Preferred Bank Q4 2025 Preferred Bank Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Preferred Bank Earnings Call
Speaker #1: Good afternoon, everyone, and welcome to the Preferred Bank Q4 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on a touch-tone telephone.
Speaker #1: To withdraw your questions, you may press star and two. Please also note today's event is being recorded. I would now like to turn the conference call over to Jeffrey Haas with Financial Profiles. Sir.
Speaker #1: Please go ahead.
Speaker #2: Thank
Speaker #2: Thank you, Jamie. Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the fourth quarter ended December 31, 2025. With me today from management are Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward Cheka, Chief Risk Officer Nick Pai, and Deputy Chief Operating Officer Johnny Su.
Jeffrey Haas: Thank you, Jamie. Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the fourth quarter ended 31 December 2025.With me today from management are Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward Czajka, Chief Risk Officer Nick Pi, and Deputy Chief Operating Officer Johnny Hsu. Management will provide a brief summary of the results, and then we will open up the call 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.
Operator: With me today from management are Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward Czajka, Chief Risk Officer Nick Pi, and Deputy Chief Operating Officer Johnny Hsu. Management will provide a brief summary of the results, and then we will open up the call 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 relating 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.
Speaker #2: Management will provide a brief summary of the results, and then we will open up the call 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.
Speaker #2: 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 relating 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.
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 relating 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.
Speaker #2: For a detailed description of these risks and uncertainties, please refer to the SEC-required documents the bank files with the Federal Deposit Insurance Corporation, or FDIC.
Operator: For a detailed description of these risks and uncertainties, please refer to the SEC-required documents the Bank 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 could 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 like to turn the call over to Mr. Li Yu. Please go ahead. Thank you. Thank you, ladies and gentlemen. Thank you for joining the earnings conference. I'm very pleased to report that for Q4 2025, the company's net income was $34.8 million, or $2.79 a share. For the full year, the Bank earned $134 million, or $10.41 a share.
For a detailed description of these risks and uncertainties, please refer to the SEC-required documents the Bank 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 could 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 like to turn the call over to Mr. Li Yu. Please go ahead. Thank you.
Speaker #2: If any of these uncertainties materialize, or any of these assumptions prove incorrect, Preferred Bank's results could differ materially from its expectations as set forth in these statements.
Speaker #2: Preferred Bank assumes no obligation to update such forward-looking statements. At this time, I'd like to turn the call over to Mr. Li Yu. Please go ahead.
Speaker #2: Preferred Bank assumes no obligation to update such forward-looking statements. At this time, I'd like to turn the call over to Mr. Li Yu. Please go ahead.
Speaker #3: Thank you. Thank you, ladies and gentlemen. Thank you for joining the earnings conference. I'm very pleased to report that for the fourth quarter of 2025, we have the company of the bank's net income was 34.8 million dollars or $2.79 a share.
Li Yu: Thank you, ladies and gentlemen. Thank you for joining the earnings conference. I'm very pleased to report that for Q4 2025, the company's net income was $34.8 million, or $2.79 a share. For the full year, the Bank earned $134 million, or $10.41 a share.
Speaker #3: For the full year, the bank earned $134 million, or $10.41 a share. Our profitability for the year is believed to be among the top tier of the banking industry.
Operator: Our profitability for the year is believed to be among the top tier of the banking industry. Our net interest margin for the fourth quarter declined from the third quarter. Principal reason for the decline was federal rate cuts. With a 70% floating rate loan portfolio, the rate cuts did reduce our loan interest income. However, the cost of deposits remained stubbornly high. In fact, many analysts have reported that between quarters, the banking industry, the entire banking industry's cost of deposits may have increased slightly. Looking forward, we're seeing that our loan demand is getting stronger. For the quarter, our total loan growth is $182 million, or over 12%. Deposit growth was $115 million, or 7.4%. That rounded out the year for loan and deposit growth in 7.3% or 7.2%, respectively.
Our profitability for the year is believed to be among the top tier of the banking industry. Our net interest margin for the fourth quarter declined from the third quarter. Principal reason for the decline was federal rate cuts. With a 70% floating rate loan portfolio, the rate cuts did reduce our loan interest income. However, the cost of deposits remained stubbornly high.
Speaker #3: Our net interest margin for the fourth quarter declined from the third quarter. Okay. The principal reason for the decline was federal rate cuts. With a 70% floating rate loan portfolio, the rate cut did reduce our loan interest income.
Speaker #3: However, cost of deposits remained stubbornly high. In fact, many analysts have reported that between quarters, the entire banking industry’s cost of deposits may have increased.
In fact, many analysts have reported that between quarters, the banking industry, the entire banking industry's cost of deposits may have increased slightly. Looking forward, we're seeing that our loan demand is getting stronger. For the quarter, our total loan growth is $182 million, or over 12%. Deposit growth was $115 million, or 7.4%. That rounded out the year for loan and deposit growth in 7.3% or 7.2%, respectively.
Speaker #3: Looking forward, we’re seeing that our loan demand is getting stronger. For the quarter, our total loan growth is $182 million, or over 12%.
Speaker #3: Deposit growth was $115 million, or 7.4%. The round of the year for loan and deposit growth is 7.3% or 7.2%, respectively. During the quarter, we sold two large pieces of OREO, resulting in a net gain of $1.8 million between the two.
Operator: During the quarter, we have sold two large pieces of our OREO, resulting in a net gain of $1.8 million between the two. The income was reported in the section of non-interest income. The sale that resulted in loss was reported in the non-interest expense section. Why? This is based on the current principles of generally accepted accounting principles. For the quarter, non-performing assets declined slightly. However, criticized assets did increase $97 million. Principally, this is due to that we placed a large nine-loan relationship into the classified status. For the quarter, loan loss provision was $4.3 million. Most economists are forecasting 2026 to be a year of relative growth and stability. Our customers' feelings are also indicating they have an improved outlook for 2026.
During the quarter, we have sold two large pieces of our OREO, resulting in a net gain of $1.8 million between the two. The income was reported in the section of non-interest income. The sale that resulted in loss was reported in the non-interest expense section. Why? This is based on the current principles of generally accepted accounting principles
Speaker #3: The income was reported in a section of non-interest income. Okay. The loss—sell, the resulting loss—was reported in the non-interest expense section. Why?
Speaker #3: This is based on the current principle of generally accepted accounting principles. Okay. For the quarter, non-performing assets declined slightly. However, previous assets did increase $97 million.
For the quarter, non-performing assets declined slightly. However, criticized assets did increase $97 million. Principally, this is due to that we placed a large nine-loan relationship into the classified status. For the quarter, loan loss provision was $4.3 million. Most economists are forecasting 2026 to be a year of relative growth and stability. Our customers' feelings are also indicating they have an improved outlook for 2026.
Speaker #3: Okay. Principally, this is due to that we placed a large nine-loan loan relationship into the classified status. For the quarter, loan loss provision was $4.3 million.
Speaker #3: Most analysts, economists, most economists, are forecasting 2026 to be a year of relatively gross instability. Okay. Our customers' feeling is also indicating they have improved outlook for 2026.
Speaker #3: Barring any sudden changes in government policy or directions—which, we just had one—we're hoping 2026 to be more of a growth year for Preferred Bank.
Operator: Barring any sudden changes in government policy or directions, which we just had one, we're hoping 2026 to be more of a growth year for Preferred Bank. Thank you very much. I will answer your questions. Ladies and gentlemen, at this time, we'll begin the question-and-answer session. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. To get in, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. In our first question today, it comes from Matthew Clark from Piper Sandler. Please go ahead with your question. Hey, good morning, everyone. Good morning.
Barring any sudden changes in government policy or directions, which we just had one, we're hoping 2026 to be more of a growth year for Preferred Bank. Thank you very much. I will answer your questions.
Speaker #3: Thank you very much. I will answer your question.
Speaker #3: questions. Ladies and gentlemen, at
Operator: Ladies and gentlemen, at this time, we'll begin the question-and-answer session. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. To get in, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. In our first question today, it comes from Matthew Clark from Piper Sandler. Please go ahead with your question.
Speaker #4: At this time, we'll begin the question and answer session. To ask a question, you may press star then one using a touch-tone telephone. To withdraw your question, you may press star then two.
Speaker #4: If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys. To ensure the best sound quality, again, that is star and then one.
Speaker #4: To join the question queue, we'll pause momentarily to assemble the roster. Our first question today comes from Matthew Clark from Piper Sandler.
Speaker #4: Please go ahead with your
Speaker #4: question. Hey, good morning,
Matthew Clark: Hey, good morning, everyone.
Speaker #5: everyone. Good
Li Yu: Good morning.
Speaker #5: I just want to start on the morning margin and get some visibility there, at least in the near term. Do you have the spot rate on deposits?
Operator: Just want to start on the margin and get some visibility there, at least in the near term. Do you have the spot rate on deposits, the spot rate on deposit costs at the end of the year, or even the month of December, and then also the average margin in the month of December? Hi, Matthew. This is Ed. The margin for December was 3.66%, slightly below that of the quarter. That was with the full effect of the December rate cut. Total cost of deposits was 3.17% for the month of December. So that's coming down about six, seven basis points a month. Okay. Yeah, and that's where I was headed. Deposit beta this quarter looks to be about 40% on interest-bearing. Sounds like things are still pretty competitive.
Matthew Clark: Just want to start on the margin and get some visibility there, at least in the near term. Do you have the spot rate on deposits, the spot rate on deposit costs at the end of the year, or even the month of December, and then also the average margin in the month of December?
Speaker #5: Spot rate on deposit costs at the end of the year, or even the month of December, and then also the average margin in the month of—
Speaker #5: December? hi, Matthew.
Edward Czajka: Hi, Matthew. This is Ed. The margin for December was 3.66%, slightly below that of the quarter. That was with the full effect of the December rate cut. Total cost of deposits was 3.17% for the month of December. So that's coming down about six, seven basis points a month.
Speaker #6: This is Ed. The margin for December was 3.66%, slightly below that of the quarter. That was with the full effect of the December rate cut.
Speaker #6: Total cost of deposits was 3.17% for the month of December. So that's coming down about six, seven basis points a month.
Matthew Clark: Okay. Yeah, and that's where I was headed. Deposit beta this quarter looks to be about 40% on interest-bearing. Sounds like things are still pretty competitive. What are your thoughts on the beta, the deposit beta going forward, assuming we get maybe one or two rate cuts this year?
Speaker #5: Okay, yeah. And that's where I was headed. Deposit beta this quarter looks to be about 40% on interest-bearing. Sounds like things are still pretty competitive?
Speaker #5: What are your thoughts on the beta, the deposit beta going forward? Assuming we get, you know, maybe one or two rate cuts.
Operator: What are your thoughts on the beta, the deposit beta going forward, assuming we get maybe one or two rate cuts this year? Well, it's going to depend on a number of things. Obviously, the rate cuts will play a big key role. But the other thing that Mr. Yu alluded to is the competition for deposits still remains very, very strong. So I would foresee a similar pattern in terms of about five or six basis points a month as we have CDs rolling off and then coming on at lower rates. They're just not coming on at rates that we thought we would see at this point, given what's happened with the Federal Reserve. Okay. Got it. And it sounds like loan growth you expect to maybe step up a little bit this year from the 7.3% pace last year.
Speaker #5: this year. Well, it's
Edward Czajka: Well, it's going to depend on a number of things. Obviously, the rate cuts will play a big key role. But the other thing that Mr. Yu alluded to is the competition for deposits still remains very, very strong. So I would foresee a similar pattern in terms of about five or six basis points a month as we have CDs rolling off and then coming on at lower rates. They're just not coming on at rates that we thought we would see at this point, given what's happened with the Federal Reserve.
Speaker #6: Gonna depend on a number of things. Obviously, the rate cuts will play a big key role. But the other thing that Mr. Yu alluded to is the competition for deposits still remains very, very strong.
Speaker #6: So I would foresee a similar pattern in terms of about five or six basis points a month, as we have CDs rolling off and then coming on at lower rates.
Speaker #6: They're just not coming on at rates that we thought we would see at this point, given what's happened with the Federal.
Speaker #6: Reserve. Okay.
Matthew Clark: Okay. Got it. And it sounds like loan growth you expect to maybe step up a little bit this year from the 7.3% pace last year. I would assume you're going to try to grow deposits at a similar pace. Is that fair, just given your loan-to-deposit ratio?
Speaker #5: Got it. And is it, you know, it sounds like loan growth—you expect it to maybe step up a little bit this year from the 7.3% pace last year.
Speaker #5: I would assume you're going to try to grow deposits at a similar pace. Is that fair? Just given your loan-to-deposit ratio.
Operator: I would assume you're going to try to grow deposits at a similar pace. Is that fair, just given your loan-to-deposit ratio? That's a both-fair statement. Yes. Okay. And then just last one for me on expenses, the run rate. A little noise this quarter, but stripping that out, a little better than expected on comp. How should we think about the run rate here in the first quarter with some seasonality? I'm going to forecast probably somewhere in the neighborhood of 22, maybe slightly below that, but 21.5 to 22 should be about right. Why don't you use a 21.5 to 22.5? Okay. Bigger margin. I like it. Okay. Thank you. I'll get it done. Yeah. Yeah. Our next question comes from Gary Tenner from D.A. Davidson. Please go ahead with your question. Thanks. Good morning. Just a quick follow-up on the deposit side of things.
Speaker #5: ratio? That's a
Li Yu: That's a both-fair statement.
Speaker #6: both fair statement. Yeah.
Matthew Clark: Yes. Okay. And then just last one for me on expenses, the run rate. A little noise this quarter, but stripping that out, a little better than expected on comp. How should we think about the run rate here in the first quarter with some seasonality?
Speaker #6: Yes. Okay.
Speaker #5: And then just last one for me on expenses. The run rate—a little noise this quarter—but stripping that out, a little better than expected on comp.
Speaker #5: How should we think about the run rate here in the first quarter, with some seasonality?
Speaker #6: I'm going to forecast probably somewhere in the neighborhood of 22, maybe slightly below that, but, you know, 21.5 to 22 should—
Edward Czajka: I'm going to forecast probably somewhere in the neighborhood of 22, maybe slightly below that, but 21.5 to 22 should be about right.
Speaker #6: be, should be about right. I wanted to use
Li Yu: Why don't you use a 21.5 to 22.5?
Speaker #2: A 21.5 to 22.5, you know.
Edward Czajka: Okay. Bigger margin.
Speaker #6: Okay. 20. Bigger
Matthew Clark: I like it. Okay. Thank you.
Speaker #5: I like it. Okay. Thank you. Margin.
Speaker #5: I like it. Okay. Thank you. Margin.
Speaker #2: I'll
Edward Czajka: I'll get it done. Yeah. Yeah.
Speaker #6: Yeah. Yeah. get it done.
Operator: Our next question comes from Gary Tenner from D.A. Davidson. Please go ahead with your question.
Speaker #6: Mm-hmm. Our next question comes from...
Speaker #4: Gary Tenner from DA Davidson, please go ahead with your question.
Speaker #4: question.
Gary Tenner: Thanks. Good morning. Just a quick follow-up on the deposit side of things. If you could kind of update us on the CD maturities in the first quarter and kind of the out and in rate that you expect.
Speaker #7: thanks. Good morning.
Speaker #7: Just a quick follow-up on the deposit side of things. If you could kind of update us on the CD maturities in the first quarter, and kind of the out and in rate that you—
Operator: If you could kind of update us on the CD maturities in the first quarter and kind of the out and in rate that you expect. Sure. So we have about $1.3 billion maturing in Q1 at a weighted average rate of 3.96%. They're currently coming on right now at about around 3.70% to 3.80% right now on average. Gary? Appreciate that. And just out of curiosity, last quarter, when you talked about the CDs maturing in the fourth quarter, they were maturing at 4.1%, and you sort of posited kind of new CDs in the mid to high threes. So it sounds like that number was towards the upper end of that repricing range in the fourth quarter. Is that kind of what played out? Yes. Yes. Yes. Yes.
Speaker #7: expect. Sure.
Edward Czajka: Sure. So we have about $1.3 billion maturing in Q1 at a weighted average rate of 3.96%. They're currently coming on right now at about around 3.70% to 3.80% right now on average. Gary?
Speaker #6: So we have about $1.3 billion maturing in Q1 at a weighted average rate of 3.96%. They're currently coming on right now at about, around 3.70% to 3.80% right now on average.
Speaker #6: So we have about $1.3 billion maturing in Q1 at a weighted average rate of 3.96%. They’re currently coming on right now at about, around 3.70% to 3.80% right now on average, Gary.
Gary Tenner: Appreciate that. And just out of curiosity, last quarter, when you talked about the CDs maturing in the fourth quarter, they were maturing at 4.1%, and you sort of posited kind of new CDs in the mid to high threes. So it sounds like that number was towards the upper end of that repricing range in the fourth quarter. Is that kind of what played out?
Speaker #7: I appreciate that. And just out of curiosity, last quarter, when you talked about the CDs maturing in the fourth quarter, they were maturing at 4.1, and you had sort of posited, you know, kind of new CDs in the mid to high threes.
Speaker #7: So it sounds like that number was towards the upper end of that repricing range in the fourth quarter. Is that kind of what played out?
Speaker #7: out? Yes.
Edward Czajka: Yes. Yes. Yes. Yes. As we said, we would have expected CD rates, market rates to come down a little more than they did given the Federal Reserve's actions.
Speaker #6: Yes. Yes. Yes. And as we said, you know, we would have expected CD rates, market rates, to come down a little more than they did given the Federal Reserve's—
Operator: As we said, we would have expected CD rates, market rates to come down a little more than they did given the Federal Reserve's actions. Okay. And that 70% floating rate portfolio now, have you, with the fourth quarter cuts, did you clear through any significant floors that changed the number? It probably only affected about 150 to 200 million of the loan book. Right now, we have about 45% of the floors are in the 0 to 100 basis point bucket in terms of their protection effectiveness. Great. Thank you. Our next question comes from Andrew Terrell from Stephens. Please go ahead with your question. Hey, good morning. Hey, Andrew. Hey. I was hoping to just follow up on the time deposit competition commentary. I was hoping you could just maybe expand upon that a bit more and just sounds like high threes for you guys right now.
Speaker #6: actions. Okay.
Gary Tenner: Okay. And that 70% floating rate portfolio now, have you, with the fourth quarter cuts, did you clear through any significant floors that changed the number?
Speaker #7: And that 70% floating rate portfolio now, does that have you—with the fourth quarter cuts, did you clear through any significant floors that changed the—
Speaker #6: No.
Speaker #7: The number?
Edward Czajka: It probably only affected about 150 to 200 million of the loan book. Right now, we have about 45% of the floors are in the 0 to 100 basis point bucket in terms of their protection effectiveness.
Speaker #6: One hundred fifty to two hundred million of the loan—you know, it probably only affected about, book. Right now, we have about 45% of the floors in the 0 to 100 basis point bucket in terms of their protection.
Speaker #6: effectiveness. Great.
Gary Tenner: Great. Thank you.
Speaker #7: Thank
Operator: Our next question comes from Andrew Terrell from Stephens. Please go ahead with your question.
Speaker #4: Our next question comes from Andrew Terrell from Stevens. Please go ahead with your question.
Speaker #4: question. Hey, good
Andrew Terrell: Hey, good morning.
Edward Czajka: Hey, Andrew.
Speaker #6: Hey, Andrew. morning.
Andrew Terrell: Hey. I was hoping to just follow up on the time deposit competition commentary. I was hoping you could just maybe expand upon that a bit more and just sounds like high threes for you guys right now. Is that generally in line with your competition? Are you trying to price ahead, price below to pick up more deposits? Just curious where you're at versus the market, kind of your strategy, your expectations there.
Speaker #8: Hey. I was hoping to just follow up on the, on the time deposit, you know, competition commentary. I was hoping you could just maybe expand upon that a bit more and just, you know, it sounds like high, high threes for, for you guys right now.
Speaker #8: Is that, you know, generally in line with your competition? Are you—are you trying to, you know, price ahead, price below, to pick up more deposits?
Operator: Is that generally in line with your competition? Are you trying to price ahead, price below to pick up more deposits? Just curious where you're at versus the market, kind of your strategy, your expectations there. I think the challenge is kind of walking the tightrope, right? We want to bring deposit costs in. That's really a big goal of ours, but at the same time, we want to grow the deposits. So that's been kind of a challenge. What we've seen in the marketplace is not only local competition still being fairly stiff, but we're seeing some large money center banks still out there promoting CDs right in our marketplace. And when you have those guys doing that type of thing, it makes it more challenging for us because of their size. Yep. No, makes total sense.
Speaker #8: Just curious, you know, where you're averse to market—kind of your strategy, your expectations.
Speaker #8: There? I think, I think the,
Edward Czajka: I think the challenge is kind of walking the tightrope, right? We want to bring deposit costs in. That's really a big goal of ours, but at the same time, we want to grow the deposits. So that's been kind of a challenge. What we've seen in the marketplace is not only local competition still being fairly stiff, but we're seeing some large money center banks still out there promoting CDs right in our marketplace. And when you have those guys doing that type of thing, it makes it more challenging for us because of their size.
Speaker #6: The challenge is kind of walking the tightrope, right? We want to bring deposit costs in—that's really a big goal of ours. But at the same time, we want to grow the deposits.
Speaker #6: So that's been kind of a challenge. What we've seen in the marketplace is not only local competition still being fairly stiff, but we're seeing some large money center banks still out there promoting CDs right in our marketplace.
Speaker #6: And when you have those guys doing that type of thing, it makes it more challenging for us because of their—
Speaker #6: size. Yeah.
Andrew Terrell: Yep. No, makes total sense. On the downgraded loan this quarter, the $123 million relationship, I appreciate all the color you guys put in the release around the LTVs and debt service there that both look pretty good. I was hoping you could talk a little bit more about the pathway to curing this, what the timeline and outcome looks like as you see the picture today. And then also just, this is a pretty large relationship, 2% of the loan book. Is this the largest relationship at the bank, or are there other similarly large relationships that you guys have?
Speaker #8: No, it makes, makes total sense. on the the, the, the downgraded loan this quarter, the 123 million dollar relationship, I appreciate all the color you guys, you know, put in the release around the, you know, LTVs and, and debt service there that both look pretty good.
Operator: On the downgraded loan this quarter, the $123 million relationship, I appreciate all the color you guys put in the release around the LTVs and debt service there that both look pretty good. I was hoping you could talk a little bit more about the pathway to curing this, what the timeline and outcome looks like as you see the picture today. And then also just, this is a pretty large relationship, 2% of the loan book. Is this the largest relationship at the bank, or are there other similarly large relationships that you guys have? Well, to answer that, I believe this is one of the largest relationships for the bank at this moment. In terms of the workout, it's a little bit early to be able to tell what the future is going to hold for this particular relationship.
Speaker #8: I was hoping you could talk a little bit more about, you know, the pathway to curing this—you know, what the timeline and outcome looks like as you see the picture today.
Speaker #8: And then also, just, you know, this is a pretty large relationship—2% of the loan book. Is this the largest relationship at the bank, or are there other, you know, similarly large relationships that you guys have?
Li Yu: Well, to answer that, I believe this is one of the largest relationships for the bank at this moment.
Speaker #2: Well, I'll answer that. You—I believe this is one of the large relationships, correct, for the bank at this moment.
Edward Czajka: In terms of the workout, it's a little bit early to be able to tell what the future is going to hold for this particular relationship. There are several options that we've utilized in the past. We've sold notes, we've foreclosed and taken back property, etc.
Speaker #6: Yeah. I in terms of the workout, it's, it's a little bit early to, to, you know, be able to tell, what the, future's gonna hold for these, for this particular relationship.
Speaker #6: There are several options, you know, that we've, you know, we've utilized in the past. We've sold notes, we've foreclosed and taken back property, etc.
Operator: There are several options that we've utilized in the past. We've sold notes, we've foreclosed and taken back property, etc. Andrew, our first choice, obviously, we know these customers; they are late in payments and they are having problems with other banks. But the principle is that because these properties still have value, very positive value in their eyes. The information we have is they're working very hard, trying to finance it out from other alternatives. So the bank is going to be waiting for them to get these things, these procedures done. So in case if they are not able to continue the loan and that we have to go through the foreclosure procedure, we are not going to be shy away from that. We'll do it immediately.
Speaker #6: But.
Li Yu: Andrew, our first choice, obviously, we know these customers; they are late in payments and they are having problems with other banks. But the principle is that because these properties still have value, very positive value in their eyes. The information we have is they're working very hard, trying to finance it out from other alternatives. So the bank is going to be waiting for them to get these things, these procedures done. So in case if they are not able to continue the loan and that we have to go through the foreclosure procedure, we are not going to be shy away from that. We'll do it immediately.
Speaker #2: And, Andrew,
Speaker #2: Our first choice, obviously, we know these customers. They are late in payments, and they are having problems with other banks. Okay?
Speaker #2: And, and, but the principle is that because these properties still have value, very positive value in their eyes. And the information we have is that they're working very hard, trying to finance it out from other alternatives.
Speaker #2: So the bank is gonna be waiting for them to, to, to get these things, these procedures done. Okay? So in case if they are not able to, to, to continue the loan and that we had to go through the foreclosure procedure, we are not gonna be, not gonna be shy away from that.
Speaker #2: We'll do that immediately, and then that current marketplace is pretty, pretty reasonable. I mean, as we—as regards to pay for these properties, you know, at this point in time.
Operator: Then that current marketplace is pretty reasonable, I mean, as regards to pay for these properties at this point in time. So in other words, we're not seeing the market situation in 2008, 2009, 2011, 2012 that you have to bottom foreclose. It's not happening. Market has been very stable. So it's a matter of time to resolve these things as these loans are basically fundamentally, well, reasonably underwritten. Great. Okay. I appreciate all the color there and thanks for the questions. Our next question comes from Tim Coffey from Janney. Please go ahead with your question. Great. Thank you. Good morning, everybody. Mr. Yu, as we start looking at loan growth for the next year, what do you think are the best opportunities for growth? What loan products?
Then that current marketplace is pretty reasonable, I mean, as regards to pay for these properties at this point in time. So in other words, we're not seeing the market situation in 2008, 2009, 2011, 2012 that you have to bottom foreclose. It's not happening. Market has been very stable. So it's a matter of time to resolve these things as these loans are basically fundamentally, well, reasonably underwritten.
Speaker #2: So in other words, we're not seeing the marketing market situation in 2008, 2009, 2011, or '12 that you have the bottom floor off. It's not happening.
Speaker #2: Okay? The market has been very stable. So it's a matter of time to resolving these things, as these loans are basically fundamentally well, reasonably underwritten, you know.
Andrew Terrell: Great. Okay. I appreciate all the color there and thanks for the questions.
Speaker #8: Great. Okay. I appreciate all of the, all the color there. And thanks for the—
Speaker #8: Great. Okay. I appreciate all the— all the color there. And thanks for the questions. Our
Operator: Our next question comes from Tim Coffey from Janney. Please go ahead with your question.
Speaker #4: Next question comes from Tim Coffey from Janney. Please go ahead with your question.
Speaker #4: question. Great.
Timothy Coffey: Great. Thank you. Good morning, everybody. Mr. Yu, as we start looking at loan growth for the next year, what do you think are the best opportunities for growth? What loan products?
Speaker #9: Thank you. Good morning, everybody. Mr. Yu, as we start looking at loan growth for this next year, what do you think are the best opportunities for growth?
Speaker #9: Or, like, what, what loan
Speaker #9: products? Well, I'll
Operator: Well, basically, we see a sort of like a commercial market that basically commercial real estate and the C&I loans. We see both sides' demand is reviving a bit right now. In fact, internally, we're budgeting a higher number than previous year right now. So it's still very early to tell, as you know, that as you know, that not only we have the normal economy, but we do have a very active government that changes, I mean, practices from time to time. So it will be if we venture in some of the ways it was smooth, no change, or go this way, I think that's an overly optimistic situation too. But I'd like to say that we're budgeting a higher number than last year for our upcoming years, not this year. Okay. Great. Thanks.
Li Yu: Well, basically, we see a sort of like a commercial market that basically commercial real estate and the C&I loans. We see both sides' demand is reviving a bit right now. In fact, internally, we're budgeting a higher number than previous year right now. So it's still very early to tell, as you know, that as you know, that not only we have the normal economy, but we do have a very active government that changes, I mean, practices from time to time. So it will be if we venture in some of the ways it was smooth, no change, or go this way, I think that's an overly optimistic situation too. But I'd like to say that we're budgeting a higher number than last year for our upcoming years, not this year.
Speaker #8: Basically, we still are, we still are, sort of like a commercial market that we, that basically commercial real estate, and, and, and the C&I loans.
Speaker #8: We see both sides—demand is reviving a bit right now, okay? In fact, internally, we're budgeting as high a number as the previous year right now.
Speaker #8: So it's still very early to tell. As you know, that, as you know, that, not only we have, we, we have the normal economy, but we do have a very active government.
Speaker #8: Okay? That changes, I mean, practices from time to time. Okay? So, it will be, you know, if we venture in some sort of anything with smooth, no change, or go this way, I think that’s an overly optimistic situation too.
Speaker #8: But I'd like to say that we're budgeting a higher number than last year for our upcoming years. Not this year.
Timothy Coffey: Okay. Great. Thanks. And then, Ed, looking at non-interest expenses for the full year in terms of the growth rate, is kind of a mid to high single digit number reasonable?
Speaker #9: Okay, great, thanks. And then Ed, looking at non-interest expenses for the full year, in terms of the growth rate, is kind of a mid- to high-single-digits number reasonable?
Operator: And then, Ed, looking at non-interest expenses for the full year in terms of the growth rate, is kind of a mid to high single digit number reasonable? Yes. Yeah. That's about what we're looking at is, yeah, right in that neighborhood, Tim. Okay. And then kind of just general thoughts on share repurchases for this year? Well, we just have to see what the total picture is. First of all, that obviously we have to see what our loan growth is during the year. And all funds will have to be reserved for loan growth. And secondly, that deposit situation will also be very important. So when we have the balance sheet all fixed, then we probably will turn around to see whether there's additional availability for purchases or the repurchases.
Edward Czajka: Yes. Yeah. That's about what we're looking at is, yeah, right in that neighborhood, Tim. Okay.
Speaker #6: Yes. Yeah, that's about what we're looking at. Yeah, right in that neighborhood, Tim. You're right on, you're spot on.
Speaker #9: Okay, and then just kind of, just general thoughts on cherry purchases for this year?
Timothy Coffey: And then kind of just general thoughts on share repurchases for this year?
Li Yu: Well, we just have to see what the total picture is. First of all, that obviously we have to see what our loan growth is during the year. And all funds will have to be reserved for loan growth. And secondly, that deposit situation will also be very important. So when we have the balance sheet all fixed, then we probably will turn around to see whether there's additional availability for purchases or the repurchases. But I will say that the situation is not quite as, how should I say, conducive to repurchases as last year.
Speaker #2: Well, we just have to see what the total picture is, you know. First of all, obviously, we have to see what our loan growth is.
Speaker #2: Okay? And during the year. And, all possibility, all funds will have to be, reserved for the for, for, for loan growth. And certainly, that, that, that, deposit situation will also be very important.
Speaker #2: So when we have a balance sheet of fixed, then we probably will turn around to see whether it is additional availability for purchases or repurchases.
Speaker #2: But I would say that the situation is not quite as, how should I say, conducive to repurchases as last year.
Operator: But I will say that the situation is not quite as, how should I say, conducive to repurchases as last year. Right. Sure. Absolutely. And then I guess what I kind of make sure I dot the i and cross the t's on the classified loans, given the uniqueness of this situation. What does the timeline for disposition look like? Or how does this play out? Well, first of all, that amount of relationship, there are several different loans. Some of them have an earlier maturity date than the other ones. So first of all, obviously, we will be giving our customer the opportunity, that particular relationship, the opportunity of resolving these matters to our satisfaction. And then the legal procedure will start if they fail to do that.
Timothy Coffey: Right. Sure. Absolutely. And then I guess what I kind of make sure I dot the i and cross the t's on the classified loans, given the uniqueness of this situation. What does the timeline for disposition look like? Or how does this play out?
Speaker #9: Yeah. Right. Oh, sure. Absolutely. And then I guess this is what I kind of make sure I dot the i's and cross the t's on, on the classified loans.
Speaker #9: I mean, given the uniqueness of this situation, what does the timeline for disposition look like? Or, how does this play out?
Li Yu: Well, first of all, that amount of relationship, there are several different loans. Some of them have an earlier maturity date than the other ones. So first of all, obviously, we will be giving our customer the opportunity, that particular relationship, the opportunity of resolving these matters to our satisfaction. And then the legal procedure will start if they fail to do that.
Speaker #2: Well, first of all, that—first of all, that amount of relationship is, there are several different loans. Some of them have an earlier maturity date than the other ones.
Speaker #2: So first of all, obviously, we were giving our customers the opportunity, okay? That particular relationship—the opportunity of resolving these matters to our satisfaction.
Speaker #2: Okay? And, you know, then the legal procedure will start if they fail to do that. And I would say that, internally, we will say that probably we will have majority, or a good portion, of all—well, all taken care—I shouldn't say 'taken care of,' all resolved—sometime within two quarters.
Operator: And I would say that internally, we will say that probably we will have majority of a good portion of all taken care of. I shouldn't say taken care of; all resolved sometime within two quarters. Nick, do you think I'm too optimistic or what's your deep optimism? I think that's the goal where we're heading, Mr. Yu. Yes. Two quarters where we try to solve the issues. I think we'll give ourselves too much time to get a lot of the work done. Okay. Okay. Great. That's very helpful. Those are my questions. Thank you. Thank you. Our next question comes from Liam Cahill from Raymond James. Please go ahead with your question. Hi. Good morning, everyone. This is Liam on for David Feaster.
And I would say that internally, we will say that probably we will have majority of a good portion of all taken care of. I shouldn't say taken care of; all resolved sometime within two quarters. Nick, do you think I'm too optimistic or what's your deep optimism?
Speaker #9: Nick, do you think I'm too optimistic or—what's your deposit?
Speaker #10: Just to go where we're heading, Mr. Yu.
Nick Pi: I think that's the goal where we're heading, Mr. Yu.
Speaker #10: Yes. Two quarters is what we—
Speaker #10: Yes, two quarters is what we—yeah. I think we'll try to solve the issues. We give ourselves too much time to get a lot of the work.
Li Yu: Yes. Two quarters where we try to solve the issues. I think we'll give ourselves too much time to get a lot of the work done.
Speaker #10: done. Okay.
Timothy Coffey: Okay. Okay. Great. That's very helpful. Those are my questions. Thank you.
Speaker #9: Okay, great. That's very helpful. Those are my questions. Thank you.
Speaker #9: you. Thank
Li Yu: Thank you.
Speaker #2: you. Our next question comes
Operator: Our next question comes from Liam Cahill from Raymond James. Please go ahead with your question.
Speaker #4: from Liam Q. Hill from Raymond James. Please go ahead with your question.
Speaker #4: question. Hi.
Liam Coohill: Hi. Good morning, everyone. This is Liam on for David Feaster There's been a good amount of discussion surrounding the classified downgrade, but I did just want to touch on the well-secured multifamily loan that was downgraded to non-accrual. Did you have the credit metrics for that loan? Is there anything in particular we should take into account?
Speaker #11: Good morning, everyone. This is Liam on for David Feaster.
Speaker #11: So, there's, mm-hmm, been a good amount of discussion surrounding the classified downgrade, but I did just want to touch on the well-secured multi-family loan that was downgraded to non-accrual.
Operator: There's been a good amount of discussion surrounding the classified downgrade, but I did just want to touch on the well-secured multifamily loan that was downgraded to non-accrual. Did you have the credit metrics for that loan? Is there anything in particular we should take into account? You mean that 19.4? Yeah. 19.4. Okay. You have the numbers right here. Okay. So you got the credit metrics. Okay. Right. So based on the most updated appraisal we conducted after we classified this loan, and the value came out even higher than previous one. So with everything in mind. No, how much the value is? $48 million? It's $49 million. $49 million. $49 million. And our loan is 19.5. That's very helpful.
Speaker #11: Did you have the credit metrics for that loan, and is there anything in particular we should take into consideration?
Speaker #11: account? You mean
Edward Czajka: You mean that 19.4?
Speaker #2: that the nine 19.45?
Li Yu: Yeah. 19.4.
Speaker #6: 19.25.
Speaker #6: 19.25.
Nick Pi: Okay. You have the numbers right here.
Speaker #2: Okay. Yeah. You Yeah.
Speaker #2: Let me.
Speaker #9: Let have the numbers.
Li Yu: Okay. So you got the credit metrics.
Speaker #9: me. Okay. See
Speaker #9: That the credit metrics. Okay? Right.
Edward Czajka: Okay. Right. So based on the most updated appraisal we conducted after we classified this loan, and the value came out even higher than previous one. So with everything in mind.
Speaker #2: So, based on the most updated appraisal we conducted, after we classified this loan, the value came out even higher than the previous one. So, with that, everything in—in
Speaker #2: Mind. No, how much the value is?
Li Yu: No, how much the value is? $48 million?
Speaker #9: 48
Speaker #9: Million dollars? It's $49 million. Forty-nine million dollars.
Edward Czajka: It's $49 million.
Li Yu: $49 million.
Edward Czajka: $49 million. And our loan is 19.5.
Speaker #2: $49 million, and our loan is $19.5 million.
Speaker #9: Okay, yeah. I'm hearing that there's one.
Speaker #11: That's very helpful.
Liam Coohill: That's very helpful.
Operator: I'm hearing that there's one loan that we like to think that the borrower will want to find a way to resolve that because there's too much difference between the assumed market value and the appraisal value. There's too much difference between these two numbers. No, thank you very much. And then just one more from me. For fee income in 2026, would the Q4 number, excluding the one-time OREO impacts, be a good baseline? I think it would be, yes. I think that's probably a good baseline. Maybe slightly below that. The LC fee income was very, very strong this year. Not sure we can exactly reproduce that number, but I'm sure we'll get close to that. So I would take that non-interest income without the gain on sale of other real estate. Thank you very much. I'll step back.
Li Yu: I'm hearing that there's one loan that we like to think that the borrower will want to find a way to resolve that because there's too much difference between the assumed market value and the appraisal value. There's too much difference between these two numbers.
Speaker #9: Loan that, we like to think that the borrower will want to find a way to, to resolve that. Okay? Because it's true. There's too much difference between the—assume the market value is the appraisal value.
Speaker #9: There's too much difference between these two numbers.
Liam Coohill: No, thank you very much. And then just one more from me. For fee income in 2026, would the Q4 number, excluding the one-time OREO impacts, be a good baseline?
Speaker #11: No, thank you very much. And then just one more from me. For fee income in 2026, would the Q4 number, excluding the one-time Oreo impacts, be a good baseline?
Edward Czajka: I think it would be, yes. I think that's probably a good baseline. Maybe slightly below that. The LC fee income was very, very strong this year. Not sure we can exactly reproduce that number, but I'm sure we'll get close to that. So I would take that non-interest income without the gain on sale of other real estate.
Speaker #6: I think it would be y-yes. I think that's probably a good baseline—maybe slightly below that. The LC fee income was very, very strong this year.
Speaker #6: Not, not sure we can exactly reproduce that number, but I'm sure we'll get close to that. So, I would take that non-interest income without the gain on sale of other real—
Speaker #6: estate. Thank you very much.
Liam Coohill: Thank you very much. I'll step back.
Speaker #11: I'll step
Speaker #11: back. Once
Speaker #4: Again, if you would like to ask a question, please press star then one (*1). To withdraw your questions, you may press star then two (*2).
Operator: Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Again, that is star and then one to join the question queue. Our next question is a follow-up from Matthew Clark from Piper Sandler. Please go ahead with your question. Hey, thanks. Just want to clarify your expense guidance for this year. Does that exclude OREO costs because the midpoint of your guide for the Q1 of $22 million annualizes, obviously, to $88 million would be below this past year and would imply some significant growth after the Q1? Just want to make sure we're on the same page. Yes. It will grow through the year. There's no question about it. Yeah.
Operator: Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Again, that is star and then one to join the question queue. Our next question is a follow-up from Matthew Clark from Piper Sandler. Please go ahead with your question.
Speaker #4: And then one to join the queue again. That is star, question. Our next question is a follow-up from Matthew Clark from Piper Sandler. Please go ahead with your question.
Speaker #9: Hey, thanks. Just want to clarify your expense guidance for this year—does that exclude Oreo costs? Because, you know, the midpoint of your guide for the first quarter is $22 million?
Matthew Clark: Hey, thanks. Just want to clarify your expense guidance for this year. Does that exclude OREO costs because the midpoint of your guide for the Q1 of $22 million annualizes, obviously, to $88 million would be below this past year and would imply some significant growth after the Q1? Just want to make sure we're on the same page.
Speaker #9: You know, annualizes obviously to $88 million. Would be below this past year and would imply some significant growth after the first quarter. Just want to make sure we're on the same—
Speaker #9: page. Yes.
Edward Czajka: Yes. It will grow through the year. There's no question about it. Yeah. We still have a couple of small OREO properties, so there will be some expense related to those as well.
Speaker #6: It will it will grow through the year. There's, there's no question about it. Yeah. And, and we will have you know, we still have a, a couple of small Oreo properties, so there will be some expense related to those as well.
Speaker #6: It will it will grow through the year. There's, there's no question about it. Yeah. And, and we will have you know, we still have a, a couple of small Oreo properties, so there will be some expense related to those as well.
Operator: We still have a couple of small OREO properties, so there will be some expense related to those as well. Okay. Okay. And then did you repurchase any shares this quarter? No. Not this quarter. Did you? Okay. Yeah. We did in October, but it was a nominal amount, Matthew, so. Okay. And then just last one for me on M&A. Just wanted to get an update on your appetite for M&A to the extent you see some opportunities with M&A expected to accelerate this year. Yeah. There are a few deals that have been brought to us that we end up taking a look at. As you know, that has been making our main effort in M&As. But there are a couple of deals we did take a look at, and probably the pricing structure required are still not to our satisfaction.
Matthew Clark: Okay. Okay. And then did you repurchase any shares this quarter?
Speaker #9: Okay, okay. And then did you repurchase any shares this—
Speaker #9: quarter? No.
Li Yu: No. Not this quarter. Did you?
Speaker #2: Not this quarter. Did
Speaker #2: you?
Speaker #6: Yeah, we did. We did in October. We— Okay.
Edward Czajka: Okay. Yeah. We did in October, but it was a nominal amount, Matthew, so.
Speaker #9: Okay.
Speaker #6: Did in October, but it was a nominal amount, Matthew, so.
Speaker #9: Okay. And then just last one from me on, on emin on M&A. just wanted to get an update on your appetite for M&A to the extent you see some opportunities with, with M&A ex you know, expected to accelerate this year.
Matthew Clark: Okay. And then just last one for me on M&A. Just wanted to get an update on your appetite for M&A to the extent you see some opportunities with M&A expected to accelerate this year.
Li Yu: Yeah. There are a few deals that have been brought to us that we end up taking a look at. As you know, that has been making our main effort in M&As. But there are a couple of deals we did take a look at, and probably the pricing structure required are still not to our satisfaction. So we'll continue to look at it. We know that there may be another one or two coming up, but we'll take a look at it.
Speaker #2: Yeah. There are a few deals that have been brought to us that we end up taking a look at. As you know, that has been nothing—o-o-o-our main effort in M&As.
Speaker #2: But there are a couple of deals we did take a look at, and probably the pricing structure required is still not to our satisfaction.
Speaker #2: So we'll continue to look at it. We know that there may be another one or two coming up, but we'll take a look at it.
Operator: So we'll continue to look at it. We know that there may be another one or two coming up, but we'll take a look at it. Okay. Great. Thanks again. And our next question comes from Arif Ngot from Cygnus Capital. Please go ahead with your question. Yes. Hello. Thanks for taking my questions. My first question is really more just to clarify the diluted EPS of $2.79. If I'm reading it correctly, it looks like your gain on sale of the OREO properties is included in that EPS, which after tax was about $0.20. Just want to confirm, am I reading that correctly, that ex of that gain, the EPS was $2.59? That sounds about right. Yes. Okay. Appreciate it. Yeah. $1.8 million equal to 3.6. 3.6. 3.6. 3.6. Yeah. So that's about right. Yeah. Okay. Thank you.
Speaker #2: it. Okay.
Matthew Clark: Okay. Great. Thanks again.
Speaker #9: Great. Thanks
Speaker #9: again. And our
Operator: And our next question comes from Arif Ngot from Cygnus Capital. Please go ahead with your question.
Speaker #4: Next question comes from Arif Ngot from Cygnus Capital. Please go ahead with your question.
Arif Gangat: Yes. Hello. Thanks for taking my questions. My first question is really more just to clarify the diluted EPS of $2.79. If I'm reading it correctly, it looks like your gain on sale of the OREO properties is included in that EPS, which after tax was about $0.20. Just want to confirm, am I reading that correctly, that ex of that gain, the EPS was $2.59?
Speaker #11: Yes, hello. Thanks for taking my questions. My first question is really more just to clarify the diluted EPS of $2.79. If I'm reading it correctly, it looks like your gain on sale of the OREO properties is included in that EPS.
Speaker #11: Which after tax was about 20 cents. Just want to confirm, am I reading that correctly—that of that gain, the EPS was $2.59?
Edward Czajka: That sounds about right. Yes.
Speaker #6: that sounds about right.
Speaker #6: Yes. Okay.
Arif Gangat: Okay. Appreciate it.
Speaker #11: Appreciate it.
Li Yu: Yeah. $1.8 million equal to 3.6.
Speaker #6: Yeah. Thank you, sir.
Speaker #2: Okay. 1.8 million dollars
Speaker #2: equal to. 3.6.
Edward Czajka: 3.6. 3.6. 3.6. Yeah. So that's about right. Yeah.
Speaker #2: 3.6.
Speaker #6: Yeah, so that's about 3.6, right?
Speaker #2: Yeah. Okay.
Arif Gangat: Okay. Thank you. My next question is, on those OREO properties you sold in Q4, did you provide any financing to the buyers, or have you completely absolved yourself of any exposure to those properties going forward?
Speaker #11: Thank you. And then my next question is, on those OREO properties you sold in the fourth quarter, did you provide any financing to the buyers, or have you completely, you know, absolved yourself of any exposure to those properties going forward?
Operator: My next question is, on those OREO properties you sold in Q4, did you provide any financing to the buyers, or have you completely absolved yourself of any exposure to those properties going forward? One of them has we provide financing. The other ones are our cash sales. Correct. Got it. So you still have a loan to one of those properties going forward? Yes. Much smaller loan. Got it. Okay. My last question was with respect to the increase in the classified loans. Can you please confirm the $121 million of loans that are with the relationship where there's litigation going on with other banks? I'm assuming you're referring to Western Alliance and Zions. Are those loans paying current? Are they performing or no?
Speaker #2: Yeah. One of them is where we provide financing, okay? The other ones are our cash sales.
Li Yu: One of them has we provide financing. The other ones are our cash sales.
Speaker #6: Correct. Got it.
Edward Czajka: Correct.
Arif Gangat: Got it. So you still have a loan to one of those properties going forward?
Speaker #11: So you still have a loan to one of those properties going forward?
Edward Czajka: Yes. Much smaller loan.
Speaker #2: Yes. Much smaller
Speaker #2: loan. Got it.
Arif Gangat: Got it. Okay. My last question was with respect to the increase in the classified loans. Can you please confirm the $121 million of loans that are with the relationship where there's litigation going on with other banks? I'm assuming you're referring to Western Alliance and Zions. Are those loans paying current? Are they performing or no?
Speaker #11: Okay. and then the last question I had was, with respect to the, increase in the classified loans. you know, can you please confirm the, the 121 million of, of loans that, you know, are with the relationship where there's litigation going on with other banks?
Speaker #11: I'm assuming you're referring to Western Alliance and Zions. Are those loans paying current? Are they performing, or— or—
Speaker #11: No? As far as I know,
Operator: As far as I know, we don't know exactly the status of the other two banks' loans, and we don't have any idea about their structures. All I know is that we are in the first position, dealer trust lender, so we're fully secured by properties. But are those loans being paid? Are you receiving current interest and debt service on those loans currently? Yes. We have been receiving the payments, but it's been slowed down. It's been slowed down. That's correct. Yeah. Sorry. So they're behind in debt service or they're current in debt service? I'm not following the question. Generally, they're behind in debt service. Okay. That's one of the primary reasons that's the weakness of the loan that we classified. Yeah. Thanks for clarifying. I'm just really more trying to understand the context of a 1.14 times debt coverage ratio if the loan's not paying.
Li Yu: As far as I know, we don't know exactly the status of the other two banks' loans, and we don't have any idea about their structures. All I know is that we are in the first position, dealer trust lender, so we're fully secured by properties.
Speaker #2: That we don't, we don't know exactly the status of the other two banks' loans, and we don't have any idea about their structures. And all I know is that the way our, you know, first position didn't trust lender.
Speaker #2: So we're fully secured by
Speaker #2: Properties. But are those loans being paid?
Arif Gangat: But are those loans being paid? Are you receiving current interest and debt service on those loans currently?
Speaker #11: You know, are you receiving current interest and debt service on those loans?
Speaker #11: currently? Yes.
Li Yu: Yes. We have been receiving the payments, but it's been slowed down.
Speaker #2: We have been receiving the payments, but, you know, it's been slowing down. It's been slowing down. That's—
Nick Pi: It's been slowed down.
Li Yu: That's correct.
Speaker #2: correct. Yeah. Sorry.
Arif Gangat: Yeah. Sorry. So they're behind in debt service or they're current in debt service? I'm not following the question.
Speaker #11: So when you say they're, they're like behind in interest service, or they're current in interest service? I'm not—
Speaker #11: Following. But generally, they're behind.
Li Yu: Generally, they're behind in debt service. Okay. That's one of the primary reasons that's the weakness of the loan that we classified.
Speaker #2: Okay? That's one of the primary reasons—that's the weakness.
Speaker #11: Okay. interest services.
Speaker #2: Of the loan that we—okay.
Speaker #2: Classified. Yeah.
Arif Gangat: Yeah. Thanks for clarifying. I'm just really more trying to understand the context of a 1.14 times debt coverage ratio if the loan's not paying.
Speaker #11: Thanks for clarifying. I'm just really more trying to understand the context of a 1.14 times debt coverage ratio if the loan's not paying.
Speaker #2: Because of the ground force getting involved with litigation with other banks, they're probably not 100% using all the cash flow from those properties.
Operator: Because of the guardians who are getting involved with litigation with other banks. So probably they're not 100% using all the cash flow from those properties to make the payment to our bank at this time. That's our guess. Got it. Okay. That's helpful. And then just to finalize the question on this topic, given where the allowance for credit losses stood at the end of the quarter or end of the year and your increase in the provision for credit loss, what gives you comfort that you're adequately reserved and we don't get surprised, as we did this quarter, with significant increase in non-performing and criticized loans? How recent of a scrub have you done of your portfolio to kind of give you that comfort that you're adequately reserved?
Nick Pi: Because of the guardians who are getting involved with litigation with other banks. So probably they're not 100% using all the cash flow from those properties to make the payment to our bank at this time. That's our guess.
Speaker #2: To make the payment to our bank at this time. That's
Speaker #2: our guess. Got it.
Arif Gangat: Got it. Okay. That's helpful. And then just to finalize the question on this topic, given where the allowance for credit losses stood at the end of the quarter or end of the year and your increase in the provision for credit loss, what gives you comfort that you're adequately reserved and we don't get surprised, as we did this quarter, with significant increase in non-performing and criticized loans? How recent of a scrub have you done of your portfolio to kind of give you that comfort that you're adequately reserved?
Speaker #11: Okay. That's helpful. And then, you know, just, just to, you know, finalize the question on, on this topic, you know, given the, you know, where the allowance for credit losses stood at the end of the quarter or end of the year, and your increase in the provision for credit loss, what gives you comfort that, you know, you're adequately reserved and we don't get surprised as we did this quarter with significant increase in non-performing and, and criticized loans?
Speaker #11: How—how reasonable a scrub have you done of your portfolio to kind of give you that comfort that you're adequately—
Speaker #11: reserved? All these loans under
Operator: All these loans under this relationship we go with because we're substandard impaired; we go with our FASB 114 analysis. And as the release mentioned about the loan-to-value is around 65%. So there's no specific reserve on this loan. However, the $4.3 provision for this quarter was mainly the result of a combination of many factors, including the loan growth, including other specific reserves for some of the loans. Just to give you an example, we fully reserved this relationship due to an unsecured credit. And also based on Q factor. So due to the movement of all this relationship and increase of the criticized loans, we have adjusted our Q factor, especially on the credit risk area. We increased five basis points on the real estate, the entire real estate segment.
Wellington Chen: All these loans under this relationship we go with because we're substandard impaired; we go with our FASB 114 analysis. And as the release mentioned about the loan-to-value is around 65%. So there's no specific reserve on this loan. However, the $4.3 provision for this quarter was mainly the result of a combination of many factors, including the loan growth, including other specific reserves for some of the loans. Just to give you an example, we fully reserved this relationship due to an unsecured credit.
Speaker #2: This relationship would go with, because we're substandard in payout, would go with our FSB 114 analysis. And as the release mentioned, the loan-to-value is around 65%.
Speaker #2: So, there’s no specific reserve on this loan. However, the $4.3 million provision for this quarter was mainly the result of a combination of many factors, including the loan growth and other specific reserves for some of the loans, just to give you an example.
Speaker #2: We fully reserved this relationship to under unsecured credit, and also based on Q factor. So, due to the movement of all this relationship and increase of the criticized loans, we have adjusted our Q factor side, especially on the credit trend area.
And also based on Q factor. So due to the movement of all this relationship and increase of the criticized loans, we have adjusted our Q factor, especially on the credit risk area. We increased five basis points on the real estate, the entire real estate segment. So based on the component of our reserve at this moment, our Q factor side actually counted on 42.5% of the entire reserve. So we do believe the reserve should be more than enough to cover our credit situation.
Speaker #2: We increased 5 basis points of the real estate—the entire real estate segment. So, you know, based on the component of our reserve at this moment, our Q factor side actually is kind of 42.5% of the entire reserve.
Operator: So based on the component of our reserve at this moment, our Q factor side actually counted on 42.5% of the entire reserve. So we do believe the reserve should be more than enough to cover our credit situation. Got it. Okay. Thank you very much. And ladies and gentlemen, with that, we've reached the end of today's question and answer session. I'd like to turn the floor back over to management for any closing remarks. Well, thank you very much that being for now that Preferred Bank, we have little challenges and try to within the next six months period of time try to resolve these issues that on the credit side. But overall, everything remained the same. We stayed the same company. We stayed structured with a normal operation, normal matrix, and so on. And we sort of like still look forward to 2026. Thank you very much.
Speaker #2: So we do believe the reserve should be more than enough to cover our credit.
Speaker #2: situation. Got it.
Arif Gangat: Got it. Okay. Thank you very much.
Speaker #11: Okay. Thank you very much.
Operator: And ladies and gentlemen, with that, we've reached the end of today's question and answer session. I'd like to turn the floor back over to management for any closing remarks.
Speaker #4: And, ladies and gentlemen, with that, we've reached the end of today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.
Speaker #4: remarks. Well, thank you
Li Yu: Well, thank you very much that being for now that Preferred Bank, we have little challenges and try to within the next six months period of time try to resolve these issues that on the credit side. But overall, everything remained the same. We stayed the same company. We stayed structured with a normal operation, normal matrix, and so on. And we sort of like still look forward to 2026. Thank you very much.
Speaker #2: Very much. That being, for now, that Preferred Bank, we have little challenges when they try to, within the next six, six months' period of time, try to resolve these issues.
Speaker #2: That, on the credit side. But overall, everything remained the same. We stayed the same, same company. We, we see a structure with a, with a normal operation, normal, normal matrix, and so on.
Speaker #2: And, and we're, we're sort of like still looking forward to 2026. Okay? Thank you very much.
Speaker #2: much. And with that, ladies
Operator: With that, ladies and gentlemen, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: With that, ladies and gentlemen, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
