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    Preferred Bank ($PFBC) Jumps 50% on Q1 Results

    Preferred Bank ($PFBC) Jumps 50% on Q1 Results

    Shares of Preferred Bank (NASDAQ: PFBC) surged more than 50% in today’s trading. Los Angeles-based Preferred Bank is an independent commercial bank in California focused on the Chinese-American market. The small-cap stock reached a high of $3.68, settling at $2.99 with volume up from daily average of 162,000 to 3.14 million in late trading.

    Preferred Bank today announced its preliminary first-quarter results, reporting net income of $3.1 million, or $0.20 per diluted share in its first-quarter. This is an improvement from the loss of $1.3 million, or $0.14 per diluted share reported in the corresponding quarter of last year. In the fourth-quarter of 2009, the bank reported a loss of $28.4 million, or $1.80 per diluted share. The company ended the quarter with $222 million in cash.

    In its latest 10K filing, the bank reports its loss per share at the end of 2009 at $6.30. The bank attributes this loss to a provision for loan loss and valuation allowance on deferred tax asset of $27.1 million. On March 16, 2010, the bank’s board of directors consented to the issuance of a consent order from the FDIC and the California Department of Financial Institutions (DFI). The bank has been asked to increase its capital and maintain certain regulatory capital ratios prior to dates specified by the FDIC and the DFI.

    Although the preliminary first-quarter results reported by Preferred Bank are encouraging news for the small-cap stock, the fact that the bank will have to raise additional capital to meet regulatory requirements makes things very uncertain. Raising additional capital would also result in dilution for existing shareholders. Having said that, today’s rally in the small-cap stock may have been triggered by the fact that improved quarterly results could make it easier for the bank to raise additional capital or that the improved results could generate interest in the bank and make it a takeover target.

    The small-cap stock has a 52-week range of $1.18-$5.13; currently, the stock is trading above its 50-day and 200-day moving averages.

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