PFBC Preferred Bank

Highlights: LOS ANGELES, Jan. 24 /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 and year ended December 31, 2007. Net income totaled $5.8 million, a 12.1% decrease over net income of $6.6 million for the same period in 2006 while diluted earnings per share decreased 8.1% to $0.57 for the quarter compared to $0.62 for the fourth quarter of 2006. Net income for the quarter was negatively impacted by a provision for loan losses of $2.9 million and a pre-tax write down of $332,000 on a corporate debt security that was purchased in 2002. Excluding this write down, net income for the fourth quarter of 2007 was $6.0 million or $0.58 per diluted share. Mr. Li Yu, Chairman and President of Preferred Bank commented, "For the year ended December 31, 2007, we reported record profit of $2.50 per diluted share, record levels of assets, loans and deposits. The results exceeded our internal expectation when considering the current economic environment, the effect of rate cuts on our asset sensitive balance sheet and the increase in our loan loss provision." "For the fourth quarter 2007, we recorded $2.9 million in provision for loan losses due to a few loans that our credit review process determined were higher risk due to some deterioration in the financial condition of the borrowers. As of December 31, 2007, we have two real estate related construction loans totaling $14.4 million placed as non-accrual. There were no loans charged off for the quarter; and net charge offs for year amounted to $240,000. Looking forward, we expect our housing construction loan balances to continue to decline. We continue to be very concerned with the current housing slump and related mortgage crisis and we see no indication that we have approached the bottom of this cycle as of yet. Our mission however, will be growing the bank's overall business in a very challenging environment." Operating Results for the Quarter Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses increased to $17.2 million, compared to $16.1 million for the fourth quarter of 2006. The 6.8% increase was due primarily to the growth in the loan portfolio. The Company's net interest margin was 4.82% for the fourth quarter of 2007, down from the 5.19% achieved in the fourth quarter of 2006 and down from the 5.11% for the third quarter of 2007. Four factors impacted the net interest margin in the fourth quarter of 2007; the FOMC's interest rate cuts, continued increase in funding costs partially offset by a favorable asset mix shift, and to a lesser extent, the funds used in the Company's stock repurchase. Thus far, 500,000 shares have been repurchased at an average price of $29.95. Noninterest Income. For the fourth quarter of 2007 noninterest income was $756,000 compared with $736,000 for the same quarter last year and $752,000 for the third quarter of 2007. The increase in noninterest income this quarter compared to last year was due mainly to a slight increase in service charges to $455,000 from $432,000 in the same period last year. Noninterest Expense. Total noninterest expense was $5,090,000 for the fourth quarter of 2007, compared to $5,045,000 for the same period in 2006 and $5,519,000 for the third quarter of 2007. Most of the decrease on a sequential quarter basis was due to a decrease in salary and benefits which was the result of a decrease in bonus expense. Professional services increased by $282,000 on a year-over-year basis due to higher internal and external audit costs and consulting costs due to compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Other expense was up over both the third quarter of 2007 and the fourth quarter of 2006 due to the pre-tax charge of $332,000 on a corporate debt security. Due to a significant drop in the fair value of this security in the fourth quarter of 2007, management determined that this available-for-sale security was other-than-temporarily impaired due to worsening credit conditions of the issuer. In addition, during the fourth quarter the bank incurred OREO expense of $205,000 related to the property that was foreclosed on in December 2007. Operating Efficiency Ratio. For the quarter, the operating efficiency ratio was 28.4% as compared to 30.0% for the same quarter in 2007 and 29.9% recorded in the third quarter of 2007. 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. Operating Results for the Full Year 2007 Net income totaled $26,467,000 or $2.50 diluted earnings per share for the twelve months ended December 31, 2007 as compared to $23,351,000 or $2.21 for the same period in 2006. This represents an increase in net income of 13.3% and an increase in diluted earnings per share of 13.1%. The increase in net income is the result of an increase in net interest income before provision for loan losses of $9,570,000 partially offset by an increase in provision for loan losses of $2,940,000 and an increase in noninterest expense of $1,444,000. Balance Sheet Summary Total gross loans and leases at December 31, 2007 were $1.23 billion, a $235.8 million or 23.6% increase over the $997 million at December 31, 2006 and a $45.2 million or 3.8% increase over the $1.19 billion total as of September 30, 2007. Commercial real estate loans were up from $416.2 million as of December 31, 2006 to $518.3 million at December 31, 2007 while construction loans increased $73.6 million from December 31, 2006 and commercial & industrial loans increased $54.5 million from December 31, 2006. Total deposits as of December 31, 2007 were $1.253 billion, an increase of $91.8 million or 7.9% over the $1.161 billion at December 31, 2006 and a $5.4 million or 0.4% increase over the $1.248 billion total as of September 30, 2007. Noninterest-bearing demand deposits increased by $5.1 million or 2.3%, interest-bearing demand and savings deposits increased by $8.3 million or 3.7% and time deposits increased by $78.4 million or 11.0%. In order to continue funding loan growth, the bank took down $10 million in FHLB term advances during the fourth quarter as an alternative to more expensive CD's. Total assets were $1.54 billion, a 14.5% increase over the total of $1.35 billion as of December 31, 2006. Asset Quality As of December 31, 2007 total nonaccrual loans were $20.9 million compared to $1.12 million as of December 31, 2006 and $8.9 million as of September 30, 2007. In December, 2007, the Bank foreclosed on and took back an $8.4 million loan that had been reported as nonaccrual as of September 30, 2007. During the fourth quarter the Bank placed three commercial loans totaling $6.5 million, and two housing related construction loans totaling $14.4 million on nonaccrual. Total net charge-offs were $240,000 or an annualized 0.02% of average loans for the year 2007. The allowance for loan loss at December 31, 2007 was $14.9 million or 1.21% 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 10.31% and a total risk based capital ratio of 11.57% at December 31, 2007. Conference Call and Webcast A conference call with simultaneous webcast to discuss Preferred Bank's 2007 financial results will be held today, January 24, at 5:00 p.m. Eastern / 2:00 p.m. Pacific. Interested participants and investors may access the conference call by dialing (800) 240-2430 (domestic) or (303) 262-2137 (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 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 January 31, 2008; the pass code is 11107096. 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 (213) 486-6546 (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 December 31, September 30, December 31, 2007 2007 2006 Interest income: Loans, including fees $25,352 $25,954 $22,505 Investment securities 3,192 2,838 2,412 Fed funds sold 35 441 960 Total interest income 28,579 29,233 25,877 Interest expense: Interest-bearing demand 590 683 659 Savings 800 1,105 796 Time certificates of $100,000 or more 7,304 7,878 7,068 Other time certificates 1,731 1,465 1,051 Fed funds purchased 731 14 42 FHLB borrowings 248 380 187 Total interest expense 11,404 11,525 9,803 Net interest income 17,175 17,708 16,074 Provision for credit losses 2,900 750 700 Net interest income after provision for loan losses 14,275 16,958 15,374 Noninterest income: Fees & service charges on deposit accounts 455 426 432 Trade finance income 144 200 160 BOLI income 87 86 83 Other income 70 40 61 Total noninterest income 756 752 736 Noninterest expense: Salary and employee benefits 2,140 3,030 3,105 Net occupancy expense 589 621 554 Business development and promotion expense 173 96 149 Professional services 750 658 468 Office supplies and equipment expense 261 267 245 Other 1,177 847 524 Total noninterest expense 5,090 5,519 5,045 Income before provision for income taxes 9,941 12,191 11,065 Provision for income taxes 4,112 5,031 4,431 Net income $5,829 $7,160 $6,634 Net income per share - basic $0.57 $0.69 $0.65 Net income per share - diluted $0.57 $0.67 $0.62 Weighted-average common shares outstanding Basic 10,154,749 10,380,279 10,272,950 Diluted 10,301,706 10,653,108 10,630,473 PREFERRED BANK Condensed Statements of Income (unaudited) (in thousands, except for net income per share and shares) For the Year Ended December 31, December 31, Change 2007 2006 % Interest income: Loans, including fees $98,817 $77,186 28.0% Investment securities 11,522 8,699 32.5% Fed funds sold 2,268 4,377 -48.2% Total interest income 112,607 90,262 24.8% Interest expense: Interest-bearing demand 2,668 2,456 8.6% Savings 3,494 2,427 44.0% Time certificates of $100,000 or more 30,879 22,006 40.3% Other time certificates 5,384 3,669 46.7% Fed funds purchased 295 58 408.6% FHLB borrowings 1,479 808 83.0% Total interest expense 44,199 31,424 40.7% Net interest income 68,408 58,838 16.3% Provision for credit losses 4,900 1,960 150.0% Net interest income after provision for loan losses 63,508 56,878 11.7% Noninterest income: Fees & service charges on deposit accounts 1,696 1,660 2.2% Trade finance income 752 777 -3.2% BOLI income 343 326 5.2% Other income 299 265 12.8% Total noninterest income 3,090 3,028 2.0% Noninterest expense: Salary and employee benefits 11,868 12,216 -2.8% Net occupancy expense 2,395 2,303 4.0% Business development and promotion expense 409 451 -9.3% Professional services 2,719 1,948 39.6% Office supllies and equipment expense 955 943 1.3% Other 3,115 2,156 44.5% Total noninterest expense 21,461 20,017 7.2% Income before provision for income taxes 45,137 39,889 13.2% Provision for income taxes 18,670 1 6,538 12.9% Net income $26,467 $23,351 13.3% Net income per share - basic $2.56 $2.29 11.8% Net income per share - diluted $2.50 $2.21 13.1% Weighted-average common shares outstanding Basic 10,330,232 10,194,515 1.3% Diluted 10,580,949 10,556,282 0.2% PREFERRED BANK Condensed Statements of Financial Condition (unaudited) (in thousands) December December September 31, 31, 30, 2007 2006 2007 Assets Cash and due from banks $22,803 $26,878 $31,389 Fed funds sold - 103,700 40,550 Cash and cash equivalents 22,803 130,578 71,939 Securities available-for-sale, at fair value 245,268 198,689 201,722 Loans and leases 1,233,099 997,317 1,187,903 Less allowance for loan and lease losses (14,896) (10,236) (11,996) Less net deferred loan fees (682) (1,759) (1,081) Net loans and leases 1,217,521 985,322 1,174,826 Other real estate owned 8,444 - - Customers' liability on acceptances 5,083 268 11,355 Bank furniture and fixtures, net 4,721 1,711 1,576 Bank-owned life insurance 8,168 7,896 8,099 Accrued interest receivable 10,165 8,633 9,524 Federal Home Loan Bank ("FHLB") stock 4,700 3,682 4,330 Deferred tax assets 12,278 9,544 12,183 Other asset 3,459 2,518 10,693 Total assets $1,542,610 $1,348,841 $1,506,247 Liabilities and Stockholders' Equity Liabilities: Deposits: Demand 230,083 224,982 224,099 Interest-bearing demand 137,220 124,094 137,799 Savings 93,398 100,011 116,171 Time certificates of $100,000 or more 639,455 566,725 622,936 Other time certificates 152,954 145,532 146,741 Total deposits $1,253,110 $1,161,344 $1,247,746 Acceptances outstanding 5,083 268 11,355 Advances from Federal Home Loan Bank /FF purchased 111,000 20,000 65,000 Accrued interest payable 5,493 5,272 5,599 Other liabilities 14,972 16,025 15,721 Total liabilities 1,389,658 1,202,909 1,345,421 Commitments and contingencies Stockholders' equity: Common stock, no par value 71,863 69,658 71,732 Treasury stock (14,976) - (3,843) Additional paid-in-capital 2,948 1,502 2,591 Retained earnings 94,595 75,219 90,536 Accumulated other comprehensive loss: Unrealized loss on securities available-for-sale, net of tax (1,478) (447) (190) Total stockholders' equity 152,952 145,932 160,826 Total liabilities and stockholders' equity $1,542,610 $1,348,841 $1,506,247 PREFERRED BANK Selected Financial Information (unaudited) (in thousands, except for ratios) For the Three Months Ended December 31, September 30, June 30, December 31, 2007 2007 2007 2006 For the period: Return on average assets 1.56% 1.99% 2.01% 2.07% Return on average equity 14.59% 17.75% 17.96% 18.39% Net interest margin (Fully-taxable equivalent) 4.82% 5.11% 5.15% 5.19% Noninterest expense to average assets 1.36% 1.54% 1.58% 1.57% Efficiency ratio 28.39% 29.89% 30.28% 30.01% Net charge-offs to average loans (annualized) 0.00% 0.00% 0.02% 0.03% Period end: Tier 1 leverage capital ratio 10.31% 11.30% 11.61% 11.50% Tier 1 risk-based capital ratio 10.54% 11.03% 11.41% 11.52% Total risk-based capital ratio 11.57% 11.86% 12.44% 12.33% Nonperforming assets to total assets 1.90% 0.59% 0.02% 0.08% Nonaccrual loans to total loans 1.69% 0.75% 0.02% 0.11% Allowance for loan and lease losses to total loans 1.21% 1.01% 1.02% 1.03% Allowance for loan and lease losses to nonaccrual loans 71.28% 134.62% 4889.57% 913.93% Average balances: Total loans and leases $1,195,870 $1,137,769 $1,067,016 $969,877 Earning assets 1,432,486 1,381,068 1,352,686 1,233,616 Total assets 1,481,508 1,424,938 1,392,552 1,272,501 Total deposits 1,205,911 1,201,761 1,193,701 1,082,129 Period end: Loans and Leases: Real estate - multifamily/ commercial $518,304 $468,366 $428,901 $438,280 Real estate - construction 366,706 386,256 340,383 271,021 Commercial 255,912 218,853 226,191 201,385 Trade finance 91,565 113,956 110,463 86,067 Other 612 472 648 564 Total gross loans and leases 1,233,099 1,187,903 1,106,586 997,317 Allowance for loan and lease losses (14,896) (11,996) (11,246) (10,236) Net deferred loan fees (682) (1,081) (1,327) (1,759) Net loans and leases $1,217,521 $1,174,826 $1,094,013 $985,322 Deposits: Noninterest-bearing demand $230,083 $224,099 $247,822 $224,982 Interest-bearing demand and savings 232,405 253,970 225,682 224,105 Total core deposits 462,488 478,069 473,504 449,087 Time deposits 790,622 769,677 761,499 712,257 Total deposits $1,253,110 $1,247,746 $1,235,003 $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, +1-213-486-6546, , for Preferred Bank Web site: http://www.preferredbank.com/

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