Beverly Hills Bancorp Announces Second Quarter Profit

CALABASAS, Calif.--(BUSINESS WIRE)--Beverly Hills Bancorp Inc. (the “Company”) (NASDAQ:BHBC), the parent company of First Bank of Beverly Hills (the “Bank”), reported that net earnings for the three months ended June 30, 2008 were $0.8 million, or $0.04 per diluted share, compared with $2.1 million, or $0.11 per diluted share, for the three months ended June 30, 2007. Net earnings for the first six months of 2008 were $2.6 million, or $0.14 per diluted share, compared with $4.8 million, or $0.25 per diluted share, for the first six months of 2007.

As of June 30, 2008, the Company and the Bank met all regulatory capital requirements. At that date, the Bank had total risk-based capital of $149.9 million and a risk-based capital ratio of 15.22%, exceeding by more than $51 million and 5% the requirements to be “well capitalized” under applicable regulations. Additionally, the Bank’s tangible equity to tangible assets ratio at quarter-end was 9.94%. Notwithstanding the excess regulatory capital, the Company will continue its strategy of retaining capital in this uncertain economic environment.

During the first six months of 2008, the Company continued to slowly reduce its asset size, as total assets decreased from $1.50 billion at December 31, 2007 to $1.37 billion at June 30, 2008. The Company currently originates only selected higher-quality commercial real estate and multifamily loans and is not replacing principal paydowns on mortgage-backed securities. As a result, loans receivable declined $54.8 million and mortgage-backed securities declined $65.2 million during these six months.

The decrease in assets has enabled the Company to allow higher cost CDs and other borrowings mature without being replaced, reducing the Company’s cost of funds. The Company’s weighted average cost of deposits, consisting principally of CDs, was 1.02% lower in the second quarter of 2008 versus the second quarter of 2007. The Board of Directors periodically reviews the Company’s strategy, and may determine at any time to increase loan origination and purchase activity or use the Company’s excess capital for growth.

The decline in net earnings from the second quarter of 2007 to the second quarter of 2008 was primarily due to a $3.3 million increase in the provision for loan losses and a $0.5 million decline in net interest income. These income decreases were partially offset by a $1.6 million reduction in operating expenses.

The Company’s asset quality continues to be negatively impacted by the weakening economy and residential real estate market, which has severely impacted the residential construction market. The provision for loan losses for the second quarter of 2008 increased to $4.0 million, as compared with a provision of $0.7 million in the second quarter of 2007. The higher loan loss provision resulted primarily from a decline in the collateral value of two construction loans. As of June 30, 2008, the allowance for loan losses totaled $21.5 million or 2.27% of the loan portfolio.

At June 30, 2008, non-performing assets consisted of $41.9 million of non-accrual loans, including $34.9 million of construction loans, and $1.3 million of real estate owned, consisting of one unfinished condominium project. During the second quarter of 2008, one construction loan with an outstanding principal balance of $6.6 million was placed on non-accrual status. In addition, during the second quarter of 2008, the Company foreclosed on another construction loan of $4.3 million, and the underlying property was purchased by a third-party at the Company’s foreclosure sale.

Net interest income for the second quarter of 2008 was $7.5 million, compared with $8.0 million for the second quarter of 2007. The decline in net interest income was due to a $183.5 million lower amount of average interest-earning assets in the second quarter of 2008, offset by a higher net interest margin (2.06% for the second quarter of 2007 compared to 2.21% for the second quarter of 2008). This increase in net interest margin was due to a decrease of 69 basis points in the weighted average yield on interest-earning assets, compared to a decrease of 84 basis points in the weighted average cost of funds.

Operating expenses were $2.7 million for the second quarter of 2008, as compared with $4.2 million for the second quarter of 2007. A significant component of the decline in operating expenses was the reversal of a reserve accrued in the second quarter of 2007 for indemnification obligations to Merrill Lynch Capital Markets, Inc. This obligation was incurred in connection with the sale of the Company’s former loan servicing subsidiary, Wilshire Credit Corporation, to Merrill Lynch in 2004. The reversal was based on a withdrawal of one indemnification claim following a court dismissal of the underlying third-party claim against Wilshire Credit Corporation. Compensation expense for the second quarter of 2008 was also lower than the year-ago period by $409,000 due to a staffing reduction in the first quarter of 2008.

Stockholders’ equity decreased by $0.7 million during the six months ended June 30, 2008 to $147.4 million, or $7.85 book value per diluted share. The reduction in equity was mainly due to net after-tax unrealized losses of $3.4 million on the available-for-sale securities, which offset net earnings of $2.6 million.

Financial Highlights

The following table presents selected consolidated financial information for the Company for the periods indicated:

		Three Months Ended June 30,									Six Months Ended June 30,
Operating Data:		2008				2007					2008				2007
		(Dollars in thousands, except per-share data)
Net income		$	774			$	2,143				$	2,591			$	4,786
Income before taxes			1,321				3,697					4,389				8,260
Net interest income			7,543				8,004					14,873				15,660
Earnings per share – diluted			0.04				0.11					0.14				0.25
Net interest margin			2.21	%			2.06	%				2.12	%			2.03	%
Net interest spread			1.75	%			1.60	%				1.66	%			1.58	%
Return on average assets (annualized)			0.22	%			0.53	%				0.36	%			0.60	%
Return on average equity (annualized)			2.05	%			5.38	%				3.42	%			6.07	%
Efficiency ratio			33.09	%			49.15	%				42.91	%			45.97	%
Risk-based capital ratio			17.25	%			15.68	%				17.25	%			15.68	%
Average equity to average assets			10.70	%			9.86	%				10.49	%			9.82	%

The following table presents selected consolidated financial information for the Company as of the dates indicated:

		June 30,			December 31,			June 30,
Balance Sheet Data:		2008			2007			2007
		(Dollars in thousands, except per-share data)
Total assets		$	1,372,557		$	1,500,114		$	1,625,993
Loans, net			925,163			979,948			1,064,888
Deposits			641,560			637,471			713,185
Stockholders’ equity			147,442			148,108			153,871
Book value per share – diluted			7.85			7.87			8.18
Total assets per employee			39,216			31,917			35,348

The following table presents selected financial information for the Bank for the periods indicated:

		Three Months Ended June 30,									Six Months Ended June 30,
Operating Data:		2008				2007					2008				2007
		(Dollars in thousands)
Net income		$	816			$	2,904				$	3,397			$	6,081
Income before taxes			1,387				5,012					5,762				10,493
Net interest income			7,586				8,208					15,065				16,200
Net interest margin			2.24	%			2.16	%				2.18	%			2.15	%
Net interest spread			1.83	%			1.72	%				1.76	%			1.72	%
Efficiency ratio			34.48	%			34.24	%				35.71	%			33.62	%
Risk-based capital ratio			15.23	%			13.38	%				15.23	%			13.38	%

For further information, please see our website (www.bhbc.com) for our Quarterly Report on Form 10-Q and related communications (available on or about August 11, 2008).

This release contains forward-looking statements including financial projections, statements as to the plans and objectives of management for future operations, and statements as to the Company’s future economic performance, financial condition and results of operations. These forward-looking statements are not historical facts but rather are based on current expectations, estimates, and projections about our industry, our beliefs and our assumptions. Words such as “may,” “will,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks” and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. The Company’s actual results may differ materially from those projected in these forward-looking statements as a result of a number of factors, including, but not limited to, the condition of the real estate market and the economy, changes in banking regulations, the availability and conditions of financing for loan pool acquisitions, mortgage-backed securities and other financial assets as well as interest rates. Readers of this release are cautioned not to place undue reliance on these forward-looking statements.

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(Dollars in thousands)
		June 30, 2008				December 31, 2007
ASSETS
Cash and cash equivalents		$	16,363			$	12,964
Mortgage-backed securities available for sale, at fair value			348,638				413,875
Investment securities available for sale, at fair value			6,477				6,941
Investment securities held to maturity, at amortized cost (fair value of $10,147 in 2007)			—				9,809
Loans, net of allowance for loan losses of $21,529 in 2008 and $21,882 in 2007			925,163				979,948
Stock in Federal Home Loan Bank of San Francisco, at cost			25,834				31,880
Real estate owned, net			1,328				44
Leasehold improvements and equipment, net			782				927
Accrued interest receivable			7,101				8,663
Income taxes receivable			4,621				3,601
Deferred tax asset, net			30,070				28,340
Prepaid expenses and other assets			6,180				3,122
TOTAL		$	1,372,557			$	1,500,114
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Noninterest-bearing deposits		$	800			$	886
Interest-bearing deposits			640,760				636,585
Total deposits			641,560				637,471
Repurchase agreements			30,000				40,000
Federal Home Loan Bank advances			507,000				611,000
Junior subordinated notes payable to trusts			36,084				46,393
Accounts payable and other liabilities			10,471				17,142
Total liabilities			1,225,115				1,352,006
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common stock, $0.01 par value, 30,000,000 shares authorized, 27,176,462 issued (including 8,389,368 treasury shares)			272				272
Additional paid-in capital			166,558				166,430
Treasury stock, 8,389,368 shares, at cost			(39,974	)			(39,974	)
Retained earnings			25,493				22,902
Accumulated other comprehensive loss			(4,907	)			(1,522	)
Total stockholders’ equity			147,442				148,108
TOTAL		$	1,372,557			$	1,500,114

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share data)
		Three Months Ended June 30,							Six Months Ended June 30,
			2008				2007			2008				2007
INTEREST INCOME:
Loans		$	15,830			$	20,064		$	33,259			$	39,057
Mortgage-backed securities			4,781				5,901			9,936				11,900
Securities and federal funds sold			267				404			603				889
Total interest income			20,878				26,369			43,798				51,846
INTEREST EXPENSE:
Deposits			6,555				9,467			14,204				20,154
Borrowings			6,780				8,898			14,721				16,032
Total interest expense			13,335				18,365			28,925				36,186
NET INTEREST INCOME			7,543				8,004			14,873				15,660
PROVISION FOR LOSSES ON LOANS			4,037				661			4,761				846
NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS			3,506				7,343			10,112				14,814
OTHER INCOME:
FHLB stock dividends			439				361			873				767
Gain on sale of securities			—				—			46				—
Other income, net			26				206			235				426
Total other income			465				567			1,154				1,193
OTHER EXPENSES:
Compensation and employee benefits			1,731				2,005			3,819				3,814
Professional fees			431				675			1,324				1,382
Occupancy			163				153			347				300
Loan expenses			100				29			221				82
Regulatory assessments			65				57			121				112
Data processing			79				86			155				176
Insurance			184				154			305				319
Depreciation			72				96			182				189
Directors expense			95				107			205				219
Real estate owned, net			(1	)			259			—				360
Impairment charge on securities			234				—			234				—
Other general and administrative expense			(503	)			592			(36	)			794
Total other expenses			2,650				4,213			6,877				7,747
INCOME BEFORE INCOME TAX PROVISION			1,321				3,697			4,389				8,260
INCOME TAX PROVISION			547				1,554			1,798				3,474
NET INCOME		$	774			$	2,143		$	2,591			$	4,786
Earnings per share – basic		$	0.04			$	0.11		$	0.14			$	0.26
Earnings per share – diluted		$	0.04			$	0.11		$	0.14			$	0.25
Dividends declared per share		$	0.00			$	0.13		$	0.00			$	0.25
Weighted average number of shares – basic			18,787,094				18,785,550			18,787,094				18,759,427
Weighted average number of shares – diluted			18,790,304				18,813,673			18,796,115				18,805,146