Preferred Bank Reports Quarterly Earnings

LOS ANGELES, April 17, 2019 (GLOBE NEWSWIRE) -- Preferred Bank (NASDAQ: PFBC), an independent commercial bank, today reported results for the quarter ended March 31, 2019. Preferred Bank (“the Bank”) reported net income of $18.7 million or $1.23 per diluted share for the first quarter of 2019. This compares favorably to net income of $16.6 million or $1.09 per diluted share for the first quarter of 2018 and flat compared to net income of $18.7 million or $1.22 per diluted share for the fourth quarter of 2018. As previously disclosed, first quarter 2019 earnings were negatively impacted by the disposition and subsequent $1.4 million loss on the sale of the Bank’s two New York multi-family nonperforming assets.

Highlights from the first quarter of 2019:

Li Yu, Chairman and CEO, commented, “We are pleased to report the disposition of the $36.9 million nonperforming loan in New York. As of December 31, 2018, it was a nonperforming loan which was then foreclosed upon in January 2019 and recorded as other real estate owned (“OREO”) property.  The disposition resulted in a loss on sale of approximately $1.4 million.  Together with the reduction of several other non-performing loans, our total non-performing asset ratio now stands at 0.08% of total assets.  Classified loans now comprise 0.14% of our total loan portfolio.

For the quarter ended March 31, 2019, Preferred Bank’s net income was $18.7 million or $1.23 per diluted share compared with $16.6 million or $1.09 per diluted share, respectively for the same quarter of 2018.  Net income for this first quarter of 2019 was negatively impacted by the aforementioned loss on sale of OREO.  The first quarter income tax provision is also higher this year than in 2018.

Our deposits increased by $80.1 million or 2.20% and our loans also increased by $71.6 million or 2.15%, both on a linked-quarter basis.  Deposit rate competition seems to have slowed down due to the Fed’s recent statements regarding their direction with interest rates.  Loan competition continues to be stiff, in both interest rates and terms offered.  We have, however managed to maintain a stable net interest margin.  With continued effort in cost control, our efficiency ratio was 36.7% for the quarter, which again, included the loss on sale of the OREO.

Preferred Bank has maintained a rate sensitive loan portfolio with built-in protective features.  As of March 31, 2019, approximately 89% of our loan portfolio are adjustable-rate loans and around 90% of those are daily floating rate loans. Of the adjustable-rate loans, 77% of them have a floor rate. Of these loans with floors, 49% have floors at 5.0% or higher and 42% are with floor rates from 4.5% to 5.0%. We have been preparing ourselves to operate in different interest rate scenarios.”

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses was $40.9 million for the first quarter of 2019. This compares favorably to the $36.1 million recorded in the first quarter of 2018 but slightly down from the $41.4 million recorded in the fourth quarter of 2018. The increase over the same period last year is due primarily to loan growth and a larger net interest margin. In comparing to the fourth quarter of 2018, the primary reason for the decline is due to two fewer days in this quarter than in the fourth quarter of 2018. The Bank’s taxable equivalent net interest margin was 4.12% for the first quarter of 2019, a 1 basis point decrease from the 4.13% achieved in the fourth quarter of 2018 and a 2 basis point decrease from the 4.14% posted in the first quarter of 2018.

Noninterest Income. For the first quarter of 2019, noninterest income was $1,861,000 compared with $1,564,000 for the same quarter last year and compared to $4,405,000 for the fourth quarter of 2018. The increase over last year is primarily due to $332,000 in other income compared to $163,000 in the first quarter last year. The decrease from the prior quarter was due to a gain on sale of OREO last quarter of $2.0 million. In addition, other income was $1,030,000 as the Bank received a legal recovery of $610,000 last quarter as well. Service charges on deposits were $368,000, an increase over both comparable quarters and is due primarily to growth in transaction accounts.

Noninterest Expense. Total noninterest expense was $15.7 million for the first quarter of 2019, an increase of $2.0 million over both the first quarter of 2018 and the fourth quarter of 2018. Salaries and benefits expense totaled $9.8 million for the first quarter of 2019, an increase of $1.15 million over the $8.6 million recorded in the first quarter of 2018 and an increase of $1.14 million compared to the $8.6 million recorded in the fourth quarter of 2018. The increase over the prior quarter is due in part to staffing increases as well payroll taxes, which were significantly higher in the first quarter due to the payout of annual incentives. The increase over the prior year is due mainly to staffing increases commensurate with the Bank’s growth and partly due to payroll taxes, as incentive payouts increased along with the Bank’s profitability. Occupancy expense totaled $1.1 million for the quarter and was down from the prior quarter, which was $1.3 million and down from the same amount in the same quarter last year as the Bank recorded a small benefit of $229,000 due to the implementation of the new Lease Accounting Standard, ASC 842. Professional services expense was $1.3 million for the first quarter of 2019 compared to $1.4 million for the same quarter of 2018 and $1.5 million recorded in the fourth quarter of 2018. The decrease from the prior year is due primarily to lower information technology costs as the Bank was preparing for the core system conversion last year. As previously mentioned, the Bank incurred a loss of $1.4 million on the sale of the New York OREO. This compares to OREO expense of $106,000 in the same quarter last year and $181,000 in the last quarter of 2018. Other expenses were $1.3 million for the first quarter of 2019 compared to $1.7 million for the first quarter of 2018 and $1.4 million in the fourth quarter of 2018. The primary reason for the decrease compared to both periods is due to the recording of off balance sheet reserve expense of $300,000 in the first quarter of 2018 and $160,000 in the fourth quarter of 2018 compared to none this quarter.

Income Taxes

The Bank recorded a provision for income taxes of $7.8 million for the first quarter of 2019. This represents an effective tax rate (“ETR”) of 29.5% and a slight decrease from the ETR of 29.9% for the fourth quarter of 2018 but up significantly from the 26.1% recorded in the first quarter of 2018. The Bank’s ETR will fluctuate slightly from quarter to quarter within a fairly small range due to the timing of taxable events throughout the year.

Balance Sheet Summary

Total gross loans and leases at March 31, 2019 were $3.41 billion, an increase of $71.6 million or 2.1% over the total of $3.33 billion as of December 31, 2018. Total deposits increased by $80.1 million or 2.2% over the $3.64 billion as of December 31, 2018. Total assets reached $4.33 billion as of March 31, 2019, an increase of $111.8 million or 2.7% over the total of $4.22 billion as of December 31, 2018.

Asset Quality

As of March 31, 2019, nonaccrual loans totaled $3.6 million, down significantly from the total of $44.8 million as of December 31, 2018. As previously mentioned, the Bank disposed of the $36.9 million large multi-family OREO New York properties in the first quarter as well as a $2.6 million associated nonaccrual loan which got sold at foreclosure auction. As of March 31, 2019, total classified loans stood at $4.8 million compared to $46.2 million as of December 31, 2018.

Total net charge-offs (recoveries) for the first quarter of 2019 were ($330,000) compared to $6.5 million in the fourth quarter of 2018 and compared to net charge-offs of $2.9 million for the first quarter of 2018. The Bank recorded a provision for loan loss of $500,000 for the first quarter of 2019, compared to $1.5 million in the first quarter of 2018 and compared to $5.55 million recorded in the fourth quarter of 2018. The allowance for loan loss at March 31, 2019 was $31.9 million or 0.94% of total loans compared to $31.1 million or 0.93% of total loans at December 31, 2018.

Capitalization

As of March 31, 2019, the Bank’s leverage ratio was 10.32%, the common equity tier 1 capital ratio was 10.54% and the total capital ratio was 13.83%. As of December 31, 2018, the Bank’s leverage ratio was 10.16%, the common equity tier 1 ratio was 10.43% and the total risk based capital ratio was 13.77%.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank’s first quarter 2019 financial results will be held tomorrow, April 18, 2019 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 844-826-3037 (domestic) or 412-317-5182 (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 Chief Executive Officer Li Yu, President and Chief Operating Officer 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 2, 2019; the passcode is 10130589.

About Preferred Bank

Preferred Bank is one of the larger independent commercial banks headquartered 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 Bank conducts its banking business from its main office in Los Angeles, California, and through eleven full-service branch banking offices in California (Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Pico Rivera, Tarzana and San Francisco (2)) and one branch 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 2018 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
Selected Consolidated Financial Information
(unaudited)
(in thousands, except for ratios)
				For the Quarter Ended
				March 31,			December 31,			September 30,			June 30,			March 31,
					2019			2018			2018			2018			2018
Unaudited historical quarterly operations data:
	Interest income			$	55,457		$	54,373		$	50,392		$	46,748		$	43,652
	Interest expense				14,547			12,931			11,155			9,342			7,508
	Interest income before provision for credit losses				40,910			41,442			39,237			37,406			36,144
	Provision for credit losses				500			5,550			1,880			1,200			1,500
	Noninterest income				1,861			4,405			1,676			1,756			1,564
	Noninterest expense				15,694			13,683			13,584			13,805			13,730
	Income tax expense				7,834			7,960			7,126			6,752			5,867
	Net income			$	18,743		$	18,654		$	18,323		$	17,405		$	16,611
	Earnings per share
	Basic			$	1.23		$	1.22		$	1.20		$	1.14		$	1.09
	Diluted			$	1.23		$	1.22		$	1.20		$	1.14		$	1.09
Ratios for the period:
	Return on average assets				1.83	%		1.82	%		1.84	%		1.83	%		1.85	%
	Return on beginning equity				18.24	%		18.50	%		18.87	%		18.82	%		18.97	%
	Net interest margin (Fully-taxable equivalent)				4.12	%		4.13	%		4.04	%		4.07	%		4.14	%
	Noninterest expense to average assets				1.54	%		1.33	%		1.37	%		1.46	%		1.53	%
	Efficiency ratio				36.69	%		29.84	%		33.20	%		35.25	%		36.41	%
	Net charge-offs (recoveries) to average loans (annualized)				-0.04	%		0.80	%		-0.04	%		0.00	%		0.39	%
Ratios as of period end:
	Tier 1 leverage capital ratio				10.32	%		10.16	%		10.07	%		10.04	%		10.07	%
	Common equity tier 1 risk-based capital ratio				10.54	%		10.43	%		10.23	%		10.14	%		10.03	%
	Tier 1 risk-based capital ratio				10.54	%		10.43	%		10.23	%		10.14	%		10.03	%
	Total risk-based capital ratio				13.83	%		13.77	%		13.65	%		13.62	%		13.58	%
	Allowances for credit losses to loans and leases at end of period				0.94	%		0.93	%		0.98	%		0.95	%		0.92	%
	Allowance for credit losses to non-performing loans and leases				887.75	%		69.29	%		63.42	%		58.92	%		861.44	%
Average balances:
	Total loans and leases			$	3,327,005		$	3,217,850		$	3,184,527		$	3,092,571		$	2,958,382
	Earning assets			$	4,034,284		$	3,988,970		$	3,861,346		$	3,696,854		$	3,550,333
	Total assets			$	4,142,906		$	4,068,592		$	3,946,924		$	3,804,557		$	3,648,857
	Total interest bearing deposits			$	2,874,045		$	2,787,788		$	2,697,807		$	2,590,394		$	2,495,777
	Total deposits			$	3,555,981		$	3,498,226		$	3,392,878		$	3,268,490		$	3,131,660
	Total interest bearing liabilities			$	2,974,442		$	2,888,171		$	2,800,486		$	2,695,759		$	2,601,140
	Total equity			$	428,136		$	411,249		$	396,942		$	381,815		$	367,740