Preferred Bank Reports Fourth Quarter And Year End Results

LOS ANGELES, Jan. 21, 2016 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ:PFBC), an independent commercial bank, today reported results for the quarter and year ended December 31, 2015.

The comparability of financial information for the fourth quarter and full year of 2015 to 2014, is affected by the acquisition of United International Bank (“UIB”) which was effective November 20, 2015. Operating results for fourth quarter and full year 2015 include the combined operations of both entities from November 21, 2015.

Preferred Bank (“the Bank”) reported net income of $7.5 million or $0.54 per diluted share for the fourth quarter of 2015. This compares to net income of $6.9 million or $0.50 per diluted share for the fourth quarter of 2014 and compares to net income of $7.9 million or $0.57 per diluted share for the third 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. Excluding these costs, after-tax income would have been $8.1 million or $0.57 per share.

Highlights from the fourth quarter of 2015:

Li Yu, Chairman and CEO commented, “For the year ended December 31, 2015, Preferred Bank earned net income of $29.7 million, which is a 20.8% increase from 2014 net income of $24.6 million. Diluted earnings per share were $2.13 as compared to $1.78 for 2014. Net income for the fourth quarter was $7.5 million or $0.54 per share. During the quarter, we closed the acquisition of United International Bank of New York. Costs related to the acquisition and integration were $658,000 for the quarter.

“The acquisition increased our deposits and loans by $158.0 million and $149.2 million, respectively. Organic loan growth for the year was 19.1% and organic deposit growth for the year was 20.0% for 2015. Likewise, excluding the acquisition, loans and deposits grew organically at 4.0% and 7.2%, respectively, measured on a linked-quarter basis.

“During the quarter, total nonperforming assets declined to $6.4 million. The reduction was largely the result of moving a nonperforming loan to OREO status and the related charge-off of the previously allocated allowance.

“The New York acquisition provides our Bank with an entrance into a very vibrant new market and the deployment of some excess capital. Other highlights of the quarter and the year include the following:

• Continued success in overhead control and efficiency ratio improvement
• Further diversification of the loan portfolio
• Substantial growth in core deposits
• Slightly expanded net interest margin year over year in a very competitive market

“As our Bank’s loan portfolio is approximately 90% floating rate, we should continue to benefit from any future rate increases in 2016. We remain very positive on all aspects of the Bank’s operations.”

Quarterly Results
Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses was $22.3 million for the fourth quarter of 2015. This compares favorably to the $19.4 million recorded in the fourth quarter of 2014 and to the $21.6 million recorded in the third quarter of 2015. The increase over both comparable periods is due primarily to loan growth, and was aided by the UIB acquisition on November 20, 2015. The Bank’s taxable equivalent net interest margin was 3.88% for the fourth quarter of 2015, a 12 basis point decrease from the 4.00% achieved in the third quarter of 2015 and a 10 basis point decrease from the 3.98% recorded in the fourth quarter of 2014. The margin for the third quarter of 2015 was aided by a $1.0 million interest recovery.

Noninterest Income. For the fourth quarter of 2015, noninterest income was $953,000 compared with $751,000 for the same quarter last year and compared to $940,000 for the third quarter of 2015. Service charges on deposits were down $81,000 compared to the same period last year and down $36,000 compared to the third quarter of 2015. Trade finance income was $453,000 for the fourth quarter of 2015, an increase of $251,000 compared to the same period last year and an increase of $73,000 compared to the third quarter of 2015. This was primarily due to higher deal volume. Other income was $162,000, an increase of $31,000 over the fourth quarter of 2014 and a decrease of $23,000 from the third quarter of 2015.

Noninterest Expense. Total noninterest expense was $9.9 million for the fourth quarter of 2015, an increase of $1.8 million over the same period last year and an increase of $1.2 million over the third quarter of 2015. Salaries and benefits expense totaled $5.3 million for the fourth quarter of 2015 compared to $5.1 million for the same period last year and compared to $4.9 million for the third quarter of 2015. The increase over both comparable periods was due mainly to staffing increases as well as the addition of UIB. Occupancy expense totaled $1.0 million compared to the $773,000 recorded in the same period in 2014 and the $908,000 recorded in the third quarter of 2015. The increase over the prior year was due to the addition of the New York office with the UIB acquisition as well as the new Tarzana Valley branch which opened in early 2015. Professional services expense was $1.4 million for the fourth quarter of 2015 compared to $966,000 for the same quarter of 2014 and $1.3 million recorded in the third quarter of 2015. Other expenses were $1.6 million for the fourth quarter of 2015, of which $658,000 were acquisition-related charges. Excluding these, other expenses were $957,000, up from the $867,000 recorded in the same period in 2014. Total other expense in the third quarter of 2015 was $1,269,000, of which $415,000 was acquisition-related resulting in an adjusted other expense total of $854,000.

Income Taxes

The Bank recorded a provision for income taxes of $5.5 million for the fourth quarter of 2015. This represents an effective tax rate (“ETR”) of 42.3% for the quarter. This is up from the ETR of 40.6% for the third quarter of 2015. This increase is due to purchase accounting related to the acquisition of UIB during the period, as well as the Bank’s growing profitability in 2015 relative to tax exempt income and deductible items.

Annual Results
Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses increased to $83.8 million compared to $71.0 million for 2014. This is primarily due to growth in the loan portfolio over the course of 2015 and to a lesser extent, the UIB acquisition. Interest income grew by $14.4 million or 17.9% while interest expense increased by just $1.5 million or 16.2%. The Bank’s taxable equivalent net interest margin was 3.92% for 2015, up 3 basis points from the 3.89% level posted in 2014.

Noninterest Income. Noninterest income reached $3.9 million in 2015, an increase of $271,000 over the $3.6 million recorded in 2014. This was due to an increase in Trade Finance income of $526,000 partially offset by a decrease in service charges of $354,000. Other income increased from $652,000 in 2014 to $744,000 in 2015.

Noninterest Expense. Total noninterest expense was $35.7 million in 2015, an increase of $5.3 million over the $30.4 million posted in 2014. Most of the increase in noninterest expense was in personnel expense as that increased from $17.9 million in 2014 to $21.0 million in 2015, a $3.1 million or 17.0% increase. Most of the increase is due to increased staffing levels over 2014 levels but also due to the UIB acquisition. Occupancy expense was $3.7 million, up from the $3.2 million recorded in 2014. This was mainly due to the new Tarzana Branch office as well as the acquisition of UIB. Professional services expense totaled $5.0 million for 2015 compared to $4.1 million in 2014. This increase was mainly due to an increase in legal fees associated with mostly legacy cases. Net gain/loss on OREO was a net gain of $480,000 in 2015, down from a net gain $1.1 million in 2014. Other expenses were $4.9 million in 2015, a $238,000 increase from the $4.6 million recorded in 2014.

Balance Sheet Summary

Total gross loans and leases at December 31, 2015 were $2.06 billion, an increase of $455.8 million or 28.4% over the total of $1.60 billion as of December 31, 2014. Of that total growth, $149.2 million is attributable to the acquisition of UIB. The tables below indicate loans by type as of December 31, 2015 as compared to the end of 2014:

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

Total deposits as of December 31, 2015 were $2.29 billion, an increase of $512.9 million from the $1.78 billion at December 31, 2014. Of that increase, $158.0 million is attributable to the acquisition of UIB. As of December 31, 2015 compared to December 31, 2014;  noninterest-bearing demand deposits increased by $118.1 million or 26.6%, interest-bearing demand and savings deposits increased by $231.6 million or 42.3% and time deposits increased by $163.1 million or 20.8%. Total assets were $2.6 billion, a $547.0 million or 26.6% increase from the total of $2.05 billion as of December 31, 2014.

Asset Quality
As of December 31, 2015 nonaccrual loans totaled $2.3 million, down from the $8.1 million total as of December 31, 2014. Total net charge-offs for the fourth quarter of 2015 were $1.7 million compared to $203,000 for the third quarter of 2015, which was made up of one charge-off for $1.8 million, slightly offset by recoveries totaling $95,000 across several loans. The Bank recorded a provision for loan losses of $300,000 for the fourth 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 is a decrease from the $500,000 provision recorded in the same quarter last year and to the $500,000 provision recorded in the second quarter of 2015. The allowance for loan loss at December 31, 2015 was $22.7 million or 1.10% of total loans compared to $23.0 million or 1.43% of total loans at December 31, 2014.

OREO

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

Capitalization
As of December 31, 2015, the Bank’s tier 1 leverage ratio was 10.49%, the common equity tier 1 capital ratio was 11.02% and the total capital ratio was 11.99%. As of December 31, 2014, the Bank’s tier 1 leverage ratio was 11.73%, the tier 1 risk based capital ratio was 12.72% and the total risk based capital ratio was 13.97%.

Conference Call and Webcast
A conference call with simultaneous webcast to discuss Preferred Bank’s fourth quarter 2015 financial results will be held tomorrow, January 22, 2016 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 February 6, 2016; the passcode is 10079341.

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.

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