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Preferred Bank Reports Preliminary First Quarter Results

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LOS ANGELES, April 17, 2013 (GLOBE NEWSWIRE) -- Preferred Bank (Nasdaq:PFBC), an independent commercial bank focusing on the Chinese-American and diversified California mainstream market, today reported preliminary results for the quarter ended March 31, 2013. Preferred Bank ("the Bank") reported net income of $4.0 million or $0.30 per diluted share for the first quarter of 2013. This compares to net income of $21.7 million or $1.62 per diluted share for the first quarter of 2012 and compares to net income of $4.9 million or $0.37 per diluted share for the fourth quarter of 2012. Net income for the first quarter of 2012 was aided by the $19.8 million reversal of the Bank's valuation allowance on its deferred tax asset ("DTA") and earnings for the fourth quarter of 2012 were aided by a small reversal of certain tax items which increased net income by $416,000 for that quarter. Pre-tax income on a year over year basis increased from $3.0 million in the first quarter of 2012 to $6.7 million in the first quarter of 2013, an increase of 126%. Pre-tax income on a sequential quarter basis increased by $2.2 million or 48.5%.

  • Highlights from the first quarter of 2013 include:
  • Linked quarter loan growth of $41.1 million or 3.6%
  • OREO declined by $8.4 million or 29.7% from December 31, 2012
  • Nonperforming loans excluding loans held for sale declined by $2.4 million or 12.6% from December 31, 2012
  • Net interest margin expanded from 3.91% to 4.03% linked quarter
  • Linked quarter deposit growth of $26.5 million or 2.0%

Li Yu, Chairman and CEO commented, "We are very pleased to report that for the first quarter of 2013, the Bank earned $4.0 million or $0.30 per diluted share, a marked improvement from the same quarter last year after stripping out the DTA allowance reversal in that period. Operating results were better than we previously expected."

"Loan totals continued to grow at a healthy annualized pace of 14.7% for the quarter which was achieved despite substantial payoffs during the quarter. Our total deposits also increased by 7.8% on an annualized basis from year end 2012. We must point out that we voluntarily reduced approximately $60 million of DDA deposits which would have required government securities as collateral, as a result of the termination of the Transaction Account Guarantee ("TAG") program effective on January 1, 2013."

"For the quarter, we were able to maintain our net interest margin in the midst of downward loan pricing pressure. With continued deployment of idle cash and a slight decrease in our cost of funds, our actual margin was 4.03% for the quarter, or 12 basis points higher than the previous quarter."

"Asset quality continues to improve. As of March 31, 2013, OREO totaled $19.9 million or nearly 1/3 less than our total at December 31, 2012. Total nonaccrual loans, excluding loans held for sale amounted to $16.6 million as of March 31, 2013, a $2.4 million or a 12.6% reduction from December 31, 2012."

"We look forward to further improvements in our operations in the ensuing quarters."

Operating Results

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses increased to $14.7 million from the $13.0 million recorded in the first quarter of 2012 and an increase from $14.2 million for the fourth quarter of 2012. The increase over 2012 is due primarily to the loan growth achieved during the latter part of 2012 and the first quarter of 2013. The Bank's taxable equivalent net interest margin was 4.03% for the first quarter of 2013, a 3 basis point decrease from the 4.06% achieved in the first quarter of 2012 but was a 12 basis point increase from the 3.91% recorded in the fourth quarter of 2012.

Noninterest Income. For the first quarter of 2013, noninterest income was $858,000 compared with $618,000 for the same quarter last year and compared to $749,000 for the fourth quarter of 2012. Driving this increase were service charges on deposits and trade finance income, which both increased in the first quarter of 2012 compared to the first quarter of 2012 and compared to the fourth quarter of 2012.

Noninterest Expense.Total noninterest expense was $8.8 million for the first quarter of 2013, compared to $8.9 million for the same period last year and $8.2 million for the fourth quarter of 2012. Salaries and benefits expense increased by $811,000 over the first quarter of 2012 and by $957,000 over the fourth quarter of 2012. The increase over the first quarter of 2012 was due to higher bonus expense as well as higher staffing levels and the increase over the fourth quarter of 2012 was primarily due to an increase in bonus and stock option expense. Occupancy expense was $768,000 compared to the $752,000 recorded in the same period in 2012 and $753,000 recorded in the fourth quarter of 2012. Professional services expense was $889,000 for the first quarter of 2013 compared to $590,000 for the same quarter of 2012 and the $1.0 million posted in the fourth quarter of 2012. The increase over the first quarter of 2012 was due primarily to an increase in legal fees and other consulting fees. OREO-related expenses totaled $1.4 million for the first quarter of 2013 (consisting of $1.6 million in valuation charges, operating expenses of $69,000 partially offset by net gains on sale of OREO of $297,000). This represented a decrease from the $2.0 million recorded in the same quarter last year and a decrease from the $1.7 million posted in the fourth quarter of 2012. Other expenses were $1.1 million in the first quarter of 2013, a decrease of $565,000 from the same period in 2012 but an increase of $140,000 over the fourth quarter of 2012. The variance compared to the same period last year was primarily due to a decrease in FDIC premiums of $295,000.

Balance Sheet Summary

Total gross loans and leases (including loans held for sale) at March 31, 2013 were $1.17 billion, up from $1.13 million as of December 31, 2012. Comparing balances as of March 31, 2013 to December 31, 2012 excluding loans held for sale: Residential real estate loans increased from $152.4 million to $156.6 million; total land loans decreased from $27.2 million to $24.7 million; commercial real estate loans increased from $493.1 million to $502.6 million; for-sale housing construction loans decreased from $36.3 million to $31.3 million; other construction loans increased from $38.1 million to $39.4 million and total commercial loans increased from $372.5 million to $402.5 million.

Total deposits as of March 31, 2013 were $1.38 billion, an increase of $26.5 million from the $1.36 billion at December 31, 2012 and a significant increase over the total of $1.18 billion as of March 31, 2012. In the early part of January, the Bank elected to reduce DDA deposits by approximately $60 million which would have required collateral of government securities to maintain. As of March 31, 2013 compared to December 31, 2012; noninterest-bearing demand deposits decreased by $37.5 million or 8.4%, interest-bearing demand and savings deposits increased by $12.6 million or 3.6% and time deposits increased by $51.3 million or 9.1%. Total assets were $1.59 billion, a $32.2 million or 2.1% increase from the total of $1.55 billion as of December 31, 2012.

Asset Quality

As of March 31, 2013 total nonaccrual loans (excluding loans held for sale) decreased to $16.6 million compared to $19.0 million as of December 31, 2012. Total net charge-offs for the first quarter of 2013 were $373,000 compared to net charge-offs of $3.3 million for the fourth quarter of 2012. Included in the net charge-offs for the first quarter of 2013 were total recoveries of $2.1 million, $2.0 million being from one loan. Based on a detailed analysis of all impaired and classified loans, as well as an analysis of other qualitative factors, the Bank did not record a provision for loan losses for the first quarter of 2013. This compares to a provision of $1.8 million in the first quarter of 2012 and a provision of $2.3 million in the fourth quarter of 2012. The allowance for loan loss at March 31, 2013 was $20.2 million or 1.75% of total loans compared to $20.6 million or 1.84% of total loans at December 31, 2012.

NPA Migration

Non-Performing Assets Migration – Q1 2013


Non Accrual Loans

OREO
Balance, December 31, 2012 $ 18,995 $ 28,280
Additions 2,240 --
Transfer to OREO -- --
Loans Cured -- --
Sales/Payoffs (2,131) (6,815)
Charge-off (2,496) (1,591)
Balance, March 31, 2013 $ 16,608 $ 19,874

The table above excludes loans held for sale and excludes TDRs that are on accrual status. Performing TDRs totaled $725,000 as of March 31, 2013. The $15.7 million in loans held for sale consist of one performing CRE loan for $5.0 million and two nonaccrual loans for $10.7 million. Of the $10.7 million on nonaccrual, $7.1 million is paying as agreed.

Real Estate Owned

Total OREO decreased to $19.9 million compared to $28.3 million as of December 31, 2012. During the first quarter of 2013, the Bank sold four OREO properties with an aggregate book value of $6.8 million.

Asset Quality Table – March 31, 2013

($ in thousands) 30-89 Days Nonaccrual OREO
# $ # $ # $
Land-Residential -- $ -- -- $ -- 9 $ 12,419
Land Commercial -- -- -- -- 1 2,251
Construction:
Residential -- -- 1 5,601 1 3,051
Commercial -- -- -- -- -- --
RE-Housing for sale -- -- -- -- -- --
CRE-Commercial -- -- 2 2,379 1 2,153
C&I/Trade Finance 1 121 11 8,628 -- --
Totals 1 $ 121 14 $ 16,608 12 $ 19,874


Asset Quality Table – December 31, 2012

($ in thousands) 30-89 Days Nonaccrual OREO
# $ # $ # $
Land-Residential -- $ -- -- $ -- 11 $ 15,128
Land Commercial -- -- -- -- 3 7,828
Construction:
Residential 1 5,400 1 5,544 1 3,051
Commercial -- -- -- -- -- --
RE-Housing for sale -- -- 1 727 -- --
CRE-Commercial 2 5,382 2 1,265 1 2,273
C&I/Trade Finance 2 376 10 11,459 -- --
Totals 5 $ 11,158 14 $ 18,995 16 $ 28,280


Capitalization

As of March 31, 2013, the Bank's tier 1 leverage ratio was 11.99% and total risk-based capital ratio was 14.89%. This compares to 11.96% and 14.98% as of December 31, 2012, respectively. Pursuant to the Memorandum of Understanding (MOU) entered into on May 25, 2012, the Bank is required to maintain the following capital ratio:


Ratio

Preferred Bank at 3/31/13

MOU Requirement
Tier 1 Leverage Ratio 11.99% 10.0%


Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank's first quarter 2013 financial results will be held tomorrow, April 18, at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 877-941-9205 (domestic) or 480-629-9771 (international). The passcode for the call is 4614092. 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 25, 2013; the passcode is 4614092.

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 Bank 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. Preferred Bank continues to benefit from the significant migration to 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 California by offering a high degree of personal service and responsiveness, experienced multi-lingual staff and substantial lending limits.

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 2012 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,
2013 2012 2012
Interest income:
Loans, including fees $ 14,939 $ 14,504 $ 13,507
Investment securities 1,550 1,496 1,684
Fed funds sold -- 10 --
Total interest income 16,489 16,010 15,191
Interest expense:
Interest-bearing demand 531 489 408
Savings 21 20 19
Time certificates 1,277 1,297 1,676
Senior debt -- -- 94
Total interest expense 1,829 1,806 2,197
Net interest income 14,660 14,204 12,994
Provision for loan losses -- 2,300 1,800
Net interest income after provision for loan losses 14,660 11,904 11,194
Noninterest income:
Fees & service charges on deposit accounts 548 480 434
Trade finance income 207 87 70
BOLI income 82 83 82
Net gain on sale of investment securities -- 21 4
Other income 21 78 28
Total noninterest income 858 749 618
Noninterest expense:
Salary and employee benefits 4,273 3,316 3,462
Net occupancy expense 768 753 752
Business development and promotion expense 96 104 53
Professional services 889 1,003 590
Office supplies and equipment expense 307 281 263
Total other-than-temporary impairment losses 4 -- 16
Other real estate owned related expense 1,364 1,696 2,014
Other 1,141 1,001 1,706
Total noninterest expense 8,841 8,154 8,856
Income before provision for income taxes 6,676 4,499 2,956
Income tax expense (benefit) 2,646 (416) (18,783)
Net income $ 4,030 $ 4,915 $ 21,739
Income allocated to participating securities (51) (63) (327)
Net income available to common shareholders $ 3,979 $ 4,852 $ 21,412
Income per share available to common shareholders
Basic $ 0.30 $ 0.37 $ 1.64
Diluted $ 0.30 $ 0.37 $ 1.62
Weighted-average common shares outstanding
Basic 13,071,223 13,065,227 13,024,068
Diluted 13,322,083 13,291,592 13,223,098
PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
March 31, December 31,
2013 2012
Assets
Cash and due from banks $ 158,657 $ 151,995
Cash and cash equivalents 158,657 151,995
Securities held to maturity, at amortized cost 979 979
Securities available-for-sale, at fair value 204,463 210,742
Loans and leases 1,157,120 1,119,553
Less allowance for loan and lease losses (20,234) (20,607)
Less net deferred loan fees (2,175) (2,019)
Net loans and leases 1,134,711 1,096,927
Loans held for sale, at lower of cost or fair value 15,670 12,150
Other real estate owned 19,874 28,280
Customers' liability on acceptances 2,347 1,961
Bank furniture and fixtures, net 4,519 4,383
Bank-owned life insurance 8,109 8,049
Accrued interest receivable 5,324 5,646
Federal Home Loan Bank stock 4,282 4,282
Deferred tax assets 27,038 26,975
Other asset 1,757 2,487
Total assets $ 1,587,730 $ 1,554,856
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand $ 409,253 $ 446,734
Interest-bearing demand 337,523 325,018
Savings 21,953 21,844
Time certificates of $250,000 or more 204,212 208,005
Other time certificates 411,058 355,926
Total deposits $ 1,383,999 $ 1,357,527
Acceptances outstanding 2,347 1,961
Senior debt issuance -- --
Accrued interest payable 956 968
Other liabilities 8,158 6,562
Total liabilities 1,395,460 1,367,018
Commitments and contingencies
Shareholders' equity:
Preferred stock. Authorized 25,000,000 shares; no issued and outstanding shares at March 31, 2013 and December 31, 2012
Common stock, no par value. Authorized 20,000,000 shares; issued and outstanding 13,247,301 and 13,234,608 shares at March 31, 2013 and December 31, 2012, respectively 163,035 162,927
Treasury stock (19,115) (19,115)
Additional paid-in-capital 24,925 24,544
Accumulated income 21,511 17,481
Accumulated other comprehensive income (loss): --
Non-credit portion of loss recognized, net of tax of $98 and $133 at March 31, 2013 and December 31, 2012, respectively (135) (184)
Unrealized loss on securities, available-for-sale, net of tax of $1,486 and $1,585 at March 31, 2013 and December 31, 2012 2,049 2,185
Total shareholders' equity 192,270 187,838
Total liabilities and shareholders' equity $ 1,587,730 $ 1,554,856
PREFERRED BANK
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
For the Three Months Ended
March 31, December 31, September 30, March 31,
2013 2012 2012 2012
For the period:
Return on average assets 1.06% 1.29% 0.79% 6.53%
Return on average equity 8.57% 10.00% 6.31% 53.66%
Net interest margin (Fully-taxable equivalent) 4.03% 3.91% 3.88% 4.06%
Noninterest expense to average assets 2.32% 2.14% 2.55% 2.66%
Efficiency ratio 56.98% 54.53% 65.29% 65.06%
Net charge-offs (recoveries) to average loans (annualized) 0.13% 1.20% 0.57% 1.07%
Period end:
Tier 1 leverage capital ratio 11.99% 11.96% 12.19% 15.81%
Tier 1 risk-based capital ratio 13.64% 13.73% 14.08% 14.55%
Total risk-based capital ratio 14.89% 14.98% 15.33% 12.69%
Allowances for credit losses to loans and leases at end of period ** 1.75% 1.84% 2.03% 2.32%
Allowance for credit losses to non-performing loans and leases 74.13% 78.82% 66.60% 71.37%
Average balances:
Total loans and leases* $ 1,139,317 $ 1,089,719 $ 1,014,022 $ 972,413
Earning assets $ 1,487,813 $ 1,456,965 $ 1,379,218 $ 1,294,634
Total assets $ 1,545,388 $ 1,518,085 $ 1,443,942 $ 1,339,737
Total deposits $ 1,344,977 $ 1,312,027 $ 1,255,464 $ 1,156,164
Period end:
Loans and Leases:
Real estate - Single and multi-family residential $ 156,613 $ 152,388 $ 147,586 $ 136,100
Real estate - Land for housing 23,091 25,560 22,827 23,327
Real estate - Land for income properties 1,581 1,598 1,608 15,771
Real estate - Commercial 502,589 493,101 476,961 440,826
Real estate - For sale housing construction 31,341 36,347 40,245 40,720
Real estate - Other construction 39,366 38,063 25,547 22,702
Commercial and industrial 349,615 324,753 301,812 255,733
Trade finance and other 52,924 47,743 48,622 53,914
Gross loans 1,157,120 1,119,553 1,065,208 989,093
Allowance for loan and lease losses (20,234) (20,607) (21,601) (22,925)
Net deferred loan fees (2,175) (2,019) (1,695) (1,234)
Loans excluding loans held for sale 1,134,711 1,096,927 1,041,912 964,934
Loans held for sale 15,670 12,150 9,573 3,707
Total loans, net $ 1,150,381 $ 1,109,077 $ 1,051,485 $ 968,641
Deposits:
Noninterest-bearing demand $ 409,253 $ 446,734 $ 406,771 $ 327,141
Interest-bearing demand and savings 359,476 346,862 310,550 267,745
Total core deposits 768,729 793,596 717,321 594,886
Time deposits 615,270 563,931 574,589 581,294
Total deposits $ 1,383,999 $ 1,357,527 $ 1,291,910 $ 1,176,180
* 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, 2013 December 31, 2012
(Dollars in 000's)
Allowance For Credit Losses
Balance at Beginning of Period $ 20,607 $ 23,718
Charge-Offs
Commercial & Industrial 2,464 10,525
Mini-perm Real Estate 18 3,903
Construction - Residential 36 --
Construction - Commercial -- 2,185
Land - Residential -- 592
Land - Commercial -- 6,276
Others -- --
Total Charge-Offs 2,518 23,481
Recoveries
Commercial & Industrial -- 63
Mini-perm Real Estate 16 296
Construction - Residential 1,951 2
Construction - Commercial 163 145
Land - Residential 15 57
Land - Commercial -- 7
Total Recoveries 2,145 570
Net Loan Charge-Offs 373 22,911
Provision for Credit Losses -- 19,800
Balance at End of Period $ 20,234 $ 20,607
Average Loans and Leases* $ 1,139,317 $ 1,018,366
Loans and Leases at end of Period* $ 1,157,120 $ 1,119,553
Net Charge-Offs to Average Loans and Leases 0.13% 2.25%
Allowances for credit losses to loans and leases at end of period ** 1.75% 1.84%
* 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 McNally General Information (310) 663-8007 kmcnally@finprofiles.com

Source:Preferred Bank