PFBC Preferred Bank

Highlights: LOS ANGELES, April 25 /PRNewswire-FirstCall/ -- Preferred Bank (NASDAQ:PFBC), an independent commercial bank focusing on the Chinese-American and diversified Southern California market, today reported net income for the quarter ended March 31, 2007. Net income totaled $6.5 million, a 26.8% increase over net income of $5.1 million for the same period in 2006 while diluted earnings per share increased 24.5% to $0.61 for the quarter compared to $0.49 for the first quarter of 2006. Mr. Li Yu, Chairman and President of Preferred Bank commented, "Although we did not break the record earnings of fourth quarter 2006, I am pleased with the bank's progress when considering the following: * In the fourth quarter of 2006 we reduced our income tax provision by $118,000 due to California enterprise zone tax credits and in the first quarter of 2007 we booked a $36,000 receivable related to enterprise zone tax credits from the 2003 tax year. This represents a sequential quarter difference in enterprise zone credits of $82,000. * First quarter of 2007 operating results included employer-paid payroll taxes related to the payout of our annual bonus and the after-tax effect to net income was $138,000. * The bank accrues net interest income on a calendar day basis. While the fourth quarter of 2006 has 92 calendar days, the first quarter of 2007 has only 90 days. Estimated difference to net interest income after tax is approximately $170,000. "After an extraordinary quarter of loan and deposit production in the fourth quarter of 2006, we are pleased with the continuous growth in loans and deposits in this quarter. Our net interest margin remains very adequate even with the increase in deposit costs caused by the change in deposit mix," added Mr. Yu. Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses increased to $16.2 million, compared to $13.2 million for the quarter ended March 31, 2006. The 22.6% increase was due to the growth in the loan portfolio as well as previous increases in the Prime lending rate. The Company's net interest margin maintained at 5.16% for the first quarter of 2007, down slightly from the 5.19% achieved in the fourth quarter of 2006 and 16 basis points over the 5.00% for the first quarter of 2006. The net interest margin was aided in the first quarter of 2007 by a large prepayment penalty received on a loan payoff. Noninterest Income. For the first quarter of 2007 noninterest income was $763,000 compared with $799,000 for the same quarter last year. The lower noninterest income this quarter was due mainly to a decrease in Trade Finance income of $104,000 partially offset by an increase in other fees of $78,000. Noninterest Expense. Total noninterest expense was $5,376,000 for the first quarter of 2007, compared to $4,826,000 for the same period in 2006, a $550,000 or 11.4% increase. Salaries and benefits increased by $668,000 to $3,600,000 for the first quarter of 2007 compared to $2,932,000 in the same period of 2006. The increase was primarily due to staffing increases in the business development area as well as an increase in bonus expense as the bonus expense is directly tied to the Company's pre-tax profit after certain ROE goals are met. Professional services expense increased to $519,000 for the quarter compared to $426,000 recorded in the same period of 2006 due primarily to increased audit costs for the Company's compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Operating Efficiency Ratio. For the quarter, the operating efficiency ratio was 31.6% as compared to 34.4% for the same quarter in 2006. The year-over-year improvement is primarily attributable to the Company's ability to grow net interest income at a faster pace than noninterest expense. Balance Sheet Summary Total gross loans and leases at March 31, 2007 were $1.06 billion, a $59.3 million or 5.9% increase over the $997 million at December 31, 2006. Commercial real estate loans decreased by $14.3 million or 3.3%, construction loans increased $38.5 million or 14.2% and commercial loans increased $23.2 million or 11.5%. Total deposits as of March 31, 2007 were $1.196 billion, an increase of $34.3 million or 3.0% over the $1.161 billion at December 31, 2006. Noninterest-bearing demand deposits increased by $5.5 million or 2.5%, interest-bearing demand and savings deposits decreased by $5.8 million or 2.6% and time deposits increased by $34.6 million or 4.9%. Total assets were $1.39 billion, a 2.9% increase over the total of $1.35 billion as of December 31, 2006. Asset Quality As of March 31, 2007 total nonaccrual loans were $230,000 compared to $1.12 million as of December 31, 2006 and $0 as of December 31, 2005. Total net charge-offs were $200,000 or an annualized 0.08% of average loans for the first quarter 2007. The allowance for loan loss at March 31, 2007 was $10.6 million or 1.01% of total loans compared to $10.2 million and 1.03%, respectively at December 31, 2006. Capitalization Preferred Bank continues to be "well capitalized" under all regulatory requirements, with a Tier 1 leverage ratio of 11.60% and a total risk based capital ratio of 12.19% at March 31, 2007. Conference Call and Webcast A conference call with simultaneous webcast to discuss Preferred Bank's first quarter 2007 financial results will be held today, April 25, at 5:00 p.m. Eastern / 2:00 p.m. Pacific. Interested participants and investors may access the conference call by dialing (866) 249-6463 (domestic) or (303) 262-2050 (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 and CEO Li Yu, Chief Credit Officer, Walt Duchanin 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 May 2, 2007; the pass code is 11088551. 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 2006 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation. 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 (310) 854-8313 (213) 891-1188 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 March 31, December 31, March 31, 2007 2006 2006 Interest income: Loans, including fees $22,993 $22,505 $15,984 Investment securities 2,727 2,412 1,881 Fed funds sold 794 960 1,409 Total interest income 26,514 25,877 19,274 Interest expense: Interest-bearing demand 667 659 521 Savings 761 811 319 Time certificates of $100,000 or more 6,006 7,068 4,202 Other time certificates 2,632 1,036 801 Fed funds purchased 31 42 11 FHLB borrowings 183 187 183 Total interest expense 10,280 9,803 6,037 Net interest income 16,234 16,074 13,237 Provision for credit losses 600 700 560 Net interest income after provision for loan losses 15,634 15,374 12,677 Noninterest income: Fees & service charges on deposit accounts 421 432 436 Trade finance income 145 160 249 BOLI income 84 84 79 Other income 113 60 35 Total noninterest income 763 736 799 Noninterest expense: Salary and employee benefits 3,600 3,105 2,932 Net occupancy expense 591 554 594 Business development and promotion expense 46 149 104 Professional services 519 468 426 Office supplies and equipment expense 188 245 220 Other 432 524 550 Total noninterest expense 5,376 5,045 4,826 Income before provision for income taxes 11,021 11,065 8,650 Provision for income taxes 4,528 4,431 3,529 Net income $6,493 $6,634 $5,121 Other comprehensive income: Unrealized net gains (losses) on securities available-for-sale 564 29 193 Income taxes related to items of other comprehensive income (237) (13) (81) Other comprehensive income (loss), net of tax 327 16 112 Comprehensive income 6,820 6,650 5,233 Net income per share - basic $0.63 $0.65 $0.51 Net income per share - diluted $0.61 $0.62 $0.49 Weighted-average common shares outstanding Basic 10,364,874 10,272,949 10,045,428 Diluted 10,682,401 10,630,473 10,504,735 PREFERRED BANK Condensed Statements of Financial Condition (unaudited) (in thousands) March 31, December 31, Change 2007 2006 % Assets Cash and due from banks $23,992 $26,878 (10.7) Fed funds sold 85,800 103,700 (17.3) Cash and cash equivalents 109,792 130,578 (15.9) Securities available-for-sale, at fair value 201,919 198,689 1.6 Loans and leases 1,056,627 997,317 5.9 Less allowance for loan and lease losses (10,636) (10,236) 3.9 Less net deferred loan fees (1,643) (1,759) (6.6) Net loans and leases 1,044,348 985,322 6.0 Customers' liability on acceptances 306 268 14.2 Bank furniture and fixtures, net 1,647 1,711 (3.7) Bank-owned life insurance 7,963 7,896 0.8 Accrued interest receivable 8,691 8,633 0.7 Federal Home Loan Bank ("FHLB") stock 3,736 3,682 1.5 Deferred tax assets 9,577 9,544 0.3 Other asset 629 2,518 (75.0) Total assets $1,388,608 $1,348,841 2.9 Liabilities and Stockholders' Equity Liabilities: Deposits: Demand 230,525 224,982 2.5 Interest-bearing demand 132,077 124,094 6.4 Savings 86,230 100,011 (13.8) Time certificates of $100,000 or more 655,681 619,110 5.9 Other time certificates 91,158 93,147 (2.1) Total deposits $1,195,671 $1,161,344 3.0 Acceptances outstanding 306 268 14.2 Advances from Federal Home Loan Bank 20,000 20,000 -- Accrued interest payable 5,027 5,272 (4.7) Other liabilities 14,769 16,025 (7.8) Total liabilities 1,235,773 1,202,909 2.7 Commitments and contingencies Stockholders' equity: Preferred stock. Authorized 5,000,000 shares; no share issued and outstanding at March 31,2007 and December 31, 2006 -- -- Common stock, no par value. Authorized 100,000,000 shares; issued 71,110 69,658 2.1 and outstanding 10,414,132 and 10,274,632 shares at March 31, 2007 and December 31, 2006, respectively Additional paid-in-capital 1,902 1,502 26.6 Retained earnings 79,943 75,219 6.3 Accumulated other comprehensive loss: Unrealized loss on securities available-for-sale, net of tax (120) (447) (73.2) Total stockholders' equity 152,835 145,932 4.7 Total liabilities and stockholders' equity $1,388,608 $1,348,841 2.9 PREFERRED BANK Selected Financial Information (unaudited) (in thousands, except for ratios) For the Three Months Ended March 31, March 31, December 31, 2007 2006 2006 For the period: Return on average assets 1.99% 1.86% 2.07% Return on average equity 17.55% 16.49% 18.39% Net interest margin (Fully-taxable equivalent) 5.16% 5.00% 5.19% Noninterest expense to average assets 1.65% 1.75% 1.57% Efficiency ratio 31.63% 34.38% 30.01% Net charge-offs to average loans (annualized) 0.08% 0.16% 0.03% Period end: Tier 1 leverage capital ratio 11.60% 11.54% 11.50% Tier 1 risk-based capital ratio 11.40% 12.30% 11.52% Total risk-based capital ratio 12.19% 13.19% 12.33% Nonperforming assets to total assets 0.02% 0.60% 0.08% Nonaccrual loans to total loans 0.02% 0.06% 0.11% Allowance for loan and lease losses to total loans 1.01% 1.11% 1.03% Allowance for loan and lease losses to nonaccrual loans 4624.35% 1894.56% 913.93% Average balances: Total loans and leases $1,010,148 $777,291 $969,877 Earning assets 1,281,814 1,079,513 1,233,616 Total assets 1,320,501 1,118,791 1,272,501 Total deposits 1,127,321 953,921 1,082,129 Period end: Loans and Leases: Real estate - multifamily/commercial $423,997 $398,508 $438,280 Real estate - construction 309,479 196,487 271,021 Commercial 224,547 157,775 201,385 Trade finance 98,109 76,579 86,067 Other 495 905 564 Total gross loans and leases 1,056,627 830,254 997,317 Allowance for loan and lease losses (10,636) (9,184) (10,236) Net deferred loan fees (1,643) (1,902) (1,759) Net loans and leases $1,044,348 $819,168 $985,322 Deposits: Noninterest-bearing demand $230,525 $216,405 $224,982 Interest-bearing demand and savings 218,307 206,965 224,105 Total core deposits 448,832 423,370 449,087 Time deposits 746,839 571,940 712,257 Total deposits $1,195,671 $995,310 $1,161,344 DATASOURCE: Preferred Bank CONTACT: 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, +1-310-854-8313, , for Preferred Bank Web site: http://www.preferredbank.com/

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