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, 2016			December 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

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