Preferred Bank Reports First Quarter Results

LOS ANGELES, April 20, 2015 (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, 2015. Preferred Bank ("the Bank") reported net income of $6.7 million or $0.48 per diluted share for the first quarter of 2015. This compares to net income of $5.2 million or $0.38 per diluted share for the first quarter of 2014 and compares to net income of $6.9 million or $0.50 per diluted share for the fourth quarter of 2014.

Highlights from the first quarter of 2015:

• Linked quarter deposit growth was $80.7 million
• Linked quarter loan growth was $66.9 million
• ROA was 1.28%
• ROBE was 11.54%
• Efficiency ratio was 42.6%

Li Yu, Chairman and CEO commented, "Our net income for the first quarter of 2015 was $6.7 million or $0.48 per fully diluted share as compared to $5.2 million or $0.38 per share for the first quarter of 2014. This represents an increase of 26.0%.

During the quarter, total deposits continued to grow. As of March 31, 2015 total deposits were $1.857 billion compared to $1.776 billion as of December 31, 2014. This represents link quarter growth of 4.5%. Much to our delight, more than all of the growth is in demand deposits as CD's declined slightly.

For the quarter, loans grew $66.9 million or 4.2% over the total as of December 31, 2014. Nearly all of the new loan originations occurred in March which meant that we did not receive the full benefit of the earnings associated with the new loans during the quarter. Deposit growth however, occurred consistently during the quarter, and when these two growth patterns emerge this way, the net interest margin comes under pressure as our cash balances build up and those cash balances only earn the fed funds rate. In addition, reflecting current market trends, the yields on new loans are slightly less than the yield on our current portfolio, which also negatively affected the net interest margin. For the quarter the net interest margin came in at 3.83%, a reduction of 15 basis points from the fourth quarter 2014. Most importantly however, net interest income increased and was at the level we expected.

In February the Bank distributed annual cash bonuses to employees which resulted in unusually large employer-paid payroll tax expense. We estimated this expense will be reduced by $300,000 in the next quarter. Also during the quarter, we opened a full service branch in the San Fernando Valley of Los Angeles. The San Fernando Valley is home to a large number of small businesses and is one of the larger parts of the Los Angeles area in which Preferred Bank had very little presence. Nearly all personnel for this branch had been hired prior to this quarter or at the start of the quarter so we did incur some recruiting and related expenses during this quarter.

For the quarter, our efficiency ratio was 42.6%.

In March, we announced a 20% increase in our quarterly dividend to $0.12 per share payable on April 21, 2015.

The Bank continues to maintain a loan portfolio of 89% floating rate loans. We are patiently awaiting for the Federal Reserve to begin raising short-term interest rates."

Operating Results

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses was $19.4 million compared to $16.5 million recorded in the first quarter of 2014 and flat compared to the $19.4 million recorded in the fourth quarter of 2014. The increase over the first quarter of 2014 is due primarily to loan growth. The Bank's taxable equivalent net interest margin was 3.83% for the first quarter of 2015, a 15 basis point decrease from the 3.98% achieved in the fourth quarter of 2014 and a 4 basis point decrease from the 3.87% recorded in the first quarter of 2014. The decrease in the margin from both the first and fourth quarters of 2014 was primarily due to average cash balances which were $32 million higher in the first quarter of 2015 versus the first quarter of 2014 and $73 million higher than the fourth quarter of 2014. These cash balances only earn 0.25% so the level of cash on the balance sheet has a significant impact on the calculated margin. Average yields on total loans were 5 basis points lower in the first quarter of 2015 than the fourth quarter of 2014 which also contributed to the margin compression.

Noninterest Income. For the first quarter of 2015, noninterest income was $868,000 compared with $1,028,000 for the same quarter last year and compared to $751,000 for the fourth quarter of 2014. Service charges on deposits were down compared to the same period last year due to the loss of a few key customers who were heavy cash management users. It should be noted however that these customers also required the Bank to incur certain costs on their behalf so the net economic impact to the Bank was negligible. In comparing to the fourth quarter of 2014, service charges were down slightly but Trade Finance income was higher by $105,000 as letter of credit fees increased and other income was slightly higher as well.

Noninterest Expense.Total noninterest expense was $8.6 million for the first quarter of 2015, up by $786,000 over the $7.8 million recorded in the same quarter last year and a $497,000 increase over the $8.1 million recorded in the fourth quarter of 2014. Salaries and benefits expense totaled $5.3 million for the first quarter of 2015 compared to $4.7 million for the same period last year and compared to $5.1 million for the fourth quarter of 2014. The increase over the first quarter of 2014 was due mainly to staffing increases and the increase over the prior quarter was mainly due to employer-paid payroll taxes on annual bonuses paid out during the quarter. Occupancy expense was $851,000 compared to the $801,000 recorded in the same period in 2014 and $773,000 recorded in the fourth quarter of 2014. The increase over both periods was due primarily to the new San Fernando Valley branch expenses and normal cost increases. Professional services expense was $1,083,000 for the first quarter of 2015 compared to $761,000 for the same quarter of 2014 and $966,000 recorded in the fourth quarter of 2014. The increase over the prior year was primarily due to legal expense as a number of legacy cases from the recession continue, however these cases are slowly being resolved. Other expenses were $920,000 in the first quarter of 2015, down from the $1.2 million recorded in the same period in 2014 but up slightly over the $867,000 recorded in the fourth quarter of 2014.

Income Taxes

The Bank recorded a provision for income taxes of $4.4 million for the first quarter of 2015. This represents an effective tax rate ("ETR") of 39.8% for the quarter. This is down slightly from the ETR of 40.3% for the fourth quarter of 2014. This small decrease is due to the Bank's profitability in 2015 relative to tax exempt income and deductible items.

Balance Sheet Summary

Total gross loans and leases (including loans held for sale) at March 31, 2015 were $1.67 billion, an increase of $66.9 million or 4.2% over the total of $1.60 billion as of December 31, 2014. The tables below indicate loans by type as of March 31, 2015 as compared to the end of 2014:

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

Total deposits as of March 31, 2015 were $1.86 billion, an increase of $80.7 million from the $1.78 billion at December 31, 2014.  As of March 31, 2015 compared to December 31, 2014; noninterest-bearing demand deposits increased by $50.0 million or 11.3%, interest-bearing demand and savings deposits increased by $61.4 million or 11.2% and time deposits decreased by $30.7 million or 3.9%.  Total assets were $2.14 billion, a $85.3 million or 4.2% increase from the total of $2.05 billion as of December 31, 2014.

Asset Quality

As of March 31, 2015 nonaccrual loans totaled $8.1 million, unchanged compared to December 31, 2014.  Total net charge-offs for the first quarter of 2015 were $86,000 compared to $188,000 for the fourth quarter of 2014. The Bank recorded a provision for loan losses of $500,000 for the first quarter of 2015. 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 a $1.25 million provision recorded in the same quarter last year and to the $500,000 provision recorded in the fourth quarter of 2014.  The allowance for loan loss at March 31, 2015 was $23.4 million or 1.40% of total loans compared to $23.0 million or 1.43% of total loans at December 31, 2014.

OREO

Total OREO was unchanged from December 31, 2014 to March 31, 2015 at $8.8 million. This consists of one retail property which is currently in escrow to be sold at a price which approximates book value and is expected to close in the second quarter of 2015.

Capitalization

As of March 31, 2015, the Bank's tier 1 leverage ratio was 11.36%, the tier 1 risk based capital ratio was 12.10% and the total risk-based capital ratio was 13.28%. This compares to 11.73%, 12.72% and 13.97% as of December 31, 2014, respectively.  

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank's first quarter 2015 financial results will be held tomorrow, April 21, 2015 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 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 877-344-7529 (domestic) or 412-317-0088 (international) through April 28, 2015; the passcode is 10064185.

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 Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Anaheim, Pico Rivera, Tarzana 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 2014 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

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