Welcome to the Preferred Bank first quarter 2009 conference call. During today’s presentation all parties will be in a listen only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Friday April 17, 2009. I would now like to turn the conference over to Lasse Glassen, Financial Relations Board.

Thanks for joining us to discuss Preferred Bank’s results for the first quarter ended March 31, 2009. With us today from management are Mr. Li Yu, Chairman, President and Chief Executive Officer; Bob Kosof, Chief Credit Officer; and Ed Czajka, Chief Financial Officer. Management will provide a brief summary of the quarter and then we’ll open the call up to your questions. During the course of this conference call, statements made by management may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon specific assumptions that may or may not prove correct. Forward-looking statements are also subject to known and unknown risks, uncertainties and other factors related to Preferred Bank’s operations and business environment all of which are difficult to predict and many of which are beyond the control of Preferred Bank. For a detailed description of these risks and uncertainties please refer to the documents the company files with the Federal Deposit Insurance Corporation or FDIC. If any of these uncertainties materialize or any of these assumptions prove incorrect, Preferred Bank’s results may differ materially from its expectations as set forth in these statements. Preferred Bank assumes no obligation to update such forward-looking statements. At this time I’d now like to turn the call over to Mr. Li Lu.

Thank you for joining Preferred Bank’s earnings conference today. For the first quarter of 2009 we’re reporting a small $0.03 net income from operations. Although the number is small but we are somewhat relieved that the number shows a positive side in the results. More importantly, when I wrote the press release it was about last Friday or Monday and we were seeing several reports from the public including [Case General] saying several markets in our area has firmed up in terms of our median pricing is concerned. It was just yesterday we have received information from Los Angeles Times, MSNBC, CNBC, all those publications dot com have showed that most of the area, not all, even including the Riverside County and Ventura County has showed the median prices is stabilizing which is certainly a good news for us. Also, that on the lower price area that the mortgage has become more available today than before and certainly, hopefully that the speed of mortgage granting will be improving in our future quarters. It is very important to us, as most of our customers that were in the housing side are developers which have condo projects or home development projects which really rely upon the mortgage being available and the mortgage being available on the timely basis, or surely the more efficient basis. Having said that, we put most of the things that I want to say in our press release. We are disappointed with the first quarter of the increase in NPAs but that was largely the result of events of fourth quarter that carry over to the first and second months of the quarter. We are seeing the migration situation improving in March. It will hopefully we certainly hope carry over to April and so on. We’re actually anticipating that in second quarter we have more reduction, liquidation of the assets, of problem loans as compared to previous quarters and we hope we should have a net improvement in the second quarter of 2009. Having said all that I’d like to preserve all the time for your questions.

(Operator Instructions) Your first question comes from Joe Morford – RBC Capital Markets. Joe Morford – RBC Capital Markets: I wondered if you could just sort of start off and talk a little bit about the inflows of new problem loans that you did see in the quarter. It looked like the bulk of the increase came in resi, construction and commercial land. Just give us a little more details on what they were.

The inflows are really, the one in particular that I on a daily basis watch the most is 30 to 89 days. The inflows in the first quarter are basically to the NPL segment, it’s basically these 30 to 89 days in the fourth quarter that was happening over there and largely is a couple of land loans and a couple of construction loans and that was going in to non-performing category during the first quarter and that reaches the magic 90 days limitation that will place them in non-accrual. I believe in the first quarter press release I’ve indicated that at the time roughly 40% of the loan would be resolved. In the first quarter roughly about that number holds, about 40% resolved, actually about 50% resolved, the remaining 50% has flowed in to non-accrual category. Based on the actual situation, as of March 31st, the situation improves. I think the early situation is roughly 70% of the number of the March 31st 30 to 89 days will be resolved or are already resolved or will be resolved. We are hopeful that another 10% to 15% will also be resolved in the quarter. The only one item we think is more sure or more probably than not is roughly a $5 million loan that will be heading to the non-accrual category. So, the importance of 30 to 89 days to me is because that’s the first time the weakness is showing then we are busy immediately evaluating these kind of loans and then taking the appropriate reserve that is needed for these loans. Joe Morford – RBC Capital Markets: Do you have loans that are 90 days past due and still accruing or are all of those just in non-performing loans?

We don’t have anything in 90 days still accruing. We try to – some loans, admittedly the loan-to-value ratio is really low that we can still accrue the interest but we’re not practicing that at this moment. Whatever is past 90 days we just reversed the interest that accrued in the past 90 days and put it in non-accrual. Joe Morford – RBC Capital Markets: Then a question on the OREO balance, you had a couple of land properties out in Beaumont and I was just curious when the most recent appraisals were done for those and how does that compare to original appraisal when the loan was made?

The appraisal was done on December 30, 2008. So, it’s barely one quarter old and that’s represents probably the bottom price because in January and February we have no received information that prices firmed up. Generally, these two pieces of land are still in high 40% to low 50% range of loan-to-value ratio. Our lead bank or agent bank on this loan is actively trying to market it at this point in time and we have no information as to the success of their marketing of it. I take it back, carrying cost is based on the December 31 number, one is 72% the other is 63%, 40% to 50% was the original appraisal so value has been coming down from the previous appraisal. Joe Morford – RBC Capital Markets: Then the last question was just curious what drove the decrease in the margin this quarter? Was it primarily interest reversals?

Ed estimated that if it wasn’t for the interest reversal, our net interest margin would be 3.4%.

Your next question comes from Aaron Deer – Sandler O’Neil & Partners, L. P. Aaron Deer – Sandler O’Neil & Partners, L. P.: Just following up on Joe’s question with respect to the appraisals, when it’s been more than a month do you index the collateral values to the last known appraisal?

Generally speaking we are following regulatory guidelines and other accounting guidelines, when they’re over six months we’ll start to index it. However, we are paying attention to some obvious areas that may be showing a bit of weakness on the whole situation. Because, generally speaking one month old you don’t have the information to index it. Aaron Deer – Sandler O’Neil & Partners, L. P.: You note in the press release that CRE and C&I still seems to be holding up reasonably well, yet I guess just given the deterioration in the broader economic environment, notwithstanding some of the positive signs that you mentioned, I guess I’m just surprised that maybe we wouldn’t see you reserving more just to reflect the general economic environment and the potential problems that are likely to come down on those portfolios.

To answer your second question first, we are making increased reserve on the so called past portfolio qualitative factors on the situation. In fact, we just on December we put $1 million more on the general qualitative item in light of the weaknesses of the economy and commercial real estate. Now, to be more specific, on the commercial real estate side and I want to tell you that it is our judgment that there are three or four commercial real estate which is more pressured than the other situation. The number one portfolio is retail. Preferred Bank has about $82 million in retail, with the average size of these retail properties is about $3 million. When we originate the loan the loan-to-value ratio averaged about 62% and admittedly after the number of years of pay down the loan-to-value ratio would have been less and given the economy deterioration there may be some value changes. But, when we stress tested there was a higher cap rate and the rental rate we didn’t notice anything that in this situation we needed to worry about it. By the way, we do stress test on the quarterly basis on these kinds of things. Also, on the office portfolio which is the second thing that we think is weak and the office portfolio is basically we only have $55 million of that portfolio. Average loan size is $1.6 million, or $1.7 million. The loan when it originated is about 58% loan-to-value ratio. Again, DCI is over 1.7% I believe. We are also quarterly stress testing it. When we stress test it we’re finding a problem and then we then have to increase our reserve. Aaron Deer – Sandler O’Neil & Partners, L. P.: Then I guess you highlighted the declines in the residential land and construction yet the overall construction book looked like it held relatively steady which I guess would suggest that commercial construction is on the rise, at least slightly. Can you talk about what kinds of projects those are and how they are performing?

Basically those are apartment projects. We have a few apartment projects in prime Westside or Los Angeles which they’re starting to fund up and the loan-to-value ratio that was originating in 2008 or late 2008 either early or late, these are the things that we’re doing and is probably at the level of low 60% loan-to-value ratio. At the cap rate is already presents some of the weaknesses so even with the further cap rate increases we still feel they are very much reasonably priced situation. We’re fairly comfortable with these products. Aaron Deer – Sandler O’Neil & Partners, L. P.: These would be to commercial customers who are building properties for themselves?

These are basically apartments, multifamily housing. Obviously this funding up of one office building that was leased to US Marshall, it was a long term lease, pre-lease.

Your next question comes from Joe Gladue – B. Riley & Company, Inc. Joe Gladue – B. Riley & Company, Inc.: I guess I wanted to ask a question I guess on the other than temporary impairment charges that you saw in the quarter. I guess I’m still surprised to see a little more Freddie Mac in there, I’m wondering how much some of those things are written down to now?

Well, in terms of Freddie Mac, basically we’re carrying these original $7.25 million par value. Freddie Mac preferred are now carrying just under $100,000 in book value. So, the write down this quarter was about $23,000 on Freddie Mac. We have one corporate which we wrote down for about $220,000, this is a corporate we have taken OTTI charges in previous quarters, that is now written down to about $0.32 on the dollar. In terms of the trust preferred CDOs that was a little trickier this quarter. As you probably saw in the press release, we were an early adopter of the three new FSBs that came out which sought to clarify statement 157 and as such we are still kind of working through the process. We think we’ve got a good number in terms of the $650,000 OTTI but we are still working through that with us and KPMG to make sure that number is solid. In terms of the trust preferred CDOs, on a par value of just under $8 million, we own them at about $0.62 on the dollar. The market value when you take in to account both credit impairment and non-credit impairment and in light of the new rules you now do not need to write down the non-credit related portion of that impairment, those are marketed at about $0.29 on the dollar. So, the difference between the mark and the current book value excluding the OTTI charges runs through other comprehensive income and is an adjustment to equity and doesn’t run through earnings. Joe Gladue – B. Riley & Company, Inc.: I guess one other question I guess on the net interest margin, given that you’re I guess using the temporary liquidity guarantee program and using some of that to reduce some of your more expensive deposits, I’m just wondering if you can give us your thoughts on the net interest margin going forward and how those things will affect it?

We are expecting that our interest reversal from putting the 90 days past due category to reduce going forward. Also, another factor is that some of our older [TCD] will continue to reprice to lower level and going forward. We don’t see the income side which is the loan side of the revenue which will be changing anything significantly either upwards or downwards. Having said that, we are forecasting a cost changes in our interest costs and also hopefully that the interest reversal on the non-accrual will also be reducing. So, all-in-all we think that will be improving.

Your next question comes from James Abbott – FBR Capital Markets & Co. James Abbott – FBR Capital Markets & Co.: A question on the REO expense and maybe what you’re seeing is that due to sale of properties in the foreclosure process, is it a function of selling non-performing assets to third parties? Take me through that if you can a little bit?

No, our sale history is so far has been pretty good. In this particular quarter we actually reported a small gain on the sale of the assets. While we think we have written down these REO far enough so when we actually liquidate some of the assets we have a small gain of hundreds of thousands of dollars. But these REO expenses are really related to the property tax and in some piece of land the continuance of the track map, these kinds of expenses related to that and the carrying costs. James Abbott – FBR Capital Markets & Co.: So it’s far to say that you’ve been aggressive in writing down the value of the property and so those charges are running through net charge offs because when they’re in the foreclosure process you’re not having to write them down further?

In REO if you look at the past two press releases you find out that we have revalued the REO continuously just like we revalue the loan. So, any time we’re seeing the value changes, we will immediately write it downwards. In this particular quarter we have $2.3 million write downs on one piece of the loans, one piece of REO. When we found out after we took it in to REO and it’s been revalued and reappraised immediately and we just got the number and we have provided $2.3 million. In fact, that appraisal arrived to us in April. James Abbott – FBR Capital Markets & Co.: So, it’s almost $3 million in the quarter of REO expense, $2.3 million was due to the write down of one particular loan?

That’s right. James Abbott – FBR Capital Markets & Co.: What was the original face value of that?

Face value was originally $7 million something and now it’s down to $5 million plus.’ James Abbott – FBR Capital Markets & Co.: And the charge off you took through the provision expense was how much?

We didn’t take much charge offs this particular quarter. James Abbott – FBR Capital Markets & Co.: Not this quarter but on that particular loan. I’m trying to understand the methodology here.

Our original charge that we took I believe, the first charge that we took is $5 million. James Abbott – FBR Capital Markets & Co.: So it was a $5 million charge off and then so a $2.3 million REO charge?

Yes. James Abbott – FBR Capital Markets & Co.: So it’s written down almost the entire amount? It’s written down to zero then?

The loan was originally $12 million something. The first step is a $5 million charge off, the second step after we then put it in OREO at the $7 million level and then we took another $2.3 million valuation change. James Abbott – FBR Capital Markets & Co.: What type of property was that?

That was a conglomerate piece of land located in four or five different properties. That was a group of banks that jointly lend to a developer that went bad. James Abbott – FBR Capital Markets & Co.: Inland, residential construction type of land?

There is one piece of land, like 300 lots, finished lots in Arizona, Prescott Arizona right around the Gulf Coast. Another piece of property, 77 lots right on – finished lots in the Gulf Coast Corona and there’s a rather [inaudible] of raw land in Lancaster Valley but that was very small and it has buyers already standing by and it’s entering in to escrow and we’re going to sell it slightly above appraisal value. There’s also another near finished lots in Tehachapi, California so it’s all over the place. James Abbott – FBR Capital Markets & Co.: How much other of the REO balance is at risk of these larger charges? It’s helpful in trying to figure out the expense side of the P&L statement is trying to understand a little of the methodology so I appreciate that.

We think what we try to do is we try to appraise as fast as we can. We realize we cannot appraise every quarter so our policy is when it comes to the six month time, our new policy is we want to reappraise. In the meantime we’re keeping an eye on those things and trying to get as much information as possible. We cannot tell you how much more the additional write downs in the REO is. But, we’re saying is at current time we try to write down as much as possible that we can see. In fact, the $5.2 million one, we think the final recovery will be higher than that because early indications of the broker reports indicating what they can sell this property at is basically between 10% and 20% above the carrying value of REO. James Abbott – FBR Capital Markets & Co.: One of my other questions was focused on whether you have net interest margin trends going forward? Maybe another way to look at it is the net interest margin in March excluding credit costs, I don’t know if you have something like that? I’m just trying to get a handle on a good run rate for the margin?

Well I cannot tell you March situation, I can tell you the first quarter, Ed will you repeat on first quarter what it will be?

First quarter between interest on new non-accruals that was reversed out and the effect of existing non-accrual loans that were not earning interest, the margin would have been 3.45. I would imagine March is probably just a touch higher than January and February at Mr. Yu indicated earlier as these higher priced CDs continue to run off and be replaced at lower costs. James Abbott – FBR Capital Markets & Co.: So as we think about the margin it will be perhaps south of 3.45 because of credit costs associated or lack of interest paid but that’s the idea?

I would say without any further interest reversals and including the effect of existing non-accrual loans, you’re probably looking at a margin of around 3.10. James Abbott – FBR Capital Markets & Co.: Any outlook on expenses going forward excluding the REO expenses? Do you have any outlook on compensation expense?

We are continuously slowly coming down a bit on our payroll. But, to start with we run a very lean shop and with our asset side it use to be we were one of the highest assets per employee and we compare very favorably with our peer group. So, by nature we don’t have much of a slimming down. We’re expecting on the production side there will be some further adjustments but that will be partially offset by the need to increase on the administration side such as accounting and such as credit. But net we’re looking forward to a little more downward adjustment on our compensation costs. James Abbott – FBR Capital Markets & Co.: So net expense will be down a little bit and otherwise it’s a fairly decent run rate then?

Yes.

Donald Worthington – Howe, Barnes, Hoefer & Arnett, Inc.: A couple of things, one on the Oakland REO project, I know you’ve been waiting for a while to get this rezoning approval. Do you have any idea how long that may take?

I just want to report to you that after we tried to align the situation, the previous people that were doing the work that seemed to be have been giving us a report different than what we actually suspect. We later on, our board went out and would you believe our long time chairman went out and found somebody that really knows about the business in Oakland and give us a second opinion. The second opinion comes that we should change course in terms of the working situation. All in net-net is that it takes another 11 to 12 months. Donald Worthington – Howe, Barnes, Hoefer & Arnett, Inc.: Then in terms of any update on the status of the TARP application?

Ed, you have information on that?

You’ll know when we know. We still have not heard yet, we believe there have been positive developments in that regard but we still do not have any confirmation as to approval or not. Donald Worthington – Howe, Barnes, Hoefer & Arnett, Inc.: Any other thoughts on whether you would take it if it was approved?

Can we say something about it? We can’t right? Most likely, if you ask me today with what I see today I’m saying that the 75% we don’t want to take it, if it were 25% we would take it. However, the second quarter activity is really the key, if we see the market is improving and because of limited exposure so far in the troubled [CIE] area of the depressed [CIE] area we believe absolutely we don’t need it with all kinds of stress test we are running. Having said that obviously, there are things that we’re thinking about to try and improve ourselves in that respect and we should be announcing something within two or three weeks. Donald Worthington – Howe, Barnes, Hoefer & Arnett, Inc.: Finally, what’s the rate you’re paying on the senior unsecured debt?

The interest rate on the senior unsecured is 2.74, plus we’ve got some capitalized legal costs, plus you’ve got to factor in the 1% FDIC guarantee so all in it’s about 3.90. Donald Worthington – Howe, Barnes, Hoefer & Arnett, Inc.: I guess I had one other, Li you were talking about three segments of the CRE portfolio were weaker than others and you mentioned retail and office, what was the third one?

The third one is as everybody is aware, I’m sorry that I didn’t get in to that the first time, it was the hospitality properties. Hospitality properties are always under pressure these days and we all know that. Our hospitality total portfolio is roughly 3% of our total portfolio in our CRE which amounts to about $17 million. So, by nature it is a small portfolio. Most of our loans are with the Marriott hotel, branded hotel that was operated by a very, very successful hotel operator that owns about more than 50 properties in California and with big net worth, was a big name in that particular industry. So far, these are really, we participate with another bank in doing things, so far the reports that we’ve got is they don’t see any strain from this borrower.

Your next question comes from Julianna Balicka – Keefe, Bruyette & Woods. Julianna Balicka – Keefe, Bruyette & Woods.: I have a couple of quick questions since a lot of the questions have already been asked, what is your total number of outstanding loan participations?

In peak time we have 19%. I don’t have an actual number on the situation right now. I think it’s much reduced from that. We will be running this number fairly soon okay and we will call you back. In fact, Bob would you go ahead and try to figure that out and then we’ll call Julianna back? Julianna Balicka – Keefe, Bruyette & Woods.: The second question I have, what is your largest performing construction loan right now?

Largest performing construction loan is $14 million, I think. Julianna Balicka – Keefe, Bruyette & Woods.: And you’re largest performing land loan?

I think it’s $13 to $14 million also.

Your next question comes from James Abbott – FBR Capital Markets & Co.: One quick follow up is maybe if you can give us some discussion on commercial real estate, the many perm stuff, if it were to be reappraised today, I’ve got your slide show presentation from your latest conference appearance, if you were to reappraise those, what would you expect those values to have done? Have you had a chance to reappraise any of the commercial property?

To the extent possible we try to sway our customer to reappraise that to the extent we find out the center is in some kind of strain we will try to reappraise that. First of all, let me try to tell you our procedures. It has been the established procedure ever since about 10 or 15 years ago we twice a year we send our officers and must be the officer that is not associated with this particular loan, goes out and physically visits the property. The key situation is to see the occupancy in the property and then the maintenance of the property, the condition of the property. Then, come back and make a separate report about these things. This report will be submitted to our board of direct review for this information. After we’ve done that we’ve pretty much ensured all the tenants are there and then run it through the stress test. Stress test includes interest rate changes because some of the loans are really floating rate loans up to 200% which certainly is not a problem today. There is no immediate interest rate strain at this point of time but we do it anyway. Another stress recalculation is increased vacancy rate calculation and then the cap rate. We figure out the cap rate calculation. To the extent that these stress test shows any weakness on the property, then we start to order appraisal or talk to the customer about looking in to it. Then afterwards, if we think that the value is really being impaired we will try to ask them to provide additional collaterals. James Abbott – FBR Capital Markets & Co.: What I’m hearing is the cap rates have moved to about the 8% handle from in the 4% to 4.5% to 5%?

It is something that we haven’t found – I think it’s all over the place. I think the cap rate is about 6% to even 8.5%, higher than that. But, Jim the bigger the property is the harder you can find financing these days. Financing for these properties is really the key. The smaller the property there is the easier they can find financing and also the thing is easier for the owner to handle. These properties are owned basically by individual investors where the individual investor owning those properties as their personal investment, most of them like a doctor, or lawyer, somebody they have cash flow. To the extent sometime when the property is under transitional lease situation they can usually make up the cash flow very easily. Being these properties are small there are enough people that want to step in if the problem happens. So, therefore the cap rate related to these properties is not increasing as national average as people are hearing of in this situation. The cash flow side has been much easier to handle. Now, I have earlier stated that our average size of our retail property is $3million plus and our average size of our office property is about $1.6 million so that puts us in sort of like in my opinion a little more safer ground as compared to what the national structure is a bit more than we have one large borrower running over and a global cash flow partner have to file bankruptcy type of thing. James Abbott – FBR Capital Markets & Co.: Have you had a reappraisal done that you can think of that kind of gives us a sense, not saying this would apply to the entire portfolio?

We may have one or two but this question kind of hits us in the left field. We may have one or two reappraisals being done on the renewal of the loans. To the best of my recollection this point in time is that it’s still staying within reasonable range. But, however, our stress test is pretty much following the same thing as what the appraisal would have done anyway.

There are no further questions in the queue. At this time I would like to turn the call back to management for any closing comments.

Well, if there are no questions, thank you everyone for your interest. I know it’s Friday, it’s awfully inconvenient for you but early in the day we’ve become very selfish on personal reasons because I’m boarding an airplane tonight to go to Far East, I need a vacation so I hope you would forgive me for that for once. Next time I promise I wouldn’t do that to you. Having said that, as I said my overall tune is that we’re not quite as pessimistic as we were a few months ago. We hope that next quarter we can even be somewhat optimistic and this is good not only for us or any bank it is really for our industry. I do pray to somebody out there that this will happen. Thank you.

Ladies and gentlemen this concludes the Preferred Bank’s first quarter 2009 conference call. If you would like to listen to a replay of today’s conference please dial 303-590-3000 or 1-800-406-2236.