Q1 2026 Preferred Bank Earnings Call

April 22, 2026

[music].

Operator 2: Good day, and welcome to the Preferred Bank Q1 2026 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Evan New. Please go ahead.

Operator: Good day, and welcome to the Preferred Bank Q1 2026 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Evan Niu. Please go ahead.

Good day and welcome to the preferred Bank first quarter 2026 earnings Conference call.

All participants will be in a listen only mode. So do you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone and withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. Avenue. Please go ahead.

Evan New: Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for Q1 ended 31 March 2026. With me today from management are Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward J. Czajka, 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 on specific assumptions that may or may not prove correct.

Evan New: Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for Q1 ended 31st March 2026. With me today from management are Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward J. Czajka, 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 on specific assumptions that may or may not prove correct.

Hello, everyone and thank you for joining us to discuss preferred banks financial results for the first quarter ended March 31st 2026.

With me today from management are chairman and CEO, Li Yu, President and Chief Operating Officer, Wellington, Chen Chief Financial Officer, Edward Chico, and Deputy Chief Operating Officer, Johnny shoot me.

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 1095 such.

Such forward looking statements are based on specific assumptions that may or may not prove correct.

Evan New: 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. 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.

Forward looking statements are also subject to known and unknown risks uncertainties and other factors relating to preferred banks operations and business environment all.

All of which are difficult to predict and many of which are beyond the control of preferred bank for a detailed description of these risks and uncertainties. Please refer to the 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 banks 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.

Li Yu: Thank you very much. I'm very pleased to report Q1 net income of $31.3 million or $2.53 a share. This quarter's net income was negatively impacted by the placement of a large relationship onto the nonperforming status. If you recall, probably February and March, we had issued a press release informing all of you that we have placed a nine-loan relationship on a non-accrual basis. This relationship consists of two C&I loans of a small $2 million and the rest are all in commercial real estate loans in the total amount of $177 million on the non-accrual basis. Shortly after the announcement, we're able to sell one loan at par for $9.4 million. On April 1, we have sold another two loans at par for $48.5 million. As of today, we have effectively reduced the relationship by roughly 50%, okay?

Li Yu: Thank you very much. I'm very pleased to report Q1 net income of $31.3 million or $2.53 a share. This quarter's net income was negatively impacted by the placement of a large relationship onto the nonperforming status. If you recall, probably February and March, we had issued a press release informing all of you that we have placed a nine-loan relationship on a non-accrual basis. This relationship consists of two C&I loans of a small $2 million and the rest are all in commercial real estate loans in the total amount of $177 million on the non-accrual basis. Shortly after the announcement, we're able to sell one loan at par for $9.4 million. On April 1st, we have sold another two loans at par for $48.5 million. As of today, we have effectively reduced the relationship by roughly 50%, okay?

Thank you very much I'm very pleased to report the first quarter net income of $31 $3 million or $2.53 a share.

This quarter's net income was negatively impacted.

Bad debt placement.

Of a large relationship.

Nonperforming status.

If you recall.

It's public that February and March we have issued a press release.

Informing all of.

That we have placed a nine loan relationship.

On a pool basis.

This relationship consists of two CMI, Lenovo small $2 million and.

And the risks that the risks are all in commercial real estate loans in the total amount of $177 million.

And then on the accrual basis.

Shortly after the announcement.

We're able to sell one loan.

Oh $9 $4 million.

And a pulled the first.

Okay. We have sold another two loan Oh, well $48 $5 million so as of today.

They reduce the relationship by approximately 50%.

Li Yu: We'll continue our progress in Q2 and in Q3, hopefully by that time that we should have substantial resolution on this situation. Loan growth is moderate 1.1% sequentially, and deposit growth was moderate 1.2% sequentially. Market competition, especially in the pricing end of it, has been very severe. It seems to me that the war in the Middle East is trending toward more stabilized phases. I hope our country can soon concentrate on our economic affairs in the ensuing months. Our net interest margin was a 3.47%, 3.57% for this quarter, which is down from 3.74% in the previous quarter. Again, the reversal of interest income is the main reason. Since this reversal of interest income is non-recurring, we're very hopeful, especially when there seems to be no imminent rate movements. We're very hopeful that our net interest margin will rebound in the ensuing quarters.

And we continue our progress in this in the second quarter and in the third quarter hopefully by the time that we should have substantial resolution.

The situation.

Yeah.

Loan growth.

It is a moderate one 1%.

Sequentially.

And deposit growth was moderate at one 2%.

Shelby.

Market.

Competition.

Especially in the price of it has been very severe.

It seems to me that the war in the Middle East.

It's trending toward more stabilized basis.

I assume I hope I don't think you assume a constant trade.

Amit Affairs.

Yeah.

In the ensuing months.

Our net interest margin of three point.

Well, it's 7%.

Starting from four 7% for throughput.

Five 7% for this quarter, which is down from $3 seven 4% in the previous quarter.

Again.

The reversal of interest income is the main reason.

Since this reversal of interest income is non recurring.

We're very hopeful.

Especially when.

There seems to be no imminent rate movement as well.

We're hopeful that our net interest margin will rebound.

As we can.

Quarters.

Yeah.

Li Yu: Our operating overhead, our non-interest expense has been stable, and we will continue to keep it on a stable basis in the future. For your information, that the bank has repurchased roughly 400,000 shares of our own common stock for the total consideration of roughly $89, $90 a share. Thank you very much. I'm ready for your questions.

Our operating overhead and interest expense.

It's been stable.

And we'll continue to.

Keep it stable basis.

In the future.

And for your information.

The bank has repurchased roughly.

Roughly 400000 shares.

Hum on stop with a tool.

Consideration.

Roughly 80 990 of the outage.

Okay.

Thank you very much I'm ready for your questions.

Operator 2: Thank you. We will now begin the question and answer session. To ask a question, please press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The first question will come from Matthew Clark with Piper Sandler. Please go ahead.

Operator: Thank you. We will now begin the question and answer session. To ask a question, please press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The first question will come from Matthew Clark with Piper Sandler. Please go ahead.

Thank you we will now begin the question and answer session.

To ask a question. Please press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.

Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two and at this time, well pause momentarily to assemble our roster.

Yeah.

And the first question will come from Matthew Clark with Piper Sandler. Please go ahead.

Matthew Clark: Hey, good morning, everyone.

Hey, good morning.

Li Yu: Hi.

Hi.

Matthew Clark: Just on the loans held for sale, the move there, I'm assuming 48.5 of that is the two loans that you sold on 1 April 2026 at par. I just want to confirm that and also what else is in there?

Matthew Clark: Just on the loans held for sale, the move there, I'm assuming 48.5 of that is the two loans that you sold on 1st April 2026 at par. I just want to confirm that and also what else is in there?

Just on the loans held for sale the move there.

Assuming.

48, and a half of that is the you know the two loans that you sold on April people first at par, but just wanted to confirm that and also what else might well then what else is in there.

Edward J. Czajka: Yes. You're correct. Part of that $76 million, $48.5 million is the two notes sold at par on 1 April. There are two other notes in there that we are actively marketing at this point as well to sell the notes. That's why they're placed in held for sale.

Edward Czajka: Yes. You're correct. Part of that $76 million, $48.5 million is the two notes sold at par on 1st April. There are two other notes in there that we are actively marketing at this point as well to sell the notes. That's why they're placed in held for sale.

Yes, you're correct, a part of that 76 million 48, and a half as the two notes sold at par on April 1st there's two other notes in there that we are actively marketing at this point as well to sell the notes that's why they're placed in held for sale.

Matthew Clark: Okay. Any pricing thoughts there on the other two?

Okay and any.

Any pricing.

Thoughts there on the other two.

Li Yu: Well, we generally would like to get as close to the par as possible, and we have been getting down some of the loans, okay. This is our goal. Okay.

Well.

We generally would like to get as much.

As kosta.

Deposits as possible and we have been getting down some of the homes. So this is our goal.

Matthew Clark: Got it. Okay, great. On deposit costs, want to get a sense for where your deposit costs were, either at the end of March or in March, and your thoughts on the competition going forward. Along those lines, just remind us how much you have in CDs coming due in Q2 and the rate it's rolling off on and the renewal rate that you expect to come on.

Got it okay, great and then.

On to.

Deposit costs.

Wanted to get it.

That's for <unk>.

Where are your deposit costs were either at the end of March or in March and your thoughts on.

On.

The competition going forward, along those lines, just remind us how much you havent Cds coming due in two Q and.

The rate, it's rolling off on the renewal rates that you expect to come on.

Edward J. Czajka: Okay. Well, that's a lot of questions in one, Matthew, but I'll take a stab at it. The deposit costs are coming down, but not in the same velocity they were in Q4. That is starting to slow in terms of the lowering of deposit costs as we go forward. For your record, March deposit cost was 310 overall. In terms of maturities, we have $1.35 billion maturing in the quarter at a 389 rate. Those will likely be put on at similar rates, maybe a little bit lower, but we're getting close to the point where we're reaching stagnation in terms of the rolling off of CDs to newer, lower priced CDs.

Edward Czajka: Okay. Well, that's a lot of questions in one, Matthew, but I'll take a stab at it. The deposit costs are coming down, but not in the same velocity they were in Q4. That is starting to slow in terms of the lowering of deposit costs as we go forward. For your record, March deposit cost was 310 overall. In terms of maturities, we have $1.35 billion maturing in the quarter at a 389 rate. Those will likely be put on at similar rates, maybe a little bit lower, but we're getting close to the point where we're reaching stagnation in terms of the rolling off of CDs to newer, lower priced CDs.

Well, that's a lot of questions in one Matthew but I'll take a stab at it.

The deposit costs are coming down, but not to the same I'm not in the same velocity. They were in Q4, so that that.

That is starting to slow in terms of the lowering of deposit cost as we go forward.

For your record March deposit cost was 310 overall.

In terms of our maturities, we have about 1.35 billion maturing in the quarter at a 389 right.

Those will likely be put on at similar rates, maybe a little bit lower but we're getting close to the point, where we're reaching stagnation in terms of.

The rolling off of Cds to newer lower priced Cds.

Yes.

Matthew Clark: Okay, great. Last one for me, just on the expense run rate going forward. How should we think about non-interest expense?

Okay, Great and last one for me just on the expense run rate going forward.

Yeah.

How should we think about how should we think about noninterest expense.

Edward J. Czajka: We're at roughly 23.5 for the quarter. Over $1 million of that was heightened levels of payroll tax related to bonus payout, and related to stock vesting, which both occurred in Q1. As we go forward into Q2, I'm looking for something in the high 22s to low 23s.

Edward Czajka: We're at roughly 23.5 for the quarter. Over $1 million of that was heightened levels of payroll tax related to bonus payout, and related to stock vesting, which both occurred in Q1. As we go forward into Q2, I'm looking for something in the high 22s to low 23s.

So we're at a roughly 23 and a half for the quarter.

Over a million of that was.

Heightened levels of.

The payroll tax related to bonus payout and related to stock vesting, which all both occurred in the first quarter. So as we go forward into Q2 I'm looking for something in the high 20 twos to low 20 threes.

Matthew Clark: Great. Thanks again.

Great. Thanks again.

Edward J. Czajka: Mm-hmm.

Edward Czajka: Mm-hmm.

Hmm.

Operator 2: The next question will come from Gary Tenner with D.A. Davidson. Please go ahead.

Operator: The next question will come from Gary Tenner with D.A. Davidson. Please go ahead.

The next question will come from Gary Tenner with D. A Davidson. Please go ahead.

Gary Tenner: Thanks. Good morning.

Hi, Thanks, good morning.

Edward J. Czajka: Hey, Gary.

Edward Czajka: Hey, Gary.

Gary Tenner: Just wanted to ask on loan growth. The production, I think, must've been pretty decent this quarter just to have kind of the loan growth of LHI and loans held for sale. If you talk about production, competition, and pricing in terms of Columba.

Gary Tenner: Just wanted to ask on loan growth. The production, I think, must've been pretty decent this quarter just to have the loan growth of LHI and loans held for sale. If you talk about production, competition, and pricing in terms of Columba.

I just wanted to ask Hey, just wanted to ask on loan growth I mean, the production I think must've been pretty decent this quarter just to have kind of the.

Combined growth of Italy, Julien a bunch of ultrasound. So could you talk about production competition and pricing.

In terms of Palumbo.

Li Yu: Well, pricing is all over the place. We're still facing a lot of people is pricing below 6 on a fixed rate basis. We can't afford to do that. Okay? Especially when the movement of our interest rate is unclear at this point of time. We have not been getting the rate cuts that we previously forecasted. Okay? Most people have been having, let's say, frankly speaking, they're doing rates a little bit lesser than I expected.

Li Yu: Well, pricing is all over the place. We're still facing a lot of people is pricing below six on a fixed rate basis. We can't afford to do that. Okay? Especially when the movement of our interest rate is unclear at this point of time. We have not been getting the rate cuts that we previously forecasted. Okay? Most people have been having, let's say, frankly speaking, they're doing rates a little bit lesser than I expected.

Oh pricing.

Pricing is all of the place we're still facing a lot of people is pricing below six of them.

We can't afford that okay. So.

So and especially when the movement of the interest with the movement of our interest rate is.

See I just want to talk.

We have not been getting them right.

Honestly for Canada, Okay. So.

Most.

People have been.

Kevin, Let's say frankly speaking there due to the rates a little bit less than that.

Yeah.

Gary Tenner: Okay. Yeah, they're doing long-term fixed rate loans lower than you want to do them. In terms of just the activity levels and quality of credit that you're seeing come through, how does that look today?

Okay.

Yeah, So theyre doing long term fixed rate loans lower than you want to do them in terms of just the.

Activity levels and quality of credit that you're seeing come through how does that look today, well, we see the quantity pretty much the same situation.

Li Yu: Well, we see the quality pretty much the same situation. I don't think the industry has been loosened on the quality.

I don't think the industry has been elusive.

Gary Tenner: No.

Li Yu: Based on, our colleagues have been very much controlling themselves in that aspect. Likewise, obviously, we try to do that too.

Based on.

And based on my colleague has been very much a controlling themselves that aspect and likewise, obviously, we tried to do that too.

Gary Tenner: All right. Thank you.

Alright, thank you.

Operator 2: The next question will come from Andrew Terrell with Stephens. Please go ahead.

Operator: The next question will come from Andrew Terrell with Stephens. Please go ahead.

The next question will come from Andrew Trail with Stephens. Please go ahead.

Andrew Terrell: Hey, good afternoon.

Hey, good afternoon.

Edward J. Czajka: Andrew.

Edward Czajka: Andrew.

Hum.

Andrew Terrell: Hey. I wanted to start on just the margin, the $3.4 million interest reversal. It seems like that's 19, 20 basis points of margin or so. Just as that normalizes in Q2, I guess if we add that back in, it gets closer to like a 375 type margin. Similar to your Q4. Just wanted to verify that's how you're kind of thinking about margin for Q2, or how else should we think about trends of the NIM going into Q2 and then kind of throughout the year?

Andrew Terrell: Hey. I wanted to start on just the margin, the $3.4 million interest reversal. It seems like that's 19, 20 basis points of margin or so. Just as that normalizes in Q2, I guess if we add that back in, it gets closer to like a 375 type margin. Similar to your Q4. Just wanted to verify that's how you're thinking about margin for Q2, or how else should we think about trends of the NIM going into Q2 and then throughout the year?

Hi.

I wanted to start on just the margin.

$3 4 million interest reversal. It seems like that's you know 1920 basis points of margin or so just as that normalizes in two Q I guess, if we add that back and it gets closer to like a 375 type margin. So similar to your fourth quarter I just wanted to verify that's how you kind of thinking about margin for <unk> or how should.

We think about.

The trends are that the NIM going into Tokyo, and then kind of throughout the year.

Edward J. Czajka: Yeah, I think directionally you're correct. Probably about 5 basis points high there. The margin for March came in at 371, just so you know that. We're looking for something in that area as we go forward. Now with the sale of the note on 1 April 2026, we are going to recoup some interest that we reversed out. That's going to be a little bit of a tailwind for Q2. It might be a little higher than that. Right around the 370 number I think is probably good for us.

Edward Czajka: Yeah, I think directionally you're correct. Probably about 5 basis points high there. The margin for March came in at 371, just so you know that. We're looking for something in that area as we go forward. Now with the sale of the note on 1st April 2026, we are going to recoup some interest that we reversed out. That's going to be a little bit of a tailwind for Q2. It might be a little higher than that. Right around the 370 number I think is probably good for us.

Yeah, I think you're Directionally you're correct.

But probably about five basis points high there so where are the margin for <unk>.

March came in at $3 71.

Just so you know that and so we're looking for something in that area. As we go forward now with the sale of the note on April 1st we are going to recoup some interests that we reversed out so that's going to be.

A little bit of a tailwind for Q2, so it might be a little higher than that but right around the $3 70 number I think is probably good for us.

Andrew Terrell: Great. Okay. Just on the note sales, good to see you guys get out of them in April at a pretty good price. Should we expect that, when you talk about resolution of some of the remainder of these credits by kind of Q3 timeframe, is note sales the primary avenue in which you're seeking to remediate or any other plan kind of actions on the non-performers?

Andrew Terrell: Great. Okay. Just on the note sales, good to see you guys get out of them in April at a pretty good price. Should we expect that, when you talk about resolution of some of the remainder of these credits by Q3 timeframe, is note sales the primary avenue in which you're seeking to remediate or any other plan actions on the non-performers?

Great. Okay, and then just on the on the note sales good good to see you guys get out of a get out of them in April at a pretty good price.

We expect that you know when you talk about resolution of some of the remainder of these credits by kind of third quarter time frame as is known sales the primary Avenue and what's your.

Seeking to remediate or any other plan kind of actions on the non performers.

It's obviously that no sale quickest best loss, if we can't get the price that we want to get and that is really it was sort of like a pricing.

Li Yu: Obviously the note sale is the quickest and best for us if we can get the price that we want to get. Okay? That is really more so like a pricing issue for us. Okay? Actually, each loan has its different nature. The clearest situation is the loan to value ratio based on appraisal. Normally speaking, obviously when the situation narrow, you don't get as good a pricing as the so-called loan with a bigger margin in the situation. In the meantime, the other resolution process, which is foreclosure process, still going on. Right now, most loans have bankruptcy filings. We have to go through the dealing with the bankruptcy too. It depends on what the bankruptcy judge is awarding. They might award, in certain cases, more time to selling it or to operate it, to reorganize it. Okay?

Issue for us.

And actually each loan has its.

It's different in nature.

Most situations.

Situation is the loan to value ratio based on appraisal normally speaking that obviously that well and then when the securities are narrow you don't get as good a pricing as the U S.

As the SBA, so that alone was a bigger.

Module CA.

And in this situation so in the meantime, the other resolution process, which is foreclosure process.

Steve's going off and right now most of the loan is being bought.

Let's see the web to go through to dealing with the bankruptcy.

And depends on what the bankruptcy judge is awarded in my walk in certain cases, they have more types of setting it up to the operator to reorganize.

Li Yu: That's something out of our hand. Okay? To the extent we can get them immediately in our hand, then we will resell them. Therefore each property has a different resolution nature, not that it's very necessarily predictable enough.

That's something out of all.

But to the extent that we can get them immediately.

And then we would we sell them. So therefore, each each property is kind of as a different.

Resolution nature and not that it's Terry.

A predictable.

Yeah.

Andrew Terrell: Yeah. Understood. Okay, I appreciate it. Then just one more for me on some of the commentary around competition. Understand it's a tougher market here. Just wanted to maybe reframe expectations on kind of loan and deposit growth for the year. If I add back in kind of the HFS loans this quarter, looks like you were kind of tracking mid-single digits. Do you feel like in this competitive backdrop that's a decent cadence through the year for loan growth? Or are we more likely to see some compression just given the competitive environment?

Andrew Terrell: Yeah. Understood. Okay, I appreciate it. Then just one more for me on some of the commentary around competition. Understand it's a tougher market here. Just wanted to maybe reframe expectations on loan and deposit growth for the year. If I add back in kind of the HFS loans this quarter, looks like you were tracking mid-single digits. Do you feel like in this competitive backdrop that's a decent cadence through the year for loan growth? Or are we more likely to see some compression just given the competitive environment?

Yeah understood. Okay. I appreciate it and then just one more for me on the.

You know, there's something like some of the commentary around competition and understand its a tougher market here just wanted to maybe reframe expectations on.

What kind of loan and deposit growth for the year, if I add back in kind of the hff's loans. This quarter. It looks like you were kind of tracking mid single digits do you feel like in this competitive backdrop. That's you know a decent cadence through the year for loan growth are we more likely to see some some compression.

Just given the competitive environment, Yeah, I think about three months ago in that press conference I was saying internally with guiding ourselves growing at high single digits. Okay. Okay. So, but however.

Li Yu: Yeah. I think about three months ago in the press conference, I was saying internally, we're guiding ourselves doing high single digits. Okay. However, internally we didn't know there's a war in Iran. Okay. Whether how much they changed us on that issue alone, we do not know. Plus, we seem to have an administration that is presenting more changes in every aspect of the situation that usually bank gets related to in any of the changes they want to make. Okay. Our situation right now is that we're bouncing backwards and forwards in terms of our own internal expectations and so on. We have to be realistic. When there are wars going on, when there's no petroleum, when the price goes through the roof, you're not going to see the same loan demand as you are in a peacetime situation.

Internally, we didn't know that.

Going wrong.

Yeah.

So.

How much that changed that.

On that issue alone.

Not at all.

Plus we seem to have an administration that is presenting more changes.

In every aspect of the situations.

That's usually bank, it's just related to any of the changes they want to make okay. So we our situation right now is that we're bouncing backwards or forwards.

Hello internal expectation so.

We have to be realistic when it was growing at all when Theres no patrolling when the price goes the rule, you're not going to see the same loan demand.

As you are in the peacetime situation.

Li Yu: I guess all these kind of situations, all we can do is stay alert, but we still hope that this will be a growth year for Preferred Bank.

So I guess all of these kind of situations, but all we can do is stay alert, but we still hope that this will be a growth year hopefully for a bank.

Li Yu: I guess all these situations, all we can do is stay alert, but we still hope that this will be a growth year for Preferred Bank.

Andrew Terrell: Great. Thanks so much for taking the questions.

Great. Thanks, so much for taking the questions.

Operator 2: The next question will come from David Feaster with Raymond James. Please go ahead.

Operator: The next question will come from David Feaster with Raymond James. Please go ahead.

The next question will come from David Feaster with Raymond James. Please go ahead.

David Feaster: Hey, good morning, everybody.

Hey, good morning, everybody.

Li Yu: Hey, David. Morning.

David.

David Feaster: I just wanted to follow up on that growth discussion. I was hoping you could maybe help break down a bit of the dynamics behind the slower growth that we're seeing. It sounds like, to your point, that we may be seeing somewhat of a slowdown in demand. Is that a fair characterization if I'm reading between the lines? Just any commentary on how payoffs and paydowns have been playing into this, and where you're seeing the most opportunity within the pipeline and to grow loans right now.

I just wanted to follow up on that growth discussion I was hoping you could maybe help break down a bit of the dynamics behind the slower growth that we're seeing it sounds like to your point that we may be seeing somewhat of a slowdown in demand is that a fair characterization, if I'm reading between the lines and then just any commentary on on how payoffs and pay.

Downs have been playing into this end and where you're seeing the most opportunity to.

Within the pipeline and and to grow loans right now.

Li Yu: I think demand slowdown is a foregone conclusion. Okay? Now, just think about when the petroleum price is going to $100 a barrel, okay? Not petroleum, oil, okay? When the products are related, all the various product, they related, and the short-term, long-term effect is hard to measure. The supply nature also makes it immeasurable, okay? Definitely that will affect. It's just we may not seen it all yet at this point of time reflected in our economy. Okay? That is where we are pretty much confused in-house at Preferred Bank. Okay?

I think demand slowed down is a foregone conclusion.

Just think about.

Petroleum prices going to.

$100 a barrel okay.

Alright, okay, when the product all related.

Ladies and.

Long term the short and long term the effect is.

Is it is hard to measure.

And <unk>.

The supply nature also makes the immeasurable. Okay. So definitely that was back. It's just we have we may not seeing at all yet.

Reflecting the economy yeah.

So that is what we are really much in the house at.

Okay.

David Feaster: Okay. Maybe just shifting gears back to the credit side. Obviously, look, you guys have been very active managing credit. You've worked through a lot of issues. I assume that you've done a pretty deep dive into the book at this point. Do you think we're at or near an inflection here? Are you seeing continued migration or is some of this broader macro side, do you think credit is not at that point yet, and it's just still pretty uncertain?

Okay.

And then maybe just shifting gears back to the credit side. I mean, obviously look you guys have been very active managing credit you've worked through a lot of issues.

And I, so I assume that you've done a pretty deep dive into the book at this point do you think we're at or near an inflection here are you seeing continued migration or is some of this you know broader macro side like do you think credit you know is is not at that point, yet and it's just still.

Pretty uncertain.

Li Yu: Okay. Well, number one issue is that, I don't know in the past we have been this busy on credit or not, okay? It seems to be this transaction is really the inflection point on our current attention and so on. Even with that, it has been a loan, group of loans that was performing, I mean, pretty well until there's some irregular return was found by, I guess, everybody knows that, by Western Alliance Bank. They published an announcement, and the whole thing just started to get sour from that point on in the next several months to the point we have to call it a non-accrual, okay? We had to resolve that immediately. Other than that, our total credit picture has been remaining generally stable. I can send you the FDIC statistic about our 10-year charge-off ratio.

Well number one issue is that.

I don't know.

In the past so we have been busy.

Busy on credit it.

It seems to be this transaction is really the inflection point on that.

Our attention is on and even with that it has been a long group of loans that was performing.

Pretty well here.

Iraq was.

Was found by it.

Everybody knows by Western Security Bang Western Alliance Bank.

They publish it allows for a moment and the whole thing just started to get.

Get the Sahwa from that point at all in the next several months to the point, we have to call. It.

Cool.

And we have to resolve that immediately other than that our total.

Credit picture has been remain generally stable and I can send you the FDIC statistics about our 10 year charge off ratio would probably lower than the average.

Li Yu: We're probably lower than the average of the banking group. I do not know that we have been struggling about credit in the past, but we are struggling about this credit, this group of credit right now, okay?

The bank.

So I do not know that we have been struggling about quite a bit in the past, but we are struggling about this but this group of credit right now.

David Feaster: Okay.

Li Yu: Yeah.

Okay.

David Feaster: Maybe just last one from me. You're still sitting on a lot of excess capital. You've been more active with the buyback. I'm just kind of curious how you think about capital priorities today. The stock's moved a bit higher from where you've repurchased more recently. Just kind of curious how you think about capital priorities today.

David Feaster: Maybe just last one from me. You're still sitting on a lot of excess capital. You've been more active with the buyback. I'm just curious how you think about capital priorities today. The stock's moved a bit higher from where you've repurchased more recently. Just curious how you think about capital priorities today.

And maybe just last one for me your you're still sitting on a lot of excess capital you've been more active with the buyback I'm just kind of curious how you think about capital priorities today.

<unk> moved a bit higher from where you've repurchased more recently, but just kind of curious how you think about capital priorities today.

Li Yu: Well, there are two groups of pictures, I mean, two groups of thoughts. One group representing the more sort of the active trader investor type. Okay? Their idea is that you have enough capital, you just go do the buyback, whatever you can immediately, as much as you can, okay? That's one group. We have another group of long-term investors, who hold their position in the bank hardly moves at all in the past 10 years. Plus, we have also rating agencies, okay? Both of them seem to say, "Well, you need to play it safe on your capital. What you need to do is look at the future economy, look at your earnings forecast, and determine on a flexible basis what you can do year from year." Okay? I guess our board decided the security is above all situation.

Li Yu: Well, there are two groups of pictures, I mean, two groups of thoughts. One group representing the more the active trader investor type. Okay? Their idea is that you have enough capital, you just go do the buyback, whatever you can immediately, as much as you can, okay? That's one group. We have another group of long-term investors, who hold their position in the bank hardly moves at all in the past 10 years. Plus, we have also rating agencies, okay? Both of them seem to say, "Well, you need to play it safe on your capital. What you need to do is look at the future economy, look at your earnings forecast, and determine on a flexible basis what you can do year from year." Okay? I guess our board decided the security is above all situation.

Well, there's two group of us.

Pictures that two group.

I mean, two group of socks.

Group, representing the Damaso other active trading.

Okay.

The idea is that you have enough capital you just go through the buyback or whatever you can immediately as you want you can okay. Okay. So that's one.

And then we have another group of long term investor hardly their position our bank hardly moves all of them.

This past year and plus we have also rating agency bullish.

Both of them seem to say well you need to play and play it safe capital you know you what you need to do is look at it.

Economy looked at your earnings walk us and determined on the flexible base.

You can do you from here.

So I guess.

Our board decided just the security is above all situations. So we leaning David to worry about a long term shareholder viewpoint.

Li Yu: We're leaning a little bit toward about our long-term shareholder viewpoint.

David Feaster: Okay. That makes sense. Maybe if I could just squeeze one more in. Just kind of curious, with the rate backdrop today, you're obviously naturally asset sensitive, but given the markets kind of looking at this as the Fed on pause, maybe for now at least, has your thoughts on managing rate sensitivity shifted at all?

David Feaster: Okay. That makes sense. Maybe if I could just squeeze one more in. Just curious, with the rate backdrop today, you're obviously naturally asset sensitive, but given the markets looking at this as the Fed on pause, maybe for now at least, has your thoughts on managing rate sensitivity shifted at all?

Okay.

That makes sense and maybe if I could just squeeze one more in just kind of curious with the rate backdrop today, you're obviously naturally asset sensitive, but given the market just kind of looking at this as the fed on pause maybe for now at least is how did your thoughts on managing rate sensitivity shifted at all.

Li Yu: Well, I will say something. Ed and I have jointly discussed this matter all the time, okay? My feeling is that within the next few group of rates, for Preferred Bank particularly, we are sort of near neutral in assets sensitivity, particularly because of our large TCD portfolio. Okay? Under the current status where the rate is now moving, actually, our TCD rate we're paying is improving in each quarter. Okay? At a very slow rate nowadays, okay? Because of market competition. We just are not clear about the economy yet. Again, likewise, with all the things that were happening to us, obviously, we can always name the war is one of them, okay? What would that do to our economy?

Li Yu: Well, I will say something. Ed and I have jointly discussed this matter all the time, okay? My feeling is that within the next few group of rates, for Preferred Bank particularly, we are near neutral in assets sensitivity, particularly because of our large TCD portfolio. Okay? Under the current status where the rate is now moving, actually, our TCD rate we're paying is improving in each quarter. Okay? At a very slow rate nowadays, okay? Because of market competition. We just are not clear about the economy yet. Again, likewise, with all the things that were happening to us, obviously, we can always name the war is one of them, okay? What would that do to our economy?

Well I want to say something to add there Matt jointly.

Got it okay.

My my feeling is that within that within the next.

Group, a raise of the fault because I've been particularly we are sort of like near neutral.

Assets sensitivity, particularly because of a lot.

I mean that PCB portfolio, Okay and on the current status of where the rate is now moving actually out do you see the rate, we're paying is slowly improving each quarter.

And I bet, a very slowly to about.

Nowadays.

Because of the market competition.

So.

So we just I'm not clear about.

Economy yet.

Again like I said it was all those things are what's happening to us I mean, obviously, we can all we named the war is one of them well what would that do to our economy.

Li Yu: Would you be able to tell me whether we're going to have a recession ahead of us, or we have low growth ahead of us, or high growth ahead of us? Okay. This question is puzzling generally almost everyone at this point of time. Yeah. Because a lot of uncertainty we're facing. This year, the challenge is, in my opinion, to stay flexible. Stay alert and flexible. I don't know, Ed, how you feel.

What does it create when you would you be able telling me whether we're gonna every six months ahead of us or we have low growth ahead of us our highest.

High growth ahead of us.

Okay and this question is puzzling generally almost everyone at this point of time.

Because a lot of others.

We're facing so.

So this year.

The challenge is.

In my opinion to stay flexible.

Okay.

Our flexible.

And how you see that yeah, well no I think similarly, we haven't really changed much in terms of the balance sheet profile are in probably the last 12 months. Since we you know at the hydro rates in 'twenty three started doing more fixed rate loans that that percentage between fixed and variable on the on the <unk>.

Edward J. Czajka: Yeah. Well, no, I think similarly. We haven't really changed much in terms of the balance sheet profile in probably the last 12 months since we, at the height of rates in 2023, started doing more fixed rate loans. That percentage between fixed and variable on the book is about the same as it's been, about 75/25 variable to fixed. Along with that, we try to get more and more of our large corporate deposit accounts, interest-bearing checking, and money market, tied directly to Fed funds, the large corporate accounts. To the extent we can tie them to Fed funds, it makes our asset liability matching, as Mr. Yu said, more closer to neutral than the asset sensitivity we had, say, going into 2021, 2022, when we were highly asset sensitive and took advantage of all the rate hikes.

Edward Czajka: Yeah. Well, no, I think similarly. We haven't really changed much in terms of the balance sheet profile in probably the last 12 months since we, at the height of rates in 2023, started doing more fixed rate loans. That percentage between fixed and variable on the book is about the same as it's been, about 75/25 variable to fixed. Along with that, we try to get more and more of our large corporate deposit accounts, interest-bearing checking, and money market, tied directly to Fed funds, the large corporate accounts. To the extent we can tie them to Fed funds, it makes our asset liability matching, as Mr. Yu said, more closer to neutral than the asset sensitivity we had, say, going into 2021, 2022, when we were highly asset sensitive and took advantage of all the rate hikes.

Book is about the same as it's been about 70 525 variable to fixed.

Along with that you know, we try to get more and more of our large corporate deposit accounts interest bearing checking and money market tied directly to fed funds to large corporate accounts to the extent, we can tie them to fed funds. It makes our asset.

Asset light that asset liability matching.

As Mr. Yu said more closer to neutral than than you know the asset sensitivity, we have I'd say going into 2020. One 2022, and we are highly asset sensitive and took advantage of all the rate hikes. So I think we're kind of on a pause mode in terms of change in the balance sheet and want us kind of keep it where it is right now, especially you sell.

Edward J. Czajka: I think we're kind of on a pause mode in terms of changing the balance sheet and want to kind of keep it where it is right now. As Mr. Yu said, flexibility. If this war continues and we get into a point where inflation creeps up, we may not be looking at rate cuts as the next rate change from the FOMC. I think we want to stay flexible, and what we've always done is keep both sides of the balance sheet short, and that way we can react to anything.

Edward Czajka: I think we're on a pause mode in terms of changing the balance sheet and want to keep it where it is right now. As Mr. Yu said, flexibility. If this war continues and we get into a point where inflation creeps up, we may not be looking at rate cuts as the next rate change from the FOMC. I think we want to stay flexible, and what we've always done is keep both sides of the balance sheet short, and that way we can react to anything.

Flexibility I mean, if if this war continues and you know we get into a point, where you know inflation creeps up we may not be looking at rate cuts as the next.

Rate change from the F O M C. So.

I think we want to stay flexible and you know what we've always done is keep both sides of the balance sheet short and that way, we can react to anything.

David Feaster: Got it. That's helpful. Thank you.

Okay. That's helpful. Thank you.

Operator 2: This will conclude our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Operator: This will conclude our question and answer session. I would like to turn the conference back over to management for any closing remarks.

And this will conclude our question and answer session I would like to turn the conference back over to management for any closing remarks.

Li Yu: Well, thank you so much for your interest in Preferred Bank, okay? That we hope what we have described today is our roadmap going into the next few quarters, and hopefully that we can produce even better financial results in the next few period of time. Okay. Thank you. Thank you very much.

Well thank you so much.

We are interested to go back there.

Well, what we have described today is out a roadmap going into the next few quarters and hopefully that.

We can produce.

Even better financial results.

In the next few.

Okay. Thank you.

Thank you very much.

Operator 2: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: [Break]

[music].

Yeah.

[music].

Okay.

Yeah.

Okay.

[music].

No.

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