Preferred Bank. Q4 2009 Earnings Call Transcript

Jan.28.10 | About: Preferred Bank (PFBC)

Preferred Bank (NASDAQ:PFBC)

Q4 2009 Earnings Conference Call

January 27, 2009 5:00 P.M. ET

Executives

Lasse Glassen - Financial Relations Board

Li Yu - Chairman, President, CEO

Edward J. Czajka - EVP, CFO

Analysts

Joe Gladue - B. Riley

Aaron Deer - Sandler O'Neill Asset Management

Joe Morford - RBC Capital Markets

Donald A. Worthington - Howe, Barnes, Hoefer & Arnett

Julianna Balicka - Keefe, Bruyette & Woods, Inc

John E. Deysher - Pinnacle Value Fund

Lasse Glassen

Thank you. Good afternoon everyone and thanks for joining us to discuss Preferred Bank preliminary results for the fourth quarter and full year ended December 31, 2009. With us today from management are Mr. Li Yu, Chairman, President and Chief Executive Officer, and Ed Czajka, Chief Financial Officer. Management will provide a brief summary of the quarter and then we’ll open the call up to your questions.

During the course of this conference call statements made by management may include forward-looking statements within the meaning of the private securities litigation Reform Act of 1995. Such forward-looking statements are based upon specific assumptions that may or may not prove correct. Forward-looking statements are also subject to known and unknown risks, uncertainties and other factors relating to Preferred Bank’s operations and business environment, all of which are difficult to predict and many of which are beyond the control of Preferred Bank.

For a detailed description of these risks and uncertainties, please refer to the document the company files with the Federal Deposit Insurance Corporation or FDIC. If any of these uncertainties materialize or any of these assumptions prove incorrect, Preferred Bank’s results could differ materially from its expectation as set forth in these statements. Preferred Bank assumes no obligation to update such forward-looking statements.

At this time I’d now like to turn the call over to Mr. Li Yu. Mr. Yu?

Li Yu

Thank you, Lasse. Good afternoon ladies and gentlemen. I’m happy to report that for long time, we finally reported a small modest profit for fourth 2009. Although modest, it is very precious to me and our staff. I attribute the reason of this improvement on following reason. The first of all, it’s the firming up of the housing market, especially in Southern California in the past six months we’ve continued to see prices going up and then volume going up latest as December which published today also shows that transactions going to the pricing is firming and going up. And roughly 75% of our NPAs of all housing relegated product of construction rent and land, we feel that the firming of the housing trend is really a big contributor to our stability.

The next reason I attributed to is that we think we are well reserved right now. Aside from the fact we feel a quite diligent in providing adequate reserve to each of impaired assets. And just for instance, on the so-called the general reserve that is the reserve that we established through the past loan are good loan pay. The reserves on the good loans now stand almost (inaudible) impacted 2.67% of all the good loan. Reserve on the good loan is 2.67%. I believe that exceeds probably to total reserve in any other institution (inaudible).

The third thing of that the continuous improvement in the trend of delinquent loan, it is continuously getting smaller. When the delinquents are reducing, the pressure migration into non-performing assets is less and the pressure making reserve or providing reserves of the vehicle loan (inaudible) are gradually easing. And although fourth quarter December 31 already looked pretty good, compared to long period of time, we hope that the trend will continue into the first quarter. And these actually are the three reasons for our improvements.

And looking forward in 2010 we’ve reason to start to be more optimistic now okay and we think our problems as its resolution process will continue and probably will accelerate in the first quarter as I outlined in some of the write offs in our press release and we hope on the operation side was reduced reserve requirement of provision requirement that will be providing reasonable operating results state. Any steps said then I’m read for your questions.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question comes from the line of Aaron Deer of Sandler O'Neill Asset Management.

Aaron Deer - Sandler O'Neill Asset Management

Questions sorting on the comment in the press release regarding the DTA benefits funds if you guys were still working out with the tax number can do for the quarter. I’m curious is there some kind of estimate already built into the equity line I guess what I’m getting out is the 8.5% TCE ratio is likely to climb from that level once the tax impact is calculated?

Edward Czajka

No, right now it could actually go down and it would deemed to need a valuation allowance in the DTA so that’s the piece there and its still being worked out.

Aaron Deer - Sandler O'Neill Asset Management

So, the delta could actually be to the downside?

Edward Czajka

Yes. We don’t believe that’s going to be the case but certainly we have to wait until the decision of him.

Aaron Deer - Sandler O'Neill Asset Management

Okay and then of the $75 million in land loans still on the book I’m curious those all been mark to properly based on recent appraisals and how does the book value on those loans compare with kind of their aggregate origination values?

Edward Czajka

In this particular question I’d like to Li answer it because he’s got the most in general I’ll say we have portion of the bill loans, okay and with the one study to sitting either classified on none performing it has all to be luck to the book value, to the appraisal value on that. (Inaudible) our Senior Vice President I like him to give inside on that.

Li Yu

Generally speaking or we’ve been aggressive or getting appraisals and marking our land and our construction projects down to what we believe will be estimated sales proceeds. On the aggregate basis our land portfolio is turned under 20% of the original price value associated with the collateral and each one of those nine moths. Some of them where actually quite a bit under that, but when in aggregate when the average is calculated it’s a little bit under 20% of original loan value.

Operator

Our next question is in the line of Joe Morford with RBC Capital Markets.

Dave King - RBC Capital Markets

Actually this is Dave King for Joe. Good afternoon Li, Ed. I guess kind of encourage to the result all about 50 million of last quarters NPAs given that in tender that was have a lot more these going forward what you guys thinking in terms of likely loses and provisions and as we progressed to 2010 etcetera?

Edward Czajka

We actually at this point of time on obviously situation, there’s two side of the resolution one side of the long side some of them will be either become try to go out will become a good loans and then the problem has being results. In some case will be slow, you’ll said the liquidation side of it. It present time we do not see a significant differences between the price that we think we could get on the resolution of that if we disposing that as compare to the caring amount of the loan.

So at this point in time we are not, our visibility is that all these loans has mark down as pretty much pretty much to the (Inaudible). So we think that we are not highly expose on these things.

Dave King - RBC Capital Markets

Great, fair enough. And then also I guess (Inaudible) question still me to finalize your capitalize ratios but for your capital ratios, but likely you will be in adequately capitalize -what is your kind of plan are general folks going forward and how do you address this?

Unidentified Participant

We would probably board in, it has been reviewing capital ratio even way back to September and in October and December we constantly reviewing that and it is justly from my present situation as – it is more likely then not will be probably raising the additional capital.

Operator

Our next question comes from the line of David Rochester with FBR Capital markets. Please go ahead.

David Rochester- FBR Capital markets

Just a follow up on the last time you gave in terms of raising capital excluding valuation amount in DTA, do you have some kind of rest sense for what level of capital ratio you would need to satisfy the regulative this point?

Unidentified Participant

We don’t have the actual number at this point of time, we have no gently speaking that what the regulatory expect in the (Inaudible) and also we were also planning into our futures. Looking into a model there will be some long paid loans review some assets reduction rate. There will be some total. How should our total assets reduction pay, we have to go through all those (Inaudible) and also from the regulative side you know that ETA calculation they have automatic disallowance to certain amount although whatever as a percentage of capital that’s also automatic (Inaudible). So looking at ETA side how much ETA within the year that will be reducing though the normal costly action. That by reducing that actually increase our – side increase our capital or decrease the capital requirement. So we don’t have exact number of year at this point of time.

David Rochester- FBR Capital markets

We just want a quick follow up could you talk about the loan restricting activity during the quarter and know what is your total restructure loan was in 4Q versus 3Q.

Unidentified Participant

In first quarter we have actually showed about $18.8 million of loans. In first quarter, we have a number of loans being result being turned back in the performance status and we have charge of the number situation in that.

David Rochester- FBR Capital markets

Do you have actual number or you can do that or?

Unidentified Participant

As you pointed out earlier we noticed that firming up in real estate values and I think largely you have been more successful at what you would have borrowers (Inaudible) because they sold sense, the firming of the values in the feasibility is the projects (Inaudible). So I generally speaking although I don’t have the number in front of me we have seen a lot more activity as far as borrowers in down towards stepping up the client and working the balance to come up with a reasonable local strategy, which is mutually benefited

David Rochester- FBR Capital markets

Okay, it sounds like a little more restructuring activity and restructures loan are probably higher this quarter versus last quarter?

Unidentified Participant

Actually in last quarter the active sales of asset is almost much higher then this quarter the recent event first quarter aside from the fact we have the (Inaudible) equity, and in since our I mean (Inaudible) way, more things have stopped. Aside from that situation this 200% is being invested into examination, these kinds of situations. So the normal effort would be return to a similarly the basis and in the first quarter in terms of resulting the assets though sales restructure in other ways.

David Rochester- FBR Capital markets

Okay. Anything in the OREO expense trend it bumped up in the third quarter that I’m sure I have sure I’m something to do with the exam standard fourth quarter should we expect to see a bump up in the first quarter is that related to the scheduling of appraisals in your updating those every six months?

Unidentified Participant

I’m mush answer that question first, okay and I’ll supplement it.

Edward Czajka

Actually couple of things was at play in the fourth quarter Dave. First half we had a number of properties with the delinquent property taxes and so a very large component of total OREO expense in the fourth quarter was hedging up on property taxes now also we don’t expect that to be recurring event only to the extend we take properties over 12 but this was on probably about six to seven property what happen in the fourth quarter. In addition to that in terms of going forward so we will see some more profit taxes, we’ll see legal expense in those types of things that we normally see. The one thing and we call it out in the highlights for the quarter that we are very positive about, we actually had a gain on one of our properties that was sold and another property that we sold was basically at a breakeven during the quarter. So as we will indicate trying to see some improving up in the real estate values in California into the extend that continues or at least remain flat at this point that we don’t expect to take the kind of the same levels of the buy away some charges with 2009 going on to 2010.

Operator

Your next question comes from the line of Juliana Balicka with KBW.

Juliana Balicka - KBW

I have a few follow up questions on some of the topics that (inaudible) brought up. On the DTA the 32 million that you have as of December 31st when you are talking about the valuation allowance what is the size of allowance are you talking about partial or entire or can you talk a little bit more about that?

Edward Czajka

It would be nearly the whole thing, yeah

Juliana Balicka - KBW

And is that whole thing already just allowed on the regulatory basis?

Edward Czajka

Well, that was what I was I told earlier, we’re not complete with that calculation yet, so I would definitely say I definitely know that disallowed portion will not be anywhere near $32 million in terms of our regulatory capital ratio, baring evaluation allowing on the BTA.

Juliana Balicka - KBW

All right. Okay, now when you say you expect to be in the adequately capitalize level, that’s using the current 800,000 income or is that kind of also has a question for some valuation allowance?

Edward Czajka

No that’s at the current levels right now.

Juliana Balicka - KBW

Okay and in terms of your capital planning do you have any deadlines or timing by which you have to submit?

Edward Czajka

The adequately capitalized reference that was made does take into account some just disallowed DTA for our regulatory capital ratios. I want to clarify that.

Li Yu

It is already taken into consideration, we use pretty much the same guideline that was done on September 30 as a regulatory examination we had. The same guideline was applied as of December 31st and we will be adequately capitalized.

Juliana Balicka - KBW

Right the borrowing evaluation allowing and their GAAP which would then takeaway their income and lead that whole thing down, right?

Edward Czajka

Yes that’s correct

Juliana Balicka - KBW

Okay

Li Yu

And obviously we’ll hope that would not happen.

Juliana Balicka - KBW

Of course. And then when thinking about restoring you capital levels and essential capital raising, do you have any time lines dead lines any?

Edward Czajka

No, we don’t have any deadline at this point of time, okay. But the Board and I is constantly reviewing them our desire is to do this as soon as practical.

Juliana Balicka - KBW

Right, of course.

Edward Czajka

In fact that we’re already starting to talk with certain parties, certain funds that some of them on your other side that was (inaudible). What have just started talking to them about these kinds of things, we are proactive on that matter. These things usually take a little bit time.

Juliana Balicka - KBW

Of course and it is good to hear. And then the final question I’ll step back and let some other ask questions. There was a nice increase in CRE loans where did those come from and also as you decrease your construction projects mature and are finished rolled us over into CRE loans for commercial construction properties are can you talk a little bit about that?

Li Yu

Actually we roll into CIED only if they can meet the CII criteria and deadline, in other word debt services and these kind of situation and only when it become so called (inaudible) CIE loans.

Operator

Thank you our next question comes from the line of Joe Gladue with B. Riley & Co., please go ahead.

Joe Gladue - B. Riley & Co

Just wondering if you could you guys touch on our expectations for the net interest margin going forward.

Edward Czajka

(Inaudible) but this is my feeling that and we comfort first quarter has a lot noise in that. The noise including some (Inaudible) adjustment in these kind of situation and the so the actual number is kind of (Inaudible) to get but based own calculation based on the budget that (Inaudible) which is actually item by item improving out what our situation is and see how what are the identical level of each months and so he has I think the actual budgeted number is higher than that. I don’t want to pull them into hidden out so want to say it

Li Yu

I think its going to come in obviously lot of (Inaudible) what happen to it with non-accrual that obviously the biggest moving part in the whole calculation but you know it was non-accruals, non-accrual interest reports was countered for about 10 basis points of the narrowing of the margin for the fourth quarter so what have been about 268 persons that reported 258. Obviously with the much heighten level of non-accruals that pinches the margin but going forward in terms of 2010 we have essentially done a forecast in terms of every single non-accrual loan what new potential non-accrual loans may come up the resolution of existing non-accruals and so the margin for 2010 that as we have it is right about right round on 330 to 340.

Joe Gladue - B. Riley & Co

And just like us on the as far the tax rate and I guess the taking of the longer carry back to that move back into the third quarter and I guess what they tax rate to use going forward.

Li Yu

Well lot of it is going to depend, Joe on whether we make a book valuation allowance as of the year-end. If we do then you would basically use the zero tax rate going forward for 2010 if we don’t you would use somewhere around the statutory rate about 42%.

Edward Czajka

The less in that because income whatever been smaller the approximately will be in the – lower category basis. Perhaps less than that. Okay. But lets just use 40% of the dialog will be pretty good.

Operator

Thank you, our next question comes from the line of Chris Stulpin with D.A. Davidson & Company.

Chris Stulpin - D.A. Davidson & Company

Hi, what is the carrying value of the CDOs and what is the associated with their value.

Unidentified Participant

Hi, Chris. Right now the book value the current value on four CDOs 4.9 million the current market value 2.2 million and the par value in aggregate is about 7.8 million.

Operator

Thank you. Our next question comes from the line of John Deysher with Pinnacle. Please go head.

John Deysher - Pinnacle Value Fund

Good afternoon everyone.

Unidentified Participant

Hi, John.

John Deysher - Pinnacle Value Fund

Is there anything happening in the C&I portfolio with this point terms of how the economy is impacting your customer base on that’s side of the alone portfolio.

Unidentified Participant

We like to say amount the entire portfolio of C&I is one that performs the best in our portfolio again. We have some small things even the as usual situation very small only they have – I mean in the nature – others.

John Deysher - Pinnacle Value Fund

Okay so that’s still okay.

Unidentified Participant

Yes.

John Deysher - Pinnacle Value Fund

Okay and second question on the liquidation proceeds for the first quarter what you think that might be at this point.

Edward Czajka

I don’t know what they have to make our forecast or not in the liquidation, John sometimes you got into a deal with people that they just drag along and then drag long and passed the quarter end and change the numbers and sometimes that we have a deal that people call retarded and after that they come back with payroll, our new people step up. So many of these things is very, very how should say, very, very fluent. So this is one area I wouldn’t be able to greatly pocket, but I can say of the current level of 59 winning (inaudible) there were some reasonable reduction in the first quarter and obviously we have already indicated our write off what that likely range of reduction would be in our non-performing loans and also a number of other loans were also indicative would be resulting these basically are the interest paying loan that basically are loans that as we temporary value not even impaired but it’s close, I mean higher than our normal standard. So all those things regard in results.

John Deysher - Pinnacle Value Fund

Okay. That’s the 25 to 40 million that you just referred to?

Lasse Glassen

25, 40 is the one thing, another portion of that, if you look at Li Yu do you want to identify them where they are here. What Li was talking about was that if our previously reported amounts, we expect 25 to 40 million of that 62 million to actually result in the first quarter. Also in another table, we referred to the fact that of our $142 million of non-accrual actually 65.5 million or nearly half of loans are current, which certainly is an improvement from what it would have been in prior periods. And so again given that as Li was pointing out that lot of those cases that are actually not impairment but just loan to value it’s higher than our normal underwritings. And so given that and given the stabilization of values otherwise that would tend to lead us to believe that our expectations for some revolutions in future periods is more likely did not.

John Deysher - Pinnacle Value Fund

Okay, I’m sorry if they are current, why they are still embedded in non-accrual?

Lasse Glassen

I would rather just put it this way that we will have to refer back to the September 30 press release and would you just forgive me for not coming out and say it. But of the reason we put it out together and also these loans are, how should I say, compared to many other institutions that I chatted with there seems to other institution may or may not put this type of loan in non-accrual. But we are putting them in non-accruals, so therefore we want to make sure that you know that they are interest paying in nature and that within the next fewer time maybe three months maybe six months, they all have a better than 60% chance to be reverse back to accrual status.

Operator

(Operator Instructions) And our next question comes from the line of (inaudible)

Unidentified Analyst

I just have a few follow ups. I think that about the $142 million of NPLs you make a wonderful statement that you expect the majority of those I believe to be result one way another by the end of the third quarter of this year, is that correct?

Li Yu

We hope.

Lasse Glassen

That is not coming in the new migration into it. But there will some I really say in the earlier because of the every reducing delinquent. The trend on new migration will be much less than the past and less significant.

Unidentified Analyst

And I think you also said you don’t really expect to take any losses on the resolution of those 142?

Lasse Glassen

I didn’t say we don’t expect and we hope we don’t take any losses, but we are hoping if the loss to be taken, it will be very mild.

Unidentified Analyst

Mild is less than 10% say?

Lasse Glassen

Sometimes as we going forward that we have to see individual (inaudible) is a group, we can achieve that. But let me give you (inaudible) statistics. In our OREO, our historical OREO sales to date that the once we’ve sold, we’re able to realize 90.6% of carrying value. So on the loan side certainly that since its already being them down to quite a bit we do was hope that we can achieve to same thing. Okay.

Unidentified Analyst

Understood and then DRO you said as pretty well mark right now and you could sell the whole thing without taking a loss right?

Edward Czajka

We have been getting 60 to 90 points percentage.

Unidentified Analyst

Why wouldn’t you just give with now and eliminate that problem today?

Edward Czajka

It takes the winning buyer. There is some alone if after disposition is that is probably one to the most time to assuming and most difficult challenging part of ours.

Unidentified Analyst

I understand and so with the bit theoretical its based on the trends that you’re seeing you’re optimistic that both the 142 and the 60 should resolve themselves about too many extra loses if all goes well?

Li Yu

One that I could free to the table of the previously reported as of 930 we reported 95.5 million of non-accruals and within that category during the fourth quarter we result 51.5 million.

Unidentified Analyst

No that’s the terrific number.

Li Yu

So you can kind of see that the other to reason

Unidentified Analyst

And those resolutions did not involve restructurings with losses taken there were just restructurings without any losses is that right?

Li Yu

Or other movements that’s correct. And the other thing as far as that the $90.6 that will getting on REIT just to provide some color that ask or the reason we’ve been able to do that is because we are not book selling on properties as you might have been played why not is give it for all the reason we can achieve $90.6 is because we are doing discrete sales to local individuals who want to purchase that and see value in that specific parts of piece our REIT that takes a little bit more time and certainly a lot more diligence on our part.

Unidentified Analyst

That make sense and I appreciate that’s why was surprise to see you optimistically that you might have above 140 by the end of the third quarter. I just want to clarify that, but I mean what you’re seeing makes a lot of sense. And then just on the capital, which I was kind of confused about on forgive me because maybe I haven’t read enough detail. You had something like 136 million of tangible common at the end of third quarter. And I understand that restated down a little bit is that right?

Li Yu

As stated down pretty significantly yes.

Unidentified Analyst

What you can restate it down to?

Edward Czajka

115.

Unidentified Analyst

115, yeah no, so and right now you’ve report about 113 right, and that’s all tangible common. But some how the regulators are calling you under capitalized that maybe now adequately even though you have 8.5% tangible commons of the total assets.

Li Yu

They don’t necessarily look at tangible common equity, they look at about three regulatory capital ratios and in those calculations for those regulatory capital ratios there are instances where we have to deduct a certain portion our deferred tax assets straight up capital.

Unidentified Analyst

That’s the 32 million. I think that you have 6% tangible. That doesn’t seems under capitalize or what also we missing?

Edward Czajka

Well their requirements to be well capitalized under the three ratios are 5, 6, and 10% for Tier 1 leverage, Tier 1 risk based and total risk base respectively to be adequately capitalize I believe there four, four and eight to be adequately capitalize under those same regulatory ratio.

Unidentified Analyst

So you just you missing on the eight.

Edward Czajka

Yeah we’re missing on the very highest one, that’s correct. As of September 30.

Li Yu

We were now adequately capitalize were over eight.

Unidentified Analyst

Right, now you are somewhere between eight and 10 based on pending the results of your disallowance?

Li Yu

Absolutely, yes.

Unidentified Analyst

And you’re going to raise capital I presume to go and raise about 30 plus million then just to make it clear that you’re clearing and not having any issues?

Edward Czajka

I cannot tell you the number of the whole situation. And it is something that you study in the whole situation we have to come up with the whole compete study in term of modeling our access to the assets in the future and I mean

Unidentified Analyst

I appreciate that, you don’t want to do this more than once right. Kind of want to do it right.

Li Yu

We’re sitting one to the right.

Unidentified Analyst

And you have language in the 8-K that you put out on the 13 that seems to strongly employee you’re going to get a season to assist very shortly is that the case?

Unidentified Participant

We cannot comment on that. Whatever key is a stayed in that (Inaudible) looking by our volumes, okay.

Unidentified Analyst

It is that – do they have a very (Inaudible) schedule to reduce those, is that in line with

Unidentified Participant

They have been telling us, we need to reduce that paper,

Unidentified Analyst

Okay

Unidentified Participant

Already regulative is very diligence, so we are actually working very hard to stay in reducing that. As you can see what we done in the fourth quarter as you can see the lease in tend to bill our first quarter and you know about that we are looking very hard on that

Unidentified Analyst

They haven’t put any restrictions at all and your ability to restructure the loans and make new loans to the same borrows have they.

Unidentified Participant

I don’t think so is long –represents proper and dividing. In proper structure may have, they will not be disagree with that. To the extent if they disagree they just tell you if either trouble their restructure of doesn’t (Inaudible) in the. Whatever we structure it doesn’t count, but they leave it to them its been position to do a job that is complain to the regulations

Unidentified Analyst

No, the only reason I’m asking sometimes when season is just happens

Unidentified Participant

Part of the languages that you are not allowed to make new loans people who haven’t paid during the past. So if we you are not expecting that, that’s is a good think.

Unidentified Analyst

If I can address that I think in general our interest in the regulative since mutual above linings .

Unidentified Participant

At the end of the day everyone is trying to insure that the benefits on a good solid floating in respect to you question general with the regulator we say, is that you could not make – advances to our customer and let the board determine that its protects the best interest of the bank. And that is where that has , now this has to be done,. And so if it does you can. But In fact we are not under associated. Clearly given on the statement some type of enclosement is expect in the middle work with the labor leaders is jointly to craft something that’s in all of our interest.

Unidentified Analyst

Thank you, very much for talking my questions, I appreciate it.

Operator

Next question is a follow up from line of Aaron Deer with Sandler O'Neill and partners. Please go ahead.

Aaron Deer -Sandler O'Neill and Partners

My apologies for(Inaudible) is , but I just want to follow up on the detail. The regulatory capital proposes I think the its pretty clear how the this announce was expect. I would have spot to given the change in the text could that you guys would now have 4.5 year look back period against losses in 2009. Some- what is that I guess that’s be an hung upon it just wondering whether or not that is going to be a allowance taking against that why would it then (inaudible) to not be able too have we too use that tax benefit going forward?

Unidentified Participant

Well, first half year and we have to assert that we do not believe that evaluation allowances required on the deferred tax asset, we have to put all the documentation supporting such assertion, at that point then goes on to our external orders our independent accounts who review that and then essentially obtain on whether they agree with management are not relative in valuation allowance, so that’s really the big piece to thinking out the in terms of the disallowed per tax assets regulatory capital purposes clearly the disallowed portion is going to be reduced greatly between Q3 and Q4 in terms of our regulatory capital borrowing a valuation allowance now we have a valuation allowance – before that it changes the all they expect our disallowed portion of the DCA at 930 was about $21 million we expect that to be reduced significantly excluding evaluation loans.

Operator

Our next question is also a follow up in the line of Julianna Balicka with KBW.

Please go ahead

Julianna Balicka - Keefe, Bruyette & Woods

Sorry hello can you hear I apologize . I thought to ask a couple of quick recap on the $65.5 million non the hat are correct you said to from the $55 million is on non-accrual status because the LTV is out of line right.

Li Yu

LTV is higher than normal standard and generally speaking let me just quote you approximate situation. These situation probably have a anywhere from 70 to 80% LTV based on so called the market value, okay. And some time we (inaudible) use something called the bulk value and then these things will be approached to bulk value and close to the bulk value and therefore we put it off than the quote.

Li Yu

And what’s your LTV on bulk value. We don’t have individual situation I mean I think it ranges from 85% to 98% something like that.

Julianna Balicka - Keefe, Bruyette & Woods

Okay and then…

Unidentified Participant

As you know the bulk value, and one thing is that let me use this opportunity to do some advertisement for the entire banking industry. What is bulk value? Bulk value is some appraisal using some mathematical formula copy of that. We have a construction project it is about to finish the current appraisal, by the way price is firming up, current appraisals shows that long term valuation 72%. We think that to borrow will be so stupid (inaudible) as a bulk are forcing us to foreclose with the bulk rather than setting in the market place to not only pay us off, but recruit somebody with investment. But because some appraisal coming to some kind of funny bulk value and then we have go by that. Okay, that’s not only my feeling, my be I’m even more bulk with than 95% with other bank presidents.

Julianna Balicka - Keefe, Bruyette & Woods

That’s true, as everybody says that. And then second, quick recap on the 74 million of loans that you resolved in this quarter, right? Can you break that down as to what kind of resolutions were applied?

Unidentified Participant

We don’t have that directly in front of us and generally in most cases it was projects that about two thirds were construction, about a third were CRE and in most cases it was ultimate resolution through moving down the stage of disposition. Now there is just moving times of disposition then the portion of the loan (inaudible) is sold. That’s correct.

Unidentified Participant

That’s about loans get sold. And some of them get return to that because (Inaudible) set up was their collateral, additional collateral additional payments and to bring the situation current where the loan is fix all underwriting standard and there is another portion of the change off, it is combination of these four items.

Operator

(Operator instruction). We do have another follow-up question from the line of David Rochester with FBR Capital Markets.

David Rochester - FBR Capital Markets

Just one quick follow-up on the CRE portfolio. I was wondering if you had any details on the maturity schedule of that, perhaps how much of that portfolio is maturing in 2010 and 2011?

Unidentified Participant

No, unfortunately this is some information that we don’t have at this point in time. Okay, with property.

David Rochester - FBR Capital Markets

Could you enlighten these so I can learn something was it materially 2010, 2011, the significance of that?

Unidentified Participant

Sure, basically if the loans mature and you have to re-underwrite them, you are redoing appraisals on those and valuations. As you said, may be firming but they maybe different from when you have underwritten a loan originally. So that could have an impact on reserving NPAs that kind of thing?

Unidentified Participant

We probably we looking at this, that’s already begin one of our internal stress test. We performed stress test on each of the piece of property over $2 million, we have already done it and now we are extending to loans to the $1 million. The stress test will also be reviewed by the entire Board and plus (Inaudible), I will just inform by our external auditor between them and our examiners or regulators they have penetrated 50%, of our good portfolio even a good portfolio of our CIE already (inaudible).

Unidentified Participant

I think one of things to keep in mind is that our 30-day line on past due was reported at $13 million so although you bring up a good point of some potential as far as values, the thing to keep in mind is that from a debt coverage, these loans are performing and are current and that is something that we will have to obviously work through as every other bank will fortunately in our case the loans have been able to maintain themselves current even through the last couple of years.

David Rochester - FBR Capital Markets

Okay. One last one, as you are selling these loans are you actually funding those sales meaning that you are lending out money to borrowers who are then buying them from you and if so what are the LTVs that you are underwriting those loans at.

Unidentified Participant

Well, we do in combination of all right cash sale. Some of them were bank financed. The LTV generally will be confirming to what our normal underwriting standard, it ranges from different situation. Some people were able to put more down payment, some people put as little as 25% down payment, in some cases that having additional collateral combination of all.

Unidentified Participant

But certainly underwriting a loan to values in 2009 and 2010 is a lot more secure than underwriting a loan to 2007 values.

Operator

Thank you management. At this time there are no additional questions, I’ll turn it back to you for any closing remarks.

Edward Czajka

Before closing, one other item I like to clarify on our page number five, we have got 90 basis plus steel accrual and $7.5 million, I want everybody to have a clear understanding. Majority of that is in one loan, all the $7 million in one loan. That particular borrowed is supposed to sign the extension and pay the interest as of December 31, but unfortunately he went into the hospital on December 28 and then (Inaudible) hospital and was able to return it on two or three working days after the new year and then followed us with a payment and extension document so just wanted to know even though technicality yon might consider as NPA it is really of that particular (inaudible).

Having said that obviously, thank you for all the interest. I think it is our collective feeling that we have on what construction land that construction loan that in the past we have got (Inaudible) and right now when we are stabilized and out exposure in the continually reducing that we will be going forward with concentrating in resulting others so called troubled assets and hopefully that producing more optimistic operating results. And with I wish you good and prosperous New Year for everyone. Thank you very much.

Operator

Thank you ladies and gentlemen. If you’d like to listen to a replay of today’s conference please dial 1-800-406-7325 or 303590303 using the access code of 4024732#. This does conclude the Preferred Bank fourth quarter 2009 results conference call. You may now for your participation and for using AT&T, you may now disconnect.

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