(Source: Business Wire)
Preferred Bank (NASDAQ: PFBC), an independent commercial bank focusing on the Chinese-American and diversified Southern California mainstream market, today reported preliminary results for the quarter ended March 31, 2009. Preferred Bank reported net income of $337,000 or $0.03 per diluted share for the quarter compared to net income of $3.4 million or $0.34 per diluted share for the first quarter of 2008 and compared to a net loss of $5.0 million or $0.51 per diluted share for the fourth quarter of 2008. Results for the quarter were negatively impacted by a provision for loan losses of $1.35 million, a provision for a decline in value of OREO of $2.3 million and a charge of $650,000 for credit-related other than temporary impairment ("OTTI") on investment securities. Results were positively impacted by a pre-tax gain on sale of $460,000 on the sale of investment securities. As a result of the Bank's early adoption of the three new Staff Positions relative to Statement 157 and the fact that these were released just last week, Management is still in the process of finalizing its analysis of the impact of these Staff Positions on the valuation of its investment securities.
Li Yu, Chairman, President & CEO commented, "I am pleased to report that our bank earned a small but very precious profit in the first quarter of 2009. Our capital ratios, liquidity ratios, net interest margin and expense control are all in line with our own expectations. We were, however disappointed with the increase in non-performing loans (NPL), and non-performing assets (NPA). The difficult credit market and distressed economy has caused several of our customers to abandon their development projects or choose to file for protection under bankruptcy laws.
"We are however, less pessimistic today than a few months ago with the following non conclusive but hope-providing indications:
More impaired loans are coming out of the foreclosure process or bankruptcy proceeding making them available to be disposed of in an orderly manner. There also seems to be more buying interest today than a few months ago.
Case/Schiller and local real estate organizations reported that housing prices in several markets of Los Angeles County are stabilizing.
Our construction loan customers are reporting increased escrow openings although there continues to be a very slow mortgage credit approval process.
Although we only saw a small decrease in loans that were 30-89 days past due, the pace of migration into this category slowed during the latter part of the first quarter.
There has been no noticeable deterioration in our commercial & industrial and our non-construction real estate loan portfolios at this time.
"Realizing these may just be head fakes', we will continue to conduct our business most prudently. During the ensuing quarters we will be completely dedicated to reducing our NPA's and NPL's."
Operating Results for the Quarter
Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses decreased to $9.7 million, compared to $14.8 million for the first quarter of 2008. The 35.0% decrease was due primarily to the lower interest rate environment as well as a significant increase in nonaccrual loans in 2009. The Company's taxable equivalent net interest margin was 2.88% for the first quarter of 2009, down from the 4.11% achieved in the first quarter of 2008 and down from the 3.31% for the fourth quarter of 2008.
Noninterest Income. For the first quarter of 2009 noninterest income was $1,278,000 compared with $782,000 for the same quarter last year and $2,401,000 for the fourth quarter of 2008. The increase in noninterest income this quarter compared to the first quarter of 2008 was due mainly to a gain on sale of investment securities of $460,000. The decrease in noninterest income in the first quarter of 2009 compared to the fourth quarter of 2008 was due to life insurance proceeds of $1.6 million received in the fourth quarter of 2008 in connection with the untimely passing of a former Preferred Bank executive.
Noninterest Expense. Total noninterest expense was $9.2 million for the first quarter of 2009, compared to $5.0 million for the same period in 2008 and $11.9 million for the fourth quarter of 2008. Salaries and benefits decreased by $510,000 from the first quarter of 2008 due primarily to a decrease in bonus expense which is based on overall profitability. Occupancy expense increased by $268,000 over the first quarter of 2008 due to the two new branches opened in the fourth quarter of 2008 located in Anaheim and Pico Rivera, California, normal lease expense increases as well as a retroactive increase in operating expense associated with our headquarters office. Professional services expense increased by $245,000 due primarily to an increase in legal costs associated with non-performing loans as well as higher audit fees. OTTI credit-related charges totaled $650,000 during the first quarter of 2009 and were related to two trust preferred collateralized debt obligations ("CDO's"), one corporate bond and FHLMC preferred stock. This compares to $0 in the same period of 2008 and $4.5 million in the fourth quarter of 2008. The Bank has elected to adopt in the first quarter of 2009 the three new Staff Positions which clarify the application of Statement 157 for fair value measurements in the current economic environment and modify the recognition of other-than-temporary-impairment of debt securities and require companies to disclose the fair value of financial instruments. OREO related expenses totaled $2,945,000 for the first quarter of 2009 compared to $44,000 in the same period last year and $2,040,000 in the fourth quarter of 2008. OREO expense in the first quarter of 2009 consisted of $2.3 million in OREO provision and other OREO related charges of $645,000. Other expenses were $1,338,000 in the first quarter of 2009, an increase of $628,000 over the same period in 2008 and an increase of $118,000 over the fourth quarter of 2008. The variances were due mainly to loan collection expenses.
Balance Sheet Summary
Total gross loans and leases at March 31, 2009 were $1.19 billion, down slightly from the $1.23 billion as of December 31, 2008. Commercial real estate loans were down from $592.7 million as of December 31, 2008 to $580.6 million at March 31, 2009 while construction loans increased slightly from $290.8 million at December 31, 2008 to $296.5 million and commercial & industrial and international loans decreased from $347.7 million at December 31, 2008 to $314.1 million at March 31, 2009.
Total deposits as of March 31, 2009 were $1.205 billion, a decrease of $52.0 million or 4.1% from the $1.257 billion at December 31, 2008. As of March 31, 2009 compared to December 31, 2008; noninterest-bearing demand deposits decreased by $0.8 million or 0.4%, interest-bearing demand and savings deposits decreased by $17.9 million or 9.4% and time deposits decreased by $33.3 million or 3.8%. Total assets were $1.44 billion, a $48.2 million or 3.3% decrease from the total of $1.48 billion as of December 31, 2008. Total borrowings increased from $58 million as of December 31, 2008 to $84 million as of March 31, 2009 as the Bank issued $26.0 million in senior unsecured debt utilizing the U.S. Treasury's Temporary Liquidity Guarantee Program. The proceeds of this debt issuance have been used to reduce the Bank's more expensive deposits. The net loan-to-deposit ratio as of March 31, 2009 was 96.5% compared to 95.8% as of December 31, 2008.
Asset Quality
As of March 31, 2009 total nonaccrual loans were $85.8 million compared to $66.6 million as of December 31, 2008 and $36.2 million as of March 31, 2008. Total net charge-offs for the first quarter of 2009 were $268,000 compared to $2.9 million for the fourth quarter of 2008. Based on a detailed analysis of all impaired and classified loans, as well as an analysis of other qualitative factors, the Bank recorded a provision for loan losses of $1.35 million as compared to $14.6 million in the fourth quarter of 2008 and $5.1 million for the first quarter of 2008. The allowance for loan loss at March 31, 2009 was $28.0 million or 2.35% of total loans compared to $26.9 million or 2.19% of total loans at December 31, 2008 and compared to $20.0 million and 1.62%, respectively at March 31, 2008.
Non accrual loans as of March 31, 2009 and December 31, 2008 were comprised of the following:
Loan Type March 31, 2009 December 31, 2008 # $ # $ Commercial & Industrial 6 $ 7,233,000 4 $ 6,337,000 Commercial Real Estate 5 10,916,000 7 14,289,000 Construction-Commercial 1 3,961,000 1 3,961,000 Construction-For-Sale Housing 6 37,337,000 5 27,251,000 Land-residential 3 17,229,000 3 14,750,000 Land-commercial 3 9,156,000 - - Total 24 $ 85,832,000 20 $ 66,588,000 -------------------------------------------------------------------------------
Loans Past Due 30-89 Days
Loans 30-89 days past due at March 31,2009 were $49.7 million which was a slight decrease from the total of $51.4 million as of December 31, 2008. Although the Bank anticipated a significant reduction in this category of past due loans from the December 31, 2008 levels, a number of loan extensions and renewals could not be completed in time prior to March 31, 2009. Since March 31, 2009, approximately $17 million of loans that were 30-89 days past due as of March 31, 2009 have been renewed or extended to date. The Bank expects another $15 - $20 million of loans in this category to be resolved in the next three weeks.
