WHITTIER, Calif., Feb. 9 /PRNewswire-FirstCall/ -- Friendly Hills Bank (OTC:FHLB) (BULLETIN BOARD: FHLB) reported results for the fourth quarter of 2008, its ninth full quarter of operations, since opening on September 18, 2006. As of December 31, 2008, the bank reported total assets of $63.5 million, a 40% increase from $45.5 million as of December 31, 2007. The bank's overall deposit base has grown over 58% in the twelve months ended December 31, 2008, from $31.0 million as of December 31, 2007, to $49.1 million as of December 31, 2008. Non-interest bearing deposits continue to form a substantial part of the deposit base (38%), growing from $12.9 million at year-end 2007 to $18.6 million as of December 31, 2008. During the same time period interest bearing deposits grew from $18.0 million to $30.5 million on December 31, 2008. The bank has no deposits which were sourced through brokers or originated on the basis of above-market rate programs. The bank's loan portfolio, net of an allowance for loan losses, also continued to grow, nearly doubling from $18.3 million as of December 31, 2007, to $36.4 million as of December 31, 2008. The portfolio remains diversified with $10.3 million or 28% in Commercial & Industrial Loans to local businesses and $15.5 million or 42% in Commercial Real Estate Loans. Owner Occupied properties represent the largest component of the Commercial Real Estate Portfolio (60%) with $9.3 million outstanding. The bank has an additional $15.1 million in unfunded loan commitments with no delinquent loans, non-performing loans or residential 'sub-prime' mortgage loans. The bank's primary source of income is net interest income which increased by 63% from $1.6 million in the twelve months ended December 31, 2007, to $2.5 million in the twelve months ended December 31, 2008. This increase was a contributing factor in the bank reducing its net loss for the twelve months ended December 31, 2007, by 27% from $1.1 million, or ($0.66) per diluted share of common stock, to $783,316, or ($0.48) per diluted share of common stock for the twelve months ended December 31, 2008. These figures include a loan loss provision of $323,963 for the twelve months ended December 31, 2008, which was 86% higher than the $174,584 provision for the same period one year earlier. This increase in reserves reflects the growth in the loan portfolio and an increased provision as the bank raised its allowance for loan losses to 1.50% of loans outstanding. The increased provision is reflective of management's cautionary position towards potential risks associated with current economic conditions. The net loss numbers also reflect the impact of accounting rules that require companies to include stock compensation as an expense. These non-cash expenditures grew from $219,489 in 2007 to $239,942 in 2008. "The challenges being faced by the banking industry today are unprecedented in terms of rate levels, economic conditions and government intervention," commented Jeffrey K. Ball, Chief Executive Officer. "Despite these factors we have been able to continue building a stable franchise focused on relationship banking, strong credit underwriting and a focus on our primary market areas. During a year in which the Federal Reserve lowered the reference rate by 400 basis points, we have maintained favorable net interest rate margins through a low cost of funds which is attributable to our relationship approach strategy. While doubling the size of our credit portfolio during a weakening economic environment, we have maintained our focus on credit quality and have no delinquent or non-performing loans. During the year our total interest expense grew just 4% while we increased the size of our deposit base by over 58%. We did this without the use of any brokered funds or above-market rate promotions during a period in which other banks in our market were very aggressive with their insured deposit rates. And we staffed this growth with the opening of a second branch office located in adjacent Santa Fe Springs." "While we take great pride in the continued development of our franchise and have confidence in the strategies we have employed," continued Ball, "we are also mindful of the current economic and political environment impacting our nation and our state. We believe this environment presents many opportunities for our relationship approach to banking, but it also impacts the performance of our market which has been negatively impacted by the economic slowdown and increasing deficits at the state level. In response to these conditions, our Board of Directors has increased the allowance for loan losses from 1.25% to 1.50% of gross loans. Although our credit portfolio continues to perform well, we feel this increased provision is more reflective of the current risk environment given the heightened uncertainty in the market. Our business is to manage risk in the most prudent fashion in order to maximize the return for our shareholders and we have taken this step with such responsibility in mind. Our company is well-capitalized and we believe we have sufficient liquidity to pursue forthcoming opportunities that we anticipate during the coming years. Despite being approved for the much publicized Capital Purchase Program of the U.S. Treasury, we declined to accept those funds in recognition of potential dilution to current shareholders as a result of our low cost of funds and the current position of our capital and liquidity." Friendly Hills Bank is a community bank which was formed to primarily serve the Southern California communities of Whittier, La Habra, Santa Fe Springs and La Habra Heights, as well as the surrounding markets of Los Angeles and Orange Counties. The bank was established in 2006 by prominent members of the local community who were seeking an alternative to the larger financial institutions in the area. The bank is headquartered at 16011 E. Whittier Blvd. in Whittier, California with an additional branch office at 12070 East Telegraph Road, Suite #100 in Santa Fe Springs, California. For more information on the bank, please visit http://www.friendlyhillsbank.com/ or call 562-947-1920. Forward-looking Statements: The numbers in this press release are unaudited. Statements such as those regarding the anticipated development and expansion of Friendly Hills Bank's business, and the intent, belief or current expectations of the bank, its directors or its officers, are "forward looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward looking statements. These risks and uncertainties include, but are not limited to, risks related to the local and national economy, the bank's performance, including its ability to generate loan and deposit growth, changes in interest rates, and regulatory matters. Friendly Hills Bank Balance Sheet (Unaudited) (in thousands, except per share information) 12/31/08 12/31/07 Assets Cash and cash equivalents $2,678 $1,358 Fed funds sold 6,980 7,365 Investment securities available-for-sale 15,527 17,340 Loans, net of unearned income 36,987 18,492 Allowance for loan losses (555) (231) Net loans 36,432 18,260 Premises and equipment, net 1,259 961 Accrued interest receivable and other assets 632 218 Total Assets $63,508 $45,503 Liabilities Deposits: Non-interest-bearing deposits $18,583 $12,935 Interest-bearing deposits 30,475 18,025 Total Deposits 49,058 30,961 Accrued interest payable and other liabilities 155 95 Total Liabilities $49,213 $31,056 Stockholders' Equity Common stock, no par value, 10,000,000 shares authorized; $15,958 $15,958 1,616,000 shares issued and outstanding Accumulated deficit (2,797) (2,014) Additional paid-in-capital 543 303 Accumulated other comprehensive gain (loss) 591 200 Total Stockholders' Equity 14,295 14,447 Total Liability & Stockholders' Equity $63,508 $45,503 Book Value Per Share $8.85 $8.94 Friendly Hills Bank Statement of Operations (Unaudited) (in thousands, except per share information) For the twelve For the twelve months ended months ended 12/31/08 12/31/07 Interest Income $2,967 $1,975 Interest Expense 438 422 Net Interest Income 2,529 1,553 Provision for Credit Losses 324 175 Net Interest Income after Provision for Credit Losses 2,205 1,378 Other Income 125 57 Operating Expenses 3,149 2,502 Gain (Loss) on Securities 37 - Loss before Provision for Income Taxes (782) (1,067) Provision for Income Taxes (1) (2) Net Loss $(783) $(1,069) Basic Income (Loss) Per Share $(0.48) $(0.66) DATASOURCE: Friendly Hills Bank CONTACT: Jeffrey K. Ball, Chief Executive Officer, or George W. Peterson, Chief Financial Officer, both of Friendly Hills Bank, +1-562-947-1920 Web Site: http://www.friendlyhillsbank.com/

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