:
Interest-bearing demand 1,050 871 786
Savings 18 14 15
Time certificates 2,315 2,150 1,649
FHLB borrowings 59 70 32
Total interest expense 3,442 3,105 2,482
Net interest income 23,879 22,318 19,364
Provision for loan losses 800 300 500
Net interest income after provision for loan losses 23,079 22,018 18,864
Noninterest income:
Fees & service charges on deposit accounts 294 254 299
Trade finance income 417 453 307
BOLI income 85 86 83
Net gain (loss) on sale of investment securities 36 - -
Other income 331 161 179
Total noninterest income 1,163 954 868
Noninterest expense:
Salary and employee benefits 7,021 5,248 5,312
Net occupancy expense 1,203 1,024 851
Business development and promotion expense 222 227 109
Professional services 962 1,359 1,083
Office supplies and equipment expense 351 336 254
Other real estate owned related (income)expense and valuation allowance on LHFS 199 1 89
Other 1,080 1,696 920
Total noninterest expense 11,038 9,890 8,618
Income before provision for income taxes 13,204 13,081 11,114
Income tax expense 5,361 5,518 4,424
Net income $ 7,843 $ 7,563 $ 6,690
Income per share available to common shareholders
Basic $ 0.56 $ 0.55 $ 0.49
Diluted $ 0.56 $ 0.54 $ 0.48
Weighted-average common shares outstanding
Basic 13,796,892 13,547,197 13,397,140
Diluted 13,911,195 13,743,157 13,805,504
Dividends per share $ 0.15 $ 0.15 $ 0.12

PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
March 31, December 31,
2016 2015
(Unaudited) (Audited)
Assets
Cash and due from banks $ 251,047 $ 296,175
Fed funds sold 42,500 13,000
Cash and cash equivalents 293,547 309,175
Securities held to maturity, at amortized cost 5,550 5,830
Securities available-for-sale, at fair value 162,654 169,502
Loans and leases 2,157,986 2,059,392
Less allowance for loan and lease losses (23,681) (22,658)
Less net deferred loan fees (3,065) (3,012)
Net loans and leases 2,131,240 2,033,722
Other real estate owned 4,112 4,112
Customers' liability on acceptances 969 897
Bank furniture and fixtures, net 5,745 5,601
Bank-owned life insurance 8,651 8,763
Accrued interest receivable 8,014 8,128
Investment in affordable housing 25,499 16,052
Federal Home Loan Bank stock 6,965 7,162
Deferred tax assets 23,733 23,802
Income tax receivable 1,637 299
Other asset 5,034 5,801
Total assets $2,683,350 $2,598,846
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand $ 528,126 $ 558,906
Interest-bearing demand 803,374 748,918
Savings 30,002 30,703
Time certificates of $250,000 or more 339,971 321,537
Other time certificates 656,386 626,495
Total deposits $2,357,859 $2,286,559
Acceptances outstanding 969 897
Advances from Federal Home Loan Bank 26,601 26,635
Commitments to fund investment in affordable housing partnership 11,454 3,958
Accrued interest payable 2,131 1,919
Other liabilities 10,762 14,733
Total liabilities 2,409,776 2,334,701
Commitments and contingencies
Shareholders' equity:
Preferred stock. Authorized 25,000,000 shares; no issued and outstanding shares at March 31, 2016 and December 31, 2015
Common stock, no par value. Authorized 100,000,000 shares; issued and outstanding 14,057,755 and 13,884,942 shares at March 31, 2016 and December 31, 2015, respectively 167,213 166,560
Treasury stock (19,115) (19,115)
Additional paid-in-capital 37,682 34,672
Accumulated income 86,715 81,046
Accumulated other comprehensive income:
Unrealized gain on securities, available-for-sale, net of tax of $783 and $713 at March 31, 2016 and December 31, 2015 1,079 982
Total shareholders' equity 273,574 264,145
Total liabilities and shareholders' equity $ 2,683,350 $ 2,598,846

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
For the Quarter Ended
March 31, December 31, September 30, June 30, March 31,
2016 2015 2015 2015 2015
Unaudited historical quarterly operations data:
Interest income $ 27,321 $ 25,423 $ 24,380 $ 23,053 $ 21,846
Interest expense 3,442 3,105 2,783 2,486 2,482
Interest income before provision for credit losses 23,879 22,318 21,597 20,567 19,364
Provision for credit losses 800 300 500 500 500
Noninterest income 1,163 954 940 1,131 868
Noninterest expense 11,038 9,890 8,740 8,462 8,618
Income tax expense 5,361 5,518 5,396 5,147 4,424
Net income 7,843 7,563 7,901 7,589 6,690
Earnings per share
Basic $ 0.56 $ 0.55 $ 0.57 $ 0.55 $ 0.49
Diluted $ 0.56 $ 0.54 $ 0.57 $ 0.55 $ 0.48
Ratios for the period:
Return on average assets 1.21% 1.28% 1.42% 1.44% 1.28%
Return on beginning equity 11.94% 11.67% 12.55% 12.49% 11.54%
Net interest margin (Fully-taxable equivalent) 3.79% 3.88% 4.00% 4.01% 3.83%
Noninterest expense to average assets 1.70% 1.67% 1.58% 1.60% 1.65%
Efficiency ratio 44.08% 42.50% 38.78% 39.00% 42.60%
Net charge-offs (recoveries) to average loans (annualized) -0.04% 0.36% 0.05% 0.03% 0.02%
Ratios as of period end:
Tier 1 leverage capital ratio 10.29% 10.46% 11.47% 11.59% 11.26%
Common equity tier 1 risk-based capital ratio 10.74% 11.03% 11.80% 11.91% 12.10%
Tier 1 risk-based capital ratio (1) 10.74% 11.03% 11.80% 11.91% 12.10%
Total risk-based capital ratio (1) 11.70% 12.00% 12.93% 13.07% 13.30%
Allowances for credit losses to loans and leases at end of period (2) 1.10% 1.10% 1.31% 1.36% 1.40%
Allowance for credit losses to non-performing loans and leases 2346.18% 1140.29% 303.27% 299.06% 288.16%
Average balances:
Total loans and leases (3) $ 2,067,047 $ 1,876,544 $ 1,741,762 $ 1,673,710 $ 1,612,556
Earning assets $ 2,550,821 $ 2,297,154 $ 2,160,075 $ 2,070,542 $ 2,064,435
Total assets $ 2,605,907 $ 2,345,319 $ 2,201,060 $ 2,117,610 $ 2,115,354
Total deposits $ 2,291,764 $ 2,039,567 $ 1,907,719 $ 1,832,688 $ 1,834,920
(1) Risk-based capital ratios were calculated under BASEL III rules, which became effective on January 1, 2015. Ratios for the prior periods were calculated under Basel I rules.
(2) Loans held for sale are excluded
(3) Loans held for sale are included

PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
As of
March 31, December 31, September 30, June 30, March 31,
2016 2015 2015 2015 2015
Unaudited quarterly statement of financial position data:
Assets:
Cash and cash equivalents $ 293,547 $ 309,175 $ 232,707 $ 208,015 $ 242,053
Securities held-to-maturity, at amortized cost 5,550 5,830 6,307 6,806 7,139
Securities available-for-sale, at fair value 162,654 169,502 164,378 161,775 165,330
Loans and Leases:
Real estate - Single and multi-family residential $ 401,708 $ 415,003 $ 328,124 $ 290,186 $ 306,284
Real estate - Land for housing 14,838 14,408 14,429 13,102 11,658
Real estate - Land for income properties 1,816 1,795 1,876 1,891 1,906
Real estate - Commercial 924,913 861,317 770,494 712,383 676,034
Real estate - For sale housing construction 82,153 73,858 79,406 71,945 50,458
Real estate - Other construction 66,636 57,546 48,438 49,413 84,065
Commercial and industrial 626,599 596,887 555,680 570,408 502,453
Trade finance and other 39,323 38,578 38,602 40,403 38,234
Gross loans 2,157,986 2,059,392 1,837,049 1,749,731 1,671,092
Allowance for loan and lease losses (23,681) (22,658) (24,055) (23,758) (23,388)
Net deferred loan fees (3,065) (3,012) (2,476) (2,179) (2,216)
Total loans, net $ 2,131,240 $ 2,033,722 $ 1,810,518 $ 1,723,794 $ 1,645,488
Other real estate owned $ 4,112 $ 4,112 $ - $ - $ 8,811
Investment in affordable housing 25,499 16,052 16,589 17,059 17,529
Federal Home Loan Bank stock 6,965 7,162 6,677 6,677 6,155
Other assets 53,783 53,291 45,370 46,030 45,208
Total assets $ 2,683,350 $ 2,598,846 $ 2,282,546 $ 2,170,156 $ 2,137,713
Liabilities:
Deposits:
Demand $ 528,126 $ 558,906 $ 477,523 $ 519,501 $ 493,440
Interest-bearing demand 803,374 748,918 697,402 568,243 585,286
Savings 30,002 30,703 21,159 23,855 24,056
Time certificates of $250,000 or more 339,971 321,537 263,949 260,205 243,360
Other time certificates 656,386 626,495 527,602 510,394 510,809
Total deposits $ 2,357,859 $ 2,286,559 $ 1,987,635 $ 1,882,198 $ 1,856,950
Advances from Federal Home Loan Bank $ 26,601 $ 26,635 $ 20,000 $ 20,000 $ 20,000
Commitments to fund investment in affordable housing partnership 11,454 3,958 4,139 4,139 7,726
Other liabilities 13,862 17,549 13,590 13,954 9,299
Total liabilities $ 2,409,776 $ 2,334,701 $ 2,025,364 $ 1,920,291 $ 1,893,974
Equity:
Net common stock, no par value $ 185,780 $ 182,118 $ 180,310 $ 179,360 $ 177,978
Retained earnings 86,715 81,046 75,629 69,431 63,545
Accumulated other comprehensive income 1,079 982 1,243 1,074 2,216
Total shareholders' equity $ 273,574 $ 264,145 $ 257,182 $ 249,865 $ 243,739
Total liabilities and shareholders' equity $ 2,683,350 $ 2,598,846 $ 2,282,546 $ 2,170,156 $ 2,137,713

Preferred Bank
Loan and Credit Quality Information
Allowance For Credit Losses & Loss History
For the Quarter Ended Year Ended
March 31, 2016 December 31, 2015
(Dollars in 000's)
Allowance For Credit Losses
Balance at Beginning of Period $ 22,658 $ 22,974
Charge-Offs
Commercial & Industrial - 1,475
Mini-perm Real Estate - 1,793
Construction - Residential - -
Construction - Commercial - -
Land - Residential - -
Land - Commercial - -
Others - -
Total Charge-Offs - 3,268
Recoveries
Commercial & Industrial 196 131
Mini-perm Real Estate - 144
Construction - Residential - -
Construction - Commercial - 20
Land - Residential - 100
Land - Commercial 27 757
Total Recoveries 223 1,152
Net Loan Charge-Offs (223) 2,116
Provision for Credit Losses 800 1,800
Balance at End of Period $ 23,681 $ 22,658
Average Loans and Leases* $ 2,067,047 $ 1,731,871
Loans and Leases at end of Period* $ 2,157,986 $ 2,059,392
Net Charge-Offs to Average Loans and Leases -0.04% 0.12%
Allowances for credit losses to loans and leases at end of period ** 1.10% 1.10%
* Loans held for sale are included
** Loans held for sale are excluded


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