First Regional Bancorp Reports Disappointing Second Quarter Results Due to Challenging Economic Conditions

CENTURY CITY, Calif.--(BUSINESS WIRE)--First Regional Bancorp (Nasdaq:FRGB), posted strong core earnings in the second quarter ended June 30, 2008, but significant additions to its loan loss reserve in the challenging real estate environment resulted in a loss for the period and for the year to date.

Reflecting the impact of the economic climate, in the second quarter of 2008 First Regional made a $44.7 million provision to its loan loss reserve and charged off a total of $34.2 million in loans secured by real estate in the recently concluded quarter. These transactions brought the loan loss reserve to $44.2 million, or 1.90% of gross loans, at June 30, 2008. Nonperforming assets as of the same date, consisting of eleven loans, totaled $32.9 million, or 1.41% of gross loans, compared to $17.8 million at March 31, 2008, and just $13,000 on June 30, 2007.

For the three months ended June 30, 2008 the net loss was $18.5 million, equal to $1.46 per diluted share, compared with last year's second quarter profit of $8.6 million, or 66 cents per diluted share. For the first six months of 2008, the Company’s net loss was $13.8 million, or $1.08 per diluted share, versus a profit of $17.6 million, or $1.35 per diluted share, for the first half of 2007. At June 30, 2008, total assets were $2.472 billion, up 20.1% from $2.058 billion one year earlier. Total deposits grew 21.0% to $1.982 billion from $1.640 billion a year earlier, and net loans posted growth of 21.0% to $2.282 billion from $1.885 billion at June 30, 2007. First Regional continues to exceed all financial ratio requirements under applicable regulations for “Well Capitalized” status, the highest level established by banking regulators.

H. Anthony Gartshore, President and Chief Executive Officer, commented: "Clearly these are challenging times for financial institutions like First Regional, and obviously our results are being adversely affected by these difficult conditions. Despite continuing pressures on the segments of real estate in which we participate, we benefit from having avoided involvement in sub-prime mortgages and other exotic financial instruments which have been particularly hard hit. Our second quarter loan loss provision followed an exhaustive review of our loan portfolio, and reflects our realistic assessment of the economic environment and its impact on collateral values and borrower performance. It should be emphasized that the loan loss provisions we have made relate to only a small number of land and real estate development loans; the vast majority of our loan portfolio continues to be well-secured and to perform as agreed. First Regional’s approach has always been to confront challenges fully, directly, and realistically, and we believe we have accomplished this in the second quarter. Consistent with the conservative and prudent basis on which First Regional has always operated, and especially in light of current economic conditions, we remain highly selective on loan transactions. While we believe we have dealt effectively with our loan problems, the economic future remains unclear, and additional loan loss provisions will be made if called for by our ongoing analysis of First Regional's loan portfolio performance and economic conditions in general."

Mr. Gartshore continued: "First Regional’s long-standing emphasis on capital strength has served us well in this period. It has enabled us to deal realistically with the economic environment while maintaining “well capitalized” capital ratios, the highest standard established by banking regulators. Moreover, our core earnings remain strong. Our assets, deposits, and net loans continue to increase. While operating margins have declined in 2008 due to the Federal Reserve's actions to reduce interest rates and stimulate the economy, and much uncertainly remains regarding the economic environment in which we operate, we expect First Regional to return quickly to the profitability which has long been its hallmark.

"As we move forward, we will continue to benefit from our skilled and experienced management and our capable and professional staff. These members of the First Regional team have shown the talent and experience to confront the challenges and to capitalize on the opportunities that will doubtless arise as the economy and the credit markets return to health. We will continue to provide our clients with our unmatched level of service and efficient, cost-effective operation."

Mr. Gartshore concluded: "While we foresee many challenges, we remain confident regarding the future. The current environment has required difficult measures, but they are a necessary step on First Regional’s road forward, and to providing our shareholders with the value they deserve.”

First Regional Bancorp is a bank holding company headquartered in Century City. Its subsidiary, First Regional Bank, specializes in providing businesses and professionals with the management expertise of a major bank and the personalized service of an independent.

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included herein may constitute forward-looking statements. Although First Regional believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from First Regional’s expectations include fluctuations in interest rates, inflation, government regulations, and economic conditions and competition in the geographic and business areas in which First Regional conducts its operations.

CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
			(000's omitted)
As of June 30			2008				2007
ASSETS:
Cash and due from banks		$	35,084			$	76,508
Federal funds sold			17,145				0
Cash and cash equivalents			52,229				76,508
Investment securities			26,601				31,685
Federal Home Loan Bank stock - at cost			18,532				9,326
Loans - net			2,281,604				1,885,288
Premises and equipment - net			5,320				5,012
Other real estate owned			0				0
Accrued interest receivable and other assets			88,102				50,479
Total assets		$	2,472,388			$	2,058,298
LIABILITIES AND CAPITAL:
Demand deposits		$	398,251			$	416,961
Savings deposits			76,968				58,049
Money market deposits			873,181				938,029
Time deposits			633,352				226,701
Total deposits			1,981,752				1,639,740
Funds purchased			0				0
Federal Home Loan Bank advances			210,000				140,000
Subordinated debentures			100,517				92,785
Accrued interest payable and other liabilities			20,821				19,923
Total liabilities			2,313,090				1,892,448
Stated capital			44,615				53,597
Retained earnings			114,699				112,502
Net unrealized losses on
available-for-sale securities			(16	)			(249	)
Total capital			159,298				165,850
Total liabilities and capital		$	2,472,388			$	2,058,298
Book value per share outstanding		$	13.50			$	13.54
Total shares outstanding			11,802,839				12,250,728

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
			(000's omitted)							(000's omitted)
			Three Months Ended							Six Months Ended
			June 30							June 30
			2008				2007			2008				2007
Interest on loans		$	35,957			$	41,814		$	76,253			$	82,752
Interest on federal funds sold			105				121			173				212
Interest on investment securities			368				422			799				718
Total interest income			36,430				42,357			77,225				83,682
Interest on deposits			9,437				12,355			20,504				23,878
Interest on subordinated debentures			1,224				1,716			2,840				3,399
Interest on FHLB advances			1,628				1,599			3,336				3,194
Interest on other borrowings			24				3			32				9
Total interest expense			12,313				15,673			26,712				30,480
Net interest income			24,117				26,684			50,513				53,202
Provision for loan losses			44,743				300			55,533				300
Net interest income after provision for loan losses
			(20,626	)			26,384			(5,020	)			52,902
Other operating income			2,481				2,048			7,652				4,415
Salaries and related benefits			8,487				8,627			17,973				17,648
Occupancy expenses			954				962			1,923				1,781
Other expenses			5,416				3,830			7,503				7,309
Total other operating expenses			14,857				13,419			27,399				26,738
Income before provision for income taxes			(33,002	)			15,013			(24,767	)			30,579
Provision for income taxes (benefit)			(14,489	)			6,369			(10,989	)			12,944
Net income (loss)		$	(18,513	)		$	8,644		$	(13,778	)		$	17,635

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
			(000's omitted)							(000's omitted)
			Three Months Ended							Six Months Ended
			June 30							June 30
			2008				2007			2008				2007
Net income per share
Basic		$	(1.57	)		$	0.71		$	(1.17	)		$	1.44
Diluted		$	(1.46	)		$	0.66		$	(1.08	)		$	1.35
Average shares outstanding			11,796,903				12,242,692			11,806,280				12,228,402
Diluted average shares			12,669,413				13,063,210			12,728,462				13,073,395
Average equity		$	173,216			$	161,537		$	174,352			$	156,725
Average assets		$	2,407,558			$	2,016,344		$	2,324,457			$	1,996,948
Return on average equity (%)			(42.99	)			21.46			(15.89	)			22.69
Return on average assets (%)			(3.09	)			1.72			(1.19	)			1.78
Efficiency ratio (%)			55.86				46.70			47.11				46.41
Number of employees			294				279
Assets per employee (000s)		$	8,409			$	7,377
CREDIT QUALITY
Beginning reserve for loan losses (000s)		$	33,580			$	20,694		$	22,771			$	20,624
Loan loss provisions			44,743				300			55,533				300
Loan recoveries			18				15			18				94
Loan chargeoffs			34,244				50			34,244				50
Net change in allowance for unfunded loan commitments
			55				164			74				155
Ending reserve for loan losses (000s)		$	44,152			$	21,123		$	44,152			$	21,123
Loans Past Due 30-89 days		$	22,865			$	4
Loans Past Due 90 Days or More		$	0			$	13
Nonaccrual Loans			32,861				0
Other Real Estate Owned			0				0
Nonperforming Assets		$	32,861			$	0
Nonperforming Assets / Gross Loans + OREO (%)
			1.41				0.00
Reserve for Loan Losses / Nonperforming Assets (%)
			134.36				162484.62
Reserve for Loan Losses / Gross Loans (%)
			1.90				1.11

			(000s omitted)
			For the Three Months Ended June 30,
			2008								2007
			Average					Average			Average					Average
			Balance			Interest		Yield/Cost (%)			Balance			Interest		Yield/Cost (%)
Gross loans		$	2,293,118		$	35,957		6.31		$	1,868,461		$	41,814		8.98
Funds sold			21,240			105		1.99			9,387			121		5.17
Investment securities			29,902			368		4.95			30,913			422		5.48
Total earning assets		$	2,344,260		$	36,430		6.25		$	1,908,761		$	42,357		8.90