Preferred Bank Reports Record Third Quarter Earnings of $6.1 Million, a 39% Increase From 2005

LOS ANGELES, Oct. 18 /PRNewswire-FirstCall/ -- Preferred Bank , an independent commercial bank focusing on the Chinese-American and diversified Southern California market, today reported record net income for the quarter ended September 30, 2006. Net income totaled $6.1 million, a 39% increase over net income of $4.4 million for the same period in 2005 while diluted earnings per share increased 37% to $0.86 for the quarter compared to $0.63 for the third quarter of 2005.

Mr. Li Yu, Chairman and President of Preferred Bank commented, "I am very pleased with the operating results for the quarter. Net income hit another record high with diluted earnings per share reaching $0.86. The results exceeded my personal expectations despite the steady rise in our funding costs. The net interest margin continued to expand due to the previous Federal Reserve rate increases and a continued shift in earning assets out of fed funds into loans. Even with the higher deposit costs, deposit growth has been disappointing. It appears that we will have to continue to raise our rates paid on deposits so that deposit growth may keep pace with our loan growth."

Operating Results for the Quarter

Net Interest Income and Net Interest Margin. Net interest income before provision for loan and lease losses increased to $15.2 million, compared to $11.4 million for the third quarter of 2005. The 34.0% 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 increased to 5.23% from 5.20% for the second quarter of 2006 and from 4.50% for the third quarter 2005.

Noninterest Income. For the third quarter of 2006 noninterest income was $724,000 compared with $956,000 for the same quarter last year. The lower noninterest income this quarter was due to a decrease in service charges on deposits of $191,000 which was because of an increase in earnings allowance on demand deposits that are on account analysis. In addition, Trade Finance income decreases from $208,000 in the third quarter of 2005 to $177,000 for the third quarter of 2006.

Noninterest Expense. Salaries and benefits increased to $3,146,000 for the third quarter of 2006 compared to $3,033,000 in the second quarter of 2006 and to $2,608,000 in the same quarter last year. The increase was primarily due to staffing increases in the business development area. In addition, the second and third quarter of 2006 also includes approximately $172,000 and $195,000 respectively, of stock option expenses recorded in accordance with SFAS 123R, for which there was no corresponding expense in the third quarter of 2005. Professional services expense increased to $493,000 for the quarter compared to $384,000 recorded in the same period of 2005 due primarily to the Company's preparation to implement Section 404 of the Sarbanes-Oxley Act of 2004 as well as complying with the provisions of the Federal Deposit Insurance Corporation Improvement Act or, FDICIA.

Operating Efficiency Ratio. For the quarter, the operating efficiency ratio was 32.2% as compared to 35.7% for the same quarter in 2005. 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.

Earnings per Diluted Share. Due to continued exercising of employees' stock options and an increase in the market price of the Company's stock, the average outstanding diluted shares increased to 7,071,423 from 7,016,313 shares from the second quarter of 2006. As a result, on a sequential quarter basis, net income increased 10.1% compared to the second quarter of 2006 while the earnings per diluted share increased 8.9%.

Operating Results for Nine Months

Net income totaled $16.7 million or $2.38 diluted earnings per share for the nine months ended September 30, 2006 compared to net income of $11.9 million or $1.76 per diluted share for the same period last year. This represents an increase in net income of 40.6% and an increase in diluted earnings per share of 35.2%. The increase in year-to-date net income is primarily due to net interest income which increased by $11.3 million in 2006 over 2005 levels.

Balance Sheet Summary

Total gross loans and leases at September 30, 2006 was $919 million, a 19.9% increase over the $767 million at September 30, 2005 and a 19.2% increase compared to $771 million at December 31, 2005. Total deposits as of September 30, 2006 were $1.06 billion, an increase of 12.2% over the $943 million at September 30, 2005 and an 8.4% increase compared to the total deposits of $975 million at December 31, 2005.

Asset Quality

As of September 30, 2006, total nonaccrual loans were $0 compared to $0.5 million as of June 30, 2006 and compared to $0 as of September 30, 2005. Total charge-offs were $75,000 or an annualized 0.03% of average loans for the third quarter 2006. The allowance for loan loss at September 30, 2006 was $9.6 million or 1.05% of total loans compared to $8.5 million and 1.11%, respectively at September 30, 2005.

Capitalization

Preferred Bank continues to be "well capitalized" under all regulatory requirements, with a Tier I leverage ratio of 11.82% and a total risk based capital ratio of 12.41% at September 30, 2006.

Conference Call and Webcast

A conference call with simultaneous webcast to discuss Preferred Bank's third quarter 2006 financial results will be held tomorrow, October 19 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing [phone] (domestic) or [phone] (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 October 26, 2006; the pass code is 11073244.

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 third 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 2005 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/.

For Further Information: AT THE COMPANY: AT FINANCIAL RELATIONS BOARD: Edward J. Czajka Lasse Glassen Senior Vice President General Information Chief Financial Officer [phone] [phone] BANK Condensed Statements of Income (unaudited) (in thousands, except for net income per share and shares) For the Three Months Ended September 30, 2006 2005 % Change Interest income: Loans, including fees $20,215 $13,348 51.4 Investment securities 2,243 1,606 39.7 Fed funds sold and securities purchased under resale agreements 1,195 909 31.5 Total interest income 23,653 15,863 49.1 Interest expense: Interest on deposits 8,177 4,307 89.9 FHLB borrowings 253 187 35.3 Fed funds purchased and securities sold under repurchase agreements 2 6 (66.7) Total interest expense 8,432 4,500 87.4 Net interest income 15,221 11,363 34.0 Provision for credit losses 350 580 (39.7) Net interest income after provision for credit losses 14,871 10,783 37.9 Noninterest income: Fees & service charges on deposit accounts 419 492 (14.8) Trade finance income 177 208 (14.9) Other income 128 256 (50.0) 724 956 (24.3) Noninterest expense: Salary and employee benefits 3,146 2,608 20.6 Net occupancy expense 573 550 4.2 Professional services 493 384 28.4 Other expense 915 855 7.0 5,127 4,397 16.6 Income before provision for income taxes 10,468 7,342 42.6 Provision for income taxes 4,390 2,974 47.6 Net income $6,078 $4,368 39.1 Net income per share - basic $0.89 $0.66 34.8 Net income per share - diluted $0.86 $0.63 36.5 Shares used to compute per share net income: Basic 6,834,895 6,665,750 2.5 Diluted 7,071,423 6,930,958 2.0 PREFERRED BANK Condensed Statements of Income (unaudited) (in thousands, except for net income per share and shares) For The Nine Months Ended September 30, 2006 2005 % Change Interest income: Loans, including fees $54,640 $35,339 54.6 Investment securities 6,287 4,712 33.4 Fed funds sold 3,417 2,224 53.6 Total interest income 64,344 42,275 52.2 Interest expense: Interest on deposits 20,984 10,523 99.4 FHLB borrowings 621 290 114.1 Fed funds purchased 17 8 n.m. Total interest expense 21,622 10,821 99.8 Net interest income 42,722 31,454 35.8 Provision for credit losses 1,260 1,660 (24.1) Net interest income after provision for credit losses 41,462 29,794 39.2 Noninterest income: Fees & service charges on deposit accounts 1,228 1,457 (15.7) Trade finance income 617 540 14.3 Net other real estate owned income -- 195 (100.0) Other income 487 758 (35.8) 2,332 2,950 (20.9) Noninterest expense: Salary and employee benefits 9,111 7,646 19.2 Net occupancy expense 1,749 1,580 10.7 Professional services 1,480 1,103 34.2 Other expense 2,629 2,500 5.2 14,969 12,829 16.7 Income before provision for income taxes 28,825 19,915 44.7 Provision for income taxes 12,107 8,023 50.9 Net income $16,718 $11,892 40.6 Net income per share - basic $2.47 $1.84 34.2 Net income per share - diluted $2.38 $1.76 35.2 Shares used to compute per share net income: Basic 6,778,721 6,468,018 4.8 Diluted 7,019,266 6,742,371 4.1 PREFERRED BANK Condensed Statements of Financial Condition (unaudited) (in thousands) September 30, December 31, September 30, 2006 2005 2005 Assets Cash and due from banks $22,820 $25,123 $25,855 Fed funds sold 95,900 158,300 125,200 Cash and cash equivalents 118,720 183,423 151,055 Investment securities available-for-sale, at fair value 176,721 162,935 162,261 Loans and leases 918,971 771,143 766,562 Less allowance for credit losses (9,609) (8,939) (8,494) Less net deferred loan fees (1,993) (1,537) (1,308) Net loans and leases 907,369 760,667 756,760 Other real estate owned 809 -- -- Customers' liability on acceptances 554 628 407 Bank premises and equipment, net 1,527 1,835 1,731 Bank-owned life insurance (BOLI) 7,830 7,637 7,574 Accrued interest receivable and other assets 22,900 19,595 17,514 Total assets $1,236,430 $1,136,720 $1,097,302 Liabilities and Stockholders' Equity Liabilities: Deposits $1,057,620 $975,467 $942,965 Acceptances outstanding 554 628 407 Federal Home Loan Bank (FHLB) borrowings 20,000 20,000 20,000 Accrued expenses and other liabilities 17,896 16,779 13,681 Total liabilities 1,096,070 1,012,874 977,053 Stockholders' equity: Common stock, no par value 70,310 67,683 67,427 Additional paid-in-capital 687 272 266 Retained earnings 69,827 57,033 53,240 Accumulated other comprehensive income (loss): Unrealized gain (loss) on securities available-for-sale, net of tax (464) (1,142) (684) Total stockholders' equity 140,360 123,846 120,249 Total liabilities and stockholders' equity $1,236,430 $1,136,720 $1,097,302 PREFERRED BANK Selected Financial Information (unaudited) (in thousands, except for ratios) For the Three Months Ended September 30, June 30, December 31, September 2006 2006 2005 2005 For the period: Return on average assets 2.02% 1.94% 1.82% 1.67% Return on average equity 17.60% 16.92% 16.04% 14.61% Net interest margin (non-taxable equivalent) 5.23% 5.20% 4.81% 4.50% Noninterest expense to average assets 1.71% 1.77% 1.75% 1.68% Efficiency ratio 32.15% 33.28% 35.17% 35.69% Net charge-offs to average loans (annualized) 0.03% 0.10% 0.00% 0.00% Period end: Tier 1 leverage capital ratio 11.82% 11.84% 11.63% 11.63% Tier 1 risk-based capital ratio 11.61% 11.73% 12.59% 12.56% Total risk-based capital ratio 12.41% 12.55% 13.51% 13.44% Nonperforming assets to total assets 0.07% 0.04% 0.00% 0.00% Nonaccrual loans to total loans 0.00% 0.05% 0.00% 0.00% Allowance for loan and lease losses to total loans 1.05% 1.05% 1.16% 1.11% Allowance for loan and lease losses to nonaccrual loans n.m. 1924.54% n.m. n.m. Average Balances: Total loans and leases $879,805 $841,632 $764,552 $719,380 Earning assets 1,154,529 1,100,955 1,035,412 1,001,436 Total assets 1,190,853 1,139,355 1,072,917 1,038,161 Total deposits 1,009,981 974,788 915,131 884,081 Loans and Leases: Real estate - multifamily/ commercial $401,423 $439,509 $372,251 $421,474 Real estate - construction 236,981 182,252 171,646 129,213 Commercial 187,207 174,516 149,428 138,800 Trade finance 92,534 89,385 76,700 63,535 Loans committed to participating banks -- -- -- 12,587 Other 826 976 1,119 953 Total gross loans and leases 918,971 886,638 771,144 766,562 Allowance for loan and lease losses (9,609) (9,334) (8,939) (8,494) Net deferred loan fees (1,993) (2,169) (1,537) (1,308) Net loans and leases $907,369 $875,135 $760,668 $756,760 Deposits: Noninterest-bearing demand $221,193 $225,535 $211,942 $197,075 Interest-bearing demand and savings 201,102 220,619 202,986 207,897 Total core deposits 422,295 446,154 414,928 404,972 Time deposits 635,325 599,779 560,539 537,993 Total deposits $1,057,620 $1,045,933 $975,467 $942,965