Preferred Bank Reports Second Quarter Earnings

LOS ANGELES, July 22 /PRNewswire-FirstCall/ -- Preferred Bank
(Nasdaq: PFBC), an independent commercial bank focusing on the
Chinese-American and diversified Southern California mainstream market, today
reported net income for the quarter ended June 30, 2008. Net income totaled
$449,000, an 93.6% decrease from net income of $7.0 million for the same
period in 2007 while diluted earnings per share decreased 92.3% to $0.05 for
the quarter compared to $0.65 for the second quarter of 2007. Net income for
the quarter was negatively impacted by a provision for loan losses of $7.2
million, a pre-tax charge to earnings of $1.9 million for an other than
temporary impairment on FHLMC preferred stock, and a decrease in net interest
income of $4.0 million as compared to the second quarter of 2007.
Mr. Li Yu, Chairman and President of Preferred Bank commented, "The
housing market has shown little improvement during the second quarter, several
loans that were 30 to 89 days past due as of March 31, 2008, have now been
placed on non-accrual status. Together with the non-accrual balance of $36.2
million at March 31, 2008 total non-accrual loans are now $54.2 million at
June 30, 2008. Appropriate reserves have been established based upon recent
third party valuations.
"Compared to March 31, 2008, the 30 - 89 days past due and loans 90+ days
past due and still accruing decreased from $50.7 million to $42.5 million at
June 30, 2008 which indicates that the migration into total past due category
has slowed down or at least temporarily subsided.
"More than 75% of the non-accrual loans are participation credits with
another bank as the agent bank. Resolution of those loans typically takes a
longer time as there is normally more than one bank involved. Resolution
procedures include legal action, foreclosure or selling of the notes. We
estimate at least $16 million of these loans will be resolved in early third
quarter.
"During the second quarter of 2008 we have also recorded an
other-than-temporary impairment (OTTI) charge on FHLMC preferred stock of $1.9
million. Considering the large loan loss provision of $7.2 million and the
OTTI charge, I am not totally disappointed with the second quarter net income
of $449,000 under this most difficult environment. All other aspects of our
operations remain stable, our tier 1 and total risk-based regulatory capital
ratios increased from March 31, 2008 and we have worked to de-leverage the
balance sheet. One unfortunate aspect of newer accounting rules, specifically
Statement of Financial Accounting Standards Number 123R ("SFAS No. 123R"),
requires that we continue to record the expense of stock options even though
none of our existing granted stock options have any value in them. We urge
the Financial Accounting Standards Board ("FASB") to modify SFAS 123R to
address this situation. Like most other financial institutions, we are now
recording this theoretical expense for which there is no corresponding benefit
to our employees.
"The dramatic drop in the stock price of Preferred Bank has led to a
change in the ownership makeup of Preferred Bank. As institutional
shareholders have sold shares, members of the Board of Directors of Preferred
Bank and employees have been purchasing them. Insider ownership is now
estimated to exceed 30%.
"As of June 30, 2008, our tangible equity ratio is 9.70%. The bank's
three regulatory capital ratios are substantially above the 'well capitalized'
definition."
Net Interest Income and Net Interest Margin. Net interest income before
provision for loan and lease losses decreased to $13.3 million, compared to
$17.3 million for the second quarter of 2007. The 22.9% decrease was due
primarily to the 325 basis point decrease in the Fed Funds rate and the higher
level of non-accrual loans in 2008. The Company's net interest margin was
3.63% for the second quarter of 2008, down from the 5.15% achieved in the
second quarter of 2007 and down from the 4.11% for the first quarter of 2008.
Noninterest Income. For the second quarter of 2008 noninterest income was
$996,000 compared with $819,000 for the same quarter last year and $782,000
for the first quarter of 2008. The increase in noninterest income this quarter
compared to last year was due mainly to an increase in service charges to
$470,000 from $395,000 in the same period last year. Also, other income
increased due to a $75,000 gain on the sale of equipment associated with a
capitalized lease which matured during the quarter.
Noninterest Expense. Total noninterest expense was $6,645,000 for the
second quarter of 2008, compared to $5,483,000 for the same period in 2007 and
$5,005,000 for the first quarter of 2008. Salaries and benefits decreased by
$1,100,000 from the second quarter in 2007 due to a decrease in bonus expense
which is based on overall profitability. Occupancy expense increased due to an
adjustment of leased premises costs associated with leases which have
pre-determined escalating costs. Professional services expense decreased due
to lower costs associated with external audit as well as reduced costs
associated with compliance with Sarbanes-Oxley Section 404. Other expense is
up over the same quarter last year due to the OTTI charge of $1.9 million on
the FHLMC Preferred Stock.
Operating Efficiency Ratio. For the quarter, the operating efficiency
ratio was 46.4% as compared to 30.3% for the same quarter in 2007 and 32.0%
recorded in the first quarter of 2008. The deterioration is primarily
attributable to the $1.9 million charge recorded for OTTI.
Balance Sheet Summary
Total gross loans and leases at June 30, 2008 were $1.21 billion, a $101.8
million or 9.2% increase over the $1.11 billion at June 30, 2007 and a
$24.7million or 2.0% decrease over the $1.233 billion total as of December 31,
2007. Commercial real estate loans were up slightly from $518.3 million as of
December 31, 2007 to $523.9 million at June 30, 2008 while construction loans
decreased $10.1 million from December 31, 2007 and commercial & industrial and
international loans decreased $20.0 million from December 31, 2007.
Total deposits as of June 30, 2008 were $1.284 billion, an increase of
$30.4 million or 2.4% over the $1.253 billion at December 31, 2007.
Noninterest-bearing demand deposits decreased by $20.2 million or 8.8%,
interest-bearing demand and savings deposits decreased by $4.1 million or 1.8%
and time deposits increased by $54.7 million or 6.9%. Total assets were $1.525
billion, a 1.2% decrease from the total of $1.543 billion as of December 31,
2007. Total borrowings, both overnight and term borrowings decreased from $111
million as of December 31, 2007 to $77 million as of June 30, 2008 as the Bank
worked to restructure the balance sheet to increase liquidity. The
loan-to-deposit ratio as of June 30, 2008 was 92.7% compared to 97.2% as of
December 31, 2007
Asset Quality
As of June 30, 2008 total nonaccrual loans were $54.2 million compared to
$230,000 as of June 30, 2007 and $20.9 million as of December 31, 2007. Total
net charge-offs for the second quarter of 2008 were $7.2 million. Total loans
90 days past due and still accruing interest were $23.8 million as compared to
$0 as of December 31, 2007. Because of the increase in non-performing loans
and further deterioration in the construction and land loan portfolio during
the second quarter of 2008, the Bank recorded a provision for loan losses of
$7.2 million as compared to $5.1 million in the first quarter of 2008 and
$650,000 for the second quarter of 2007. The allowance for loan loss at June
30, 2008 was $20.0 million or 1.65% of total loans compared to $11.2 million
and 1.02%, respectively at June 30, 2007.

Total non-performing loans as of June 30, 2008 were comprised of the
following:

Loan Type 90 + Days & Still Accruing Nonaccrual

# $ # $
Commercial & Industrial - $ - 4 $ 3,528,000
Real Estate - - 2 1,535,000
Construction-Commercial - - - -
Construction-Housing 1 2,704,000 1 15,857,000
Construction-Condo - - 4 22,125,000
Land-residential 3 15,350,000 2 11,147,000
Land-Commercial 1 5,735,000 - -
5 $23,789,000 13 $54,192,000

Preferred Bank's Inland Empire exposure as of June 30, 2008 consisted of
the following:

Loan Type Total Outstanding Total Nonaccrual & 90+
Still Accruing
# $ # $
Commercial & Industrial - $ - - $ -
Real Estate 9 15,558,000 - -
Construction-Commercial 4 9,146,000 - -
Construction-Housing 1 15,857,000 1 15,857,000
Construction-Condo - - - -
Land-residential 11 15,638,000 2 11,270,000
Land-Commercial 4 15,723,000 1 5,735,000
29 $71,922,000 4 $32,862,000

Capitalization
Preferred Bank continues to be "well capitalized" under all regulatory
requirements, with a Tier 1 leverage ratio of 9.83% and a total risk based
capital ratio of 12.19% at June 30, 2008.
Conference Call and Webcast
A conference call with simultaneous webcast to discuss Preferred Bank's
second quarter 2008 financial results will be held today, July 22, at
5:00 p.m. Eastern / 2:00 p.m. Pacific. Interested participants and investors
may access the conference call by dialing (800) 218-0713 (domestic) or
(303) 262-2175 (international). There will also be a live webcast of the call
available at the Investor Relations section of Preferred Bank's web site at
http://www.preferredbank.com. Web participants are encouraged to go to the
web site at least 15 minutes prior to the start of the call to register,
download and install any necessary audio software.
Preferred Bank's Chairman, President and CEO Li Yu, Chief Credit Officer
Robert Kosof and Chief Financial Officer Edward Czajka 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 web site. A replay of the call will be
available at 800-405-2236 (domestic) or 303-590-3000 (international) through
July 29, 2008; the pass code is 11117331.
About Preferred Bank
Preferred Bank is one of the largest independent commercial banks in
California focusing on the Chinese-American market. 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 ten full-service branch banking offices in Alhambra,
Century City, Chino Hills, City of Industry, Torrance, Arcadia, Irvine,
Diamond Bar, Santa Monica and Valencia, 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. Preferred Bank continues to benefit from the
significant migration to Southern California of ethnic Chinese from China and
other areas of East Asia. While its business is not solely dependent on the
Chinese-American market, it represents an important element of the bank's
operating strategy, especially for its branch network and deposit products and
services. Preferred Bank believes it is well positioned to compete effectively
with the smaller Chinese-American community banks, the larger commercial banks
and other major banks operating in Southern California by offering a high
degree of personal service and responsiveness, experienced multi-lingual staff
and substantial lending limits.
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 2007 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 http://www.preferredbank.com.
AT THE COMPANY: AT FINANCIAL RELATIONS BOARD:
Edward J. Czajka Lasse Glassen
Senior Vice President General Information
Chief Financial Officer (213) 486-6546
(213) 891-1188 lglassen@financialrelationsboard.com

Financial Tables to Follow

PREFERRED BANK
Condensed Statements of Income
(unaudited)
(in thousands, except for net income per share and shares)

For the Three Months Ended
June 30, June 30, March 31,
2008 2007 2008
Interest income:
Loans, including fees $18,924 $24,518 $21,972
Investment securities 3,169 2,765 3,304
Fed funds sold 4 998 12
Total interest income 22,097 28,281 25,288

Interest expense:
Interest-bearing demand 383 727 438
Savings 349 893 554
Time certificates of $100,000 or more 5,489 8,122 6,784
Other time certificates 1,524 1,061 1,630
Fed funds purchased 231 2 793
FHLB borrowings 790 185 248
Total interest expense 8,766 10,990 10,447

Net interest income 13,331 17,291 14,841

Provision for loan losses 7,200 650 5,080

Net interest income after provision
for loan losses 6,131 16,641 9,761

Noninterest income:
Fees & service charges on deposit
accounts 470 395 457
Trade finance income 219 262 141
BOLI income 91 86 88
Other income 216 76 96
Total noninterest income 996 819 782

Noninterest expense:
Salary and employee benefits 1,997 3,097 2,638
Net occupancy expense 678 599 592
Business development and promotion
expense 77 94 96
Professional services 655 793 632
Office supllies and equipment expense 313 240 294
Other than temporary impairment 1,928 - -
Other 997 660 753
Total noninterest expense 6,645 5,483 5,005

Income before provision for
income taxes 482 11,977 5,538

Provision for income taxes 33 4,998 2,160

Net income $449 $6,979 $3,378

Net income per share - basic $0.05 $0.67 $0.34
Net income per share - diluted $0.05 $0.65 $0.34

Weighted-average common shares
outstanding
Basic 9,755,207 10,421,794 9,898,204
Diluted 9,756,471 10,680,975 9,937,828

PREFERRED BANK
Condensed Statements of Income
(unaudited)
(in thousands, except for net income per share and shares)

For the Six Months Ended
June 30, June 30, Change
2008 2007 %
Interest income:
Loans, including fees $40,896 $47,511 -13.9%
Investment securities 6,473 5,492 17.9%
Fed funds sold 16 1,792 -99.1%
Total interest income 47,385 54,795 -13.5%

Interest expense:
Interest-bearing demand 821 1,394 -41.1%
Savings 903 1,654 -45.4%
Time certificates of $100,000 or more 12,273 15,699 -21.8%
Other time certificates 3,154 2,121 48.7%
Fed funds purchased 479 33 1351.4%
FHLB borrowings 1,583 368 330.2%
Total interest expense 19,213 21,269 -9.7%

Net interest income 28,172 33,526 -16.0%

Provision for credit losses 12,280 1,250 882.4%

Net interest income after provision
for loan losses 15,892 32,276 -50.8%

Noninterest income:
Fees & service charges on deposit
accounts 927 816 13.6%
Trade finance income 360 407 -11.6%
BOLI income 178 170 4.9%
Other income 312 189 65.0%
Total noninterest income 1,777 1,582 12.3%

Noninterest expense:
Salary and employee benefits 4,635 6,698 -30.8%
Net occupancy expense 1,270 1,190 6.7%
Business development and promotion
expense 173 140 23.6%
Professional services 1,287 1,312 -1.9%
Office supllies and equipment expense 607 428 41.9%
Other than temporary impairment 1,928 - n/a
Other 1,750 1,092 60.2%
Total noninterest expense 11,650 10,860 7.3%

Income before provision for
income taxes 6,019 22,998 -73.8%

Provision for income taxes 2,193 9,526 -77.0%

Net income $3,826 $13,472 -71.6%

Net income per share - basic $0.39 $1.30 -70.0%
Net income per share - diluted $0.39 $1.26 -69.0%

Weighted-average common shares
outstanding
Basic $9,800,251 $10,393,989 -5.7%
Diluted $9,824,871 $10,682,186 -8.0%

PREFERRED BANK
Condensed Statements of Financial Condition
(unaudited)
(in thousands)

June 30, December 31, June 30,
2008 2007 2007
Assets

Cash and due from banks $25,639 $22,803 $38,097
Fed funds sold 2,500 - 59,000
Cash and cash equivalents 28,139 22,803 97,097

Securities available-for-sale, at
fair value 250,385 245,268 206,648
Loans and leases 1,208,430 1,233,099 1,106,586
Less allowance for loan and lease
losses (19,960) (14,896) (11,246)
Less net deferred loan fees (123) (682) (1,327)
Net loans and leases 1,188,347 1,217,521 1,094,013

Other real estate owned 8,441 8,444 -
Customers' liability on acceptances 508 5,083 5,019
Bank furniture and fixtures, net 7,219 4,721 1,666
Bank-owned life insurance 8,309 8,168 8,031
Accrued interest receivable 8,853 10,165 9,196
Federal Home Loan Bank stock 4,828 4,700 4,277
Deferred tax assets 16,540 12,278 10,818
Other asset 3,390 3,459 579
Total assets $1,524,959 $1,542,610 $1,437,344

Liabilities and Stockholders' Equity

Liabilities:
Deposits:
Demand 209,900 230,083 $247,822
Interest-bearing demand 156,755 137,220 124,951
Savings 69,759 93,398 100,731
Time certificates of $100,000 or
more 646,826 639,455 620,677
Other time certificates 200,285 152,954 140,822
Total deposits $1,283,525 $1,253,110 $1,235,003
Acceptances outstanding 508 5,083 5,019
Advances from Federal Home Loan
Bank 68,000 75,000 20,000
Fed funds purchased 9,000 36,000 -
Accrued interest payable 4,096 5,493 5,418
Other liabilities 11,858 14,972 13,783
Total liabilities 1,376,987 1,389,658 1,279,223

Commitments and contingencies
Stockholders' equity:
Preferred stock. Authorized
5,000,000 shares; no share issued
and outstanding at June 30, 2008,
December 31, 2007 and June 30, 2007 - - -
Common stock, no par value.
Authorized 100,000,000 shares;
issued and outstanding 9,755,207,
9,953,532 and 10,430,632 shares
at June 30, 2008, December 31,
2007 and June 30, 2007, respectively 72,009 71,863 71,378
Treasury stock (19,115) (14,976) -
Additional paid-in-capital 3,760 2,948 2,245
Retained earnings 95,667 94,595 85,151
Accumulated other comprehensive loss:
Unrealized loss on securities
available-for-sale, net of tax (4,349) (1,478) (653)
Total stockholders' equity 147,972 152,952 158,121
Total liabilities and
stockholders' equity $1,524,959 $1,542,610 $1,437,344

PREFERRED BANK
Selected Financial Information
(unaudited)
(in thousands, except for ratios)

For the Three Months Ended
June 30, March 31, December 31, June 30,
2008 2008 2007 2007
For the period:
Return on average assets 0.12% 0.89% 1.56% 2.01%
Return on average equity 1.18% 8.77% 14.59% 17.96%
Net interest margin
(Fully-taxable equivalent) 3.63% 4.11% 4.82% 5.15%
Noninterest expense
to average assets 1.72% 1.31% 1.36% 1.58%
Efficiency ratio 46.38% 32.04% 28.39% 30.28%
Net charge-offs to
average loans
(annualized) 2.35% 0.00% 0.00% 0.02%

Period end:
Tier 1 leverage
capital ratio 9.83% 9.84% 10.31% 11.61%
Tier 1 risk-based capital
ratio 10.94% 10.53% 10.54% 11.41%
Total risk-based capital
ratio 12.19% 11.93% 11.57% 12.44%
Nonperforming assets to
total assets 5.67% 2.88% 1.90% 0.02%
Nonaccrual loans to total
loans 4.48% 2.95% 1.69% 0.02%
Allowance for loan and
lease losses to total
loans 1.65% 1.62% 1.21% 1.02%
Allowance for loan and
lease losses to
nonaccrual loans 36.83% 55.12% 71.28% 4889.57%

Average balances:
Total loans and
leases $1,235,756 $1,218,485 $1,195,870 $1,067,016
Earning assets 1,505,801 1,478,608 1,432,486 1,352,686
Total assets 1,549,392 1,531,723 1,481,506 1,392,552
Total deposits 1,265,510 1,251,993 1,205,911 1,193,701

Period end:
Loans and Leases:
Real estate -
multifamily/
commercial $523,875 $543,767 $518,304 $438,418
Real estate -
construction* 356,630 * 350,426 366,706 330,866
Commercial and
industrial 242,982 253,852 255,912 226,191
Trade finance 84,535 81,592 91,565 110,463
Other 408 503 612 648
Total gross loans
and leases 1,208,430 1,230,140 1,233,099 1,106,586
Allowance for loan
and lease losses (19,960) (19,976) (14,896) (11,246)
Net deferred loan fees (123) (1,154) (682) (1,327)
Net loans and
leases $1,188,347 $1,209,010 $1,217,521 $1,094,013

Deposits:
Noninterest-bearing
demand $209,900 $213,301 $230,083 $247,822
Interest-bearing demand
and savings 226,514 230,403 230,618 225,682
Total core deposits 436,414 443,704 460,701 473,504
Time deposits 847,111 821,256 792,409 761,499
Total deposits $1,283,525 $1,264,960 $1,253,110 $1,235,003

* Real estate - construction of $356,630 Includes commercial real estate
constuction loans totalling $93,250

SOURCE Preferred Bank

Edward J. Czajka, Senior Vice President, Chief Financial Officer of Preferred
Bank, +1-213-891-1188; or General Information, Lasse Glassen of Financial
Relations Board, +1-213-486-6546, lglassen@financialrelationsboard.com, for
Preferred Bank