Q2 2026 Preferred Bank Earnings Call

July 22, 2026

Speaker #1: Good day, everyone, and welcome to the Preferred Bank Q2 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: Good day, everyone, and welcome to the Preferred Bank Q2 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 0. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to Jeff Haas of Financial Profiles. Please go ahead, sir.

Speaker #1: After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press *1 on your touch-tone phone. To withdraw your question, please press *2.

Speaker #1: Please note that this event is being recorded. I would now like to turn the conference over to Jeff Haas of Financial Profiles. Please go ahead, sir.

Speaker #2: Thank you, Cole. Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the second quarter ended June 30, 2026.

Jeff Haas: Thank you, Cole. Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the Q2 ended 30 June 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; Chief Risk Officer, Nick Pi; and Deputy Chief Operating Officer, Johnny Hsu. Management will provide a brief summary of the results. 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.

Jeff Haas: Thank you, Cole. Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the Q2 ended 30 June 2026. 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. 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.

Speaker #2: 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.

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

Speaker #2: 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.

Jeff Haas: 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 risks 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.

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.

Speaker #2: If any of these risks 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.

Li Yu: Thank you. Thank you all for joining our conference phone call. Good morning. We are pleased to report that our net income for the Q2 2026 was $33.5 million, or $2.78 a share. This number compares favorably with previous quarter and same quarter previous year. It also exceeded our internal budget. For this quarter, we have been quite focused on the resolution of troubled assets. Non-performing loans during the quarter has been reduced $70 million, or 41.5%. Likewise, the criticized loans has been reduced by $90 million or 34%. With the large reduction in classified assets, or criticized loans, the reserve requirement on these items has been reduced. Therefore, our provision expense for the quarter is $1.2 million. Okay.

Speaker #3: Thank you. Thank you all for joining us on this conference call. Good morning. We are pleased to report that our net income for the second quarter of 2026 was $33.5 million, or $2.78 per share.

Speaker #3: This number compares favorably with the previous quarter and the same quarter of the previous year. It also exceeded our internal budget. For this quarter, we have been quite focused on the resolution of troubled assets. Non-performing loans during the quarter have been reduced by $70 million, or 41.5%.

Speaker #3: And likewise, the criticized loans have been reduced by $90 million, or 34%. With the large reduction in classified assets, specifically criticized loans, the reserve requirement on these items has been reduced.

Speaker #3: Therefore, our provision expense for the quarter is $1.2 million looking ahead. At June 30, okay, we still have three more loans totaling $60 million—non-performing loans totaling $60 million—scheduled to be resolved in the second half of 2026.

Li Yu: Looking ahead at 30 June, we still have three more loans totaling $60 million, non-performing loans totaling $60 million, scheduled to be resolved in H2 2026. However, as each one of them is brought in its own bankruptcy case proceeding, the exact timing of the resolution will be at the mercy of our legal system. This quarter, we have satisfactory or good loan production activities. Loan increased $125 million or 2% in quarter-basis. If you count, we also made up the $70 million loan we sold. The actual origination effort was quite good. On the deposit side, it only increased $52 million or 0.8% in quarter-basis. We are well aware nationwide, all banks or the entire banking industry is reporting stiff competition in deposits. Going forward, this will also be our focused area.

Speaker #3: However, as each one of them is lost in its own bankruptcy case proceeding, the exact timing of the resolution will be at the mercy of our legal system.

Speaker #3: This quarter, we have satisfactory or good loan production activities. Loans increased $125 million on a two consecutive quarter basis. But if you count in the $70 million loan that we also sold, the actual origination effort was quite good, okay.

Speaker #3: On the deposit side, it only increased $52 million, or about 8% on a quarterly basis. We are aware that nationwide, all banks—the entire banking industry—is reporting stiff competition in deposits going forward.

Speaker #3: This will also be our focused area. Net interest margin was 3.73%, favorably affected by the interest recovery. And our efficiency ratio was steady at 32%, under a currently inflationary environment.

Li Yu: Net interest margin was 3.73%, favorably affected by the interest recovery. Our efficiency ratio was steady at 32% under currently inflationary environment. All these underlying activities make us feel pretty comfortable about our operations, and we are optimistic regarding the remainder of the year. Thank you very much. I am ready for your questions.

Speaker #3: All these underlying activities make us feel pretty comfortable about our operations, and we are optimistic regarding the remainder of the year. Thank you very much.

Speaker #3: I'm ready for your questions.

Speaker #1: And, ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press *1 on your touch-tone phone.

Operator: Ladies and gentlemen, we will now begin the question-and-answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily for the first question. Our first question today will come from Matthew Clark with Piper Sandler. Please go ahead.

Speaker #1: If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press *2. At this time, we will pause momentarily for the first question.

Speaker #1: And our first question today will come from Matthew Clark with Piper Sandler. Please go ahead.

Speaker #4: Hey, good morning. I guess, first, on the loan yields: nice interest recovery there. Stripping that out, it looks like loan yields maybe reset to about 7%.

Matthew Clark: Hey, good morning. I guess first on the loan yields, nice interest recovery there. Stripping that out, it looks like loan yields maybe reset to about 7%, barring additional recoveries. I guess maybe any comments on loan pricing, whether or not you can kind of hold that yield if the Fed stays on hold, or you think there's some incremental pressure there?

Speaker #4: Barring, you know, additional recoveries, I guess—maybe any comments on loan pricing? Whether or not you can kind of hold that yield if the Fed stays on hold, or do you think there's some incremental pressure there?

Li Yu: I will first let Warren to answer that. Okay, I weigh that on. Okay.

Li Yu: I will first let Wellington to answer that. Okay, I weigh that on. Okay.

Speaker #3: I'll first let Wellington answer that, okay? That way—okay, okay.

Speaker #5: Well, the market is very competitive. We try to squeeze every 10 basis points, 25 basis points, out of each transaction. And we're at the mercy of a lot of our competitors who are still out there offering much lower rates that just don't make sense.

[Company Representative] (Preferred Bank): Well, the market is very competitive. We try to squeeze every 10 basis points, 25 basis points out of each transaction. We're at the mercy of a lot of our competitors who are still out there offering much lower rate that it just doesn't make sense. Having said that, a lot of uncertainties in the market, that's why we want to make sure that we are disciplined enough to continue to take on the loan that give us a certain quality loan. Again, quality loan that give us a type of return that we need to continue our earnings.

Wellington Chen: Well, the market is very competitive. We try to squeeze every 10 basis points, 25 basis points out of each transaction. We're at the mercy of a lot of our competitors who are still out there offering much lower rate that it just doesn't make sense. Having said that, a lot of uncertainties in the market, that's why we want to make sure that we are disciplined enough to continue to take on the loan that give us a certain quality loan. Again, quality loan that give us a type of return that we need to continue our earnings.

Speaker #5: Now, having said that, there are a lot of uncertainties in the market, and that's why we want to make sure that we are disciplined enough to, you know, continue to take on loans that give us some quality—again, quality loans that give us the type of return that we need to continue our earnings.

Speaker #3: Well, Matthew, every bank, every year is crying for loan competition. It's become a standard language nowadays, but we're very fortunate.

Li Yu: Well, Matthew, every bank every year is crying for loan competition. It's become a standard language nowadays. We're very fortunate we're able to I guess because we turn over more stones, we get a little better yields than our peer group. That probably can verify that by the call reports.

Speaker #3: We're able to I guess because of we turn over more stones. We get our a little bit better years than, than, than, than our peer can can, can verify that by the by the call reports, okay.

Speaker #4: Okay, great. And then on the deposit pricing side—it sounds like from the release that there was some upward pressure on deposits throughout the quarter.

Matthew Clark: Okay, great. On the deposit pricing side, sounds like from the release that there was some upward pressure on deposits throughout the quarter. Do you have the cost of deposits in the month of June? Then maybe remind us of the CDs that you have coming due over the next two quarters and the roll off, roll on rates.

Speaker #4: Do you have the cost of deposits for the month of June? And then maybe remind us of the CDs that you have coming due over the next two quarters, and the, you know, roll-off and roll-on rates.

Speaker #3: Two quarters—you threw me a curveball there, Matthew. First off, the cost of deposits, total deposits, was 3.06 as of the month of June.

Edward J. Czajka: Two quarters. You threw me a curve ball there, Matthew. First off, the cost of deposits. Total deposits was $306 as of the month of June. Cost of interest-bearing deposits was $344. The cost of total deposits has been held in check not necessarily by the rate environment, but by the fact that somewhat we're seeing a slight change in the mix of our deposits. We've seen some decent growth in DDA, which has certainly helped keep deposit costs down. In terms of going forward, we have $1.5 billion maturing in Q3 of total CDs at an average rate of 3.80%. Those will likely come back on at a slightly higher rate than 3.80%. I don't have the Q4 roll-off.

Edward Czajka: Two quarters. You threw me a curve ball there, Matthew. First off, the cost of deposits. Total deposits was $306 as of the month of June. Cost of interest-bearing deposits was $344. The cost of total deposits has been held in check not necessarily by the rate environment, but by the fact that somewhat we're seeing a slight change in the mix of our deposits. We've seen some decent growth in DDA, which has certainly helped keep deposit costs down. In terms of going forward, we have $1.5 billion maturing in Q3 of total CDs at an average rate of 3.80%. Those will likely come back on at a slightly higher rate than 3.80%. I don't have the Q4 roll-off.

Speaker #3: The cost of interest-bearing deposits was 344. The cost of total deposits has been held in check, not necessarily by the rate environment, but by the fact that we're seeing a slight change in the mix of our deposits.

Speaker #3: We've seen some decent growth in DDA, which has certainly helped keep deposit costs down. In terms of going forward, we have $1.5 billion maturing in Q3 of total CDs at an average rate of 3.80%.

Speaker #3: Those will likely come back on at a slightly higher rate than 3.80%. And I don't have the fourth quarter roll-off, so.

Matthew Clark: That's okay. NIM probably resetting back down to the low 3.50s is fair here in Q3?

Speaker #4: That's okay. So, NIM probably resetting back down to the low 3.50s is fair here in the third quarter?

Speaker #3: So, on an adjusted basis, it was $360 for Q2. When you strip out the noise with respect to the interest recoveries, it was $360.

Edward J. Czajka: On an adjusted basis, it was 3.60% for Q2. When you strip out the noise with respect to the interest recoveries, it was 3.60%. Yeah, we would expect probably mid 3.50s for Q3.

Edward Czajka: On an adjusted basis, it was 3.60% for Q2. When you strip out the noise with respect to the interest recoveries, it was 3.60%. Yeah, we would expect probably mid 3.50s for Q3.

Speaker #3: So, yeah, we would expect probably mid-350s for Q3.

Speaker #4: Okay. And then, last one for me—just on the expense run rate: relatively flat this quarter. What's the outlook there in the second half?

Matthew Clark: Okay. Last one for me, just on the expense run rate, relatively flat this quarter. The outlook there in H2?

Speaker #3: Yeah, we were a little disappointed with respect to non-interest expense this quarter. Matthew, professional services, namely legal fees, were elevated because of the large relationship that we're working through right now, that Mr. Yu touched on.

Edward J. Czajka: Yeah. We were a little disappointed with respect to non-interest expense this quarter, Matthew. Professional services, mainly legal fees, were elevated because of the large relationship that we're working through right now that Mr. Yu touched on. In terms of going forward, I would say Q3 is going to be fairly flat to Q2. Might be a little better.

Edward Czajka: Yeah. We were a little disappointed with respect to non-interest expense this quarter, Matthew. Professional services, mainly legal fees, were elevated because of the large relationship that we're working through right now that Mr. Yu touched on. In terms of going forward, I would say Q3 is going to be fairly flat to Q2. Might be a little better.

Speaker #3: So in terms of going forward, I would look at, I would, I would say Q3 is going to be fairly flat to Q2. Might be a little better, because, you know, it seems as if everything starts to catch up in, in, in, in cost, okay?

Li Yu: Let's hope.

Edward J. Czajka: Yeah.

Edward Czajka: Yeah.

Li Yu: I see things, everything start to catch up in cost. It's just getting simply every same service, same item is costing a little bit more nowadays.

Speaker #3: It's just getting simpler. Every same service, same item is costing maybe more nowadays, you know?

Edward J. Czajka: Yeah.

Edward Czajka: Yeah.

Speaker #5: Yeah.

Speaker #4: Great. Thanks again.

Matthew Clark: Great. Thanks again.

Speaker #1: And our next question will come from Gary Tenner with D.A. Davidson. Please go ahead.

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

Speaker #6: Thanks. Good morning. I just wanted to ask about loan growth. It sounded like you have a fairly constructive outlook for the back half of the year, if I interpreted that correctly.

Gary Tenner: Thanks. Good morning. Just wanted to ask about loan growth. It sounded like you guys have a fairly constructive outlook for H2, if I interpreted that correctly. Could you kind of talk about maybe expectations around that?

Speaker #6: Correctly? Could you talk about expectations around that?

Li Yu: Loan growth.

Speaker #3: Okay.

Edward J. Czajka: Well, obviously Q2 was very strong, as Mr. Yu mentioned. Without the sale of the two notes, net growth would've been closer to $180 million. In terms of Q3

Edward Czajka: Well, obviously Q2 was very strong, as Mr. Yu mentioned. Without the sale of the two notes, net growth would've been closer to $180 million. In terms of Q3

Speaker #6: Well, obviously, Q2 was very strong. As Mr. Yu mentioned, without the sale of the two notes, net growth would have been closer to $180 million.

Speaker #6: But in terms of Q3.

Speaker #3: I'd say $194 million, okay? In any — and then also, that's after a large payoff, you know, activities, okay? So actually, the new loan origination — but, you know, things just bouncing around, partially affected by interest rate movement in the Fed level, okay?

Li Yu: $194 million. That's after a large payoff activities. The new loan origination there. Things just bouncing around partially affected by interest rates movement in the Fed level. I still remember in early spring, in springtime, the whole country is anticipating rate cuts, and there's a lot of optimism going forward and people getting to the deal based on the, in the case of C&I activity or in the case of real estate based on a new cap rate, they want to come in to deal. Suddenly things take a change in June and everybody is talking about, oh, there will be rate increases in July. With July's call report, where is it? We see a lot of hesitation on the customer side.

Speaker #3: I still remember in early spring, okay, in springtime, the whole country was anticipating rate cuts, and there was a lot of optimism going forward, with people getting into deals based on— I mean, in the case of, I mean, C&I activity, or in the case of real estate, based on a new cap rate they want to come into the deal.

Speaker #3: Then suddenly, things take a change in June, and everybody is talking about, oh, there will be a rate increase in July, okay? Now, with July's call report, where is it?

Speaker #3: So we see a lot of hesitation on our customer side. At least they've got the delays, or just not going forward as fast as it used to be.

Li Yu: At least they get a bit delayed or just not going forward as fast as it used to be. That and the much increased level of activities from the non-bank lenders, their competition. We think that going forward in Q3 certainly will be a lot tougher than Q2. Whether it will recover in Q4 and it'll become a lot, we just have to be very flexible and take opportunity as it come. I don't know if that answers your question or not, because that's about all we can do.

Speaker #3: So that, in terms of activities from the NIM bank lenders, their competition, okay? We think that going forward in the third quarter, it certainly will be a lot tougher than the second quarter, okay?

Speaker #3: But whether it will recover in the fourth quarter and it'll become a lot, we just have to be very flexible and take opportunities as they come.

Speaker #3: I don't know if that answered your question or not, because that's about all we do—all we can do, you know?

Speaker #6: Yeah, no, I appreciate the thoughts on that. Thank you.

Gary Tenner: Yeah, no. I appreciate the thoughts on that. Thank you.

Speaker #1: And our next question will come from David Feaster with Raymond James. Please go ahead.

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

Speaker #7: Hey, good morning, everybody.

David Feaster: Hey, good morning, everybody.

Speaker #5: Good morning, David.

Edward J. Czajka: Good morning, David.

Edward Czajka: Good morning, David.

Speaker #7: It looks—the loan origination trend—it's extremely encouraging. I'm curious, how much of this is really a function of improving demand versus increasing productivity from your team?

David Feaster: Look, the loan origination trends, it's extremely encouraging. I'm curious, how much of this is really a function of improving demand versus increasing productivity from your team? Just kind of like, where are you seeing strength? How's the pipeline shaping up? Again, how is demand across your footprint?

Speaker #7: And it just kind of—where are you seeing strength? How is the pipeline shaping up, and, you know, again, how is demand across your footprint?

Speaker #3: Well, from my angle, I see in the second quarter there's increasing demand. I just mentioned earlier in the quarter, there was a lot more optimism in our customers' level than there is today, okay?

Li Yu: Well, from my angle, I see in Q2 the increase in demand. I just mentioned early in the quarter there's a lot more optimism in our customers level than it is today regarding the rate of cost they have to pay. Obviously the same level of optimism is not there anymore compared to the springtime. How the pipeline is shaping up? How do you see the activities going forward? Can you guys answer that?

Speaker #3: Regarding the rate or cost they have to pay, okay? Obviously, that same level of optimism is not there anymore compared to the springtime.

Speaker #3: But how's the pipeline shaping up? How do you see the activities going forward? Can—can you guys answer that?

Speaker #5: Do you want to take a shot first? I'll chime in. I have some ideas.

Edward J. Czajka: You want to take a shot first?

Edward Czajka: You want to take a shot first?

Edward J. Czajka: Yeah.

Wellington Chen: Yeah.

Edward J. Czajka: I'll chime in. I have some idea.

Edward Czajka: I'll chime in. I have some idea.

Speaker #7: Yeah, David, the pipeline's still pretty good. I think opportunities are still out there to review deals. We're getting a lot of deals that we are looking at.

Wellington Chen: Yeah, David, the pipeline's still pretty good. I think opportunities are still out there to review deals. We're getting a lot of deals that we are looking at. Not all of them seem to make sense from a combination of a pricing standpoint or what have you. The pipeline is still pretty vibrant. It's just we're seeing more deals right now.

Speaker #7: Not all of them seem to make sense from a combination of a pricing standpoint or what have you, but the pipeline is still pretty vibrant.

Speaker #7: It's just, we're seeing more deals right now.

Speaker #1: Okay.

David Feaster: Okay.

Speaker #5: Again, as I mentioned earlier, there is loan demand out there, but it's the quality loan demand that we're looking for. And every quality loan demand is even more competitive because every bank out there, or private lender, they all want those types of loans.

Li Yu: Again, as I mentioned earlier, loan demand is high out here, but it's the quality loan demand that we're looking for. Every quality loan demand we Even more competitive because every banks out there or private lender, they all want those type of loans. Or maybe not private lender. We try to squeeze every penny out, squeeze another 10 basis points or maybe 20, whatever, a little bit here and there. Our production team, they work very hard, keep turning stone, keep turning up quality loan demand, and then we have to again, be disciplined and be very selective. Having said all that, to repeat what we did in Q2, as Mr. Yu say, well, we always try to do our best to build a loan portfolio that's profitable and sustainable.

Edward Czajka: Again, as I mentioned earlier, loan demand is high out here, but it's the quality loan demand that we're looking for. Every quality loan demand we Even more competitive because every banks out there or private lender, they all want those type of loans. Or maybe not private lender. We try to squeeze every penny out, squeeze another 10 basis points or maybe 20, whatever, a little bit here and there. Our production team, they work very hard, keep turning stone, keep turning up quality loan demand, and then we have to again, be disciplined and be very selective. Having said all that, to repeat what we did in Q2, as Mr. Yu say, well, we always try to do our best to build a loan portfolio that's profitable and sustainable.

Speaker #5: Well, maybe not private lender, but they do, and we try to squeeze every penny out—squeeze another 10 bips, or maybe 20, whatever, a little bit here and there.

Speaker #5: So our production team, they work very hard—keep turning stones, keep turning up quality loan demand. And then we have to, you know, again, be disciplined and be very selective.

Speaker #5: So, having said all that, to repeat what we did in the second quarter, as Mr. Yu said, well, you know, we always try to do our best to build our loan portfolio that's profitable and sustainable.

Speaker #1: Yeah. Okay.

David Feaster: Yeah. Okay. We touched on the deposit pricing competition. The NII growth you saw this quarter was great. That's obviously helped with the funding cost side and on the margin as well. I'm curious, how do you think about, again, with this competitive backdrop, how do you think about your ability to drive core deposit growth going forward?

Speaker #7: And then, you know, we touched on the deposit pricing competition. I mean, the NIB growth you saw this quarter was great.

Speaker #7: and that's, you know, obviously helped with the funding cost side and, and, and, and on the margin as well. I'm curious, how do you think about, again, with this competitive backdrop, how do you think about your, your, your ability to, to drive core deposit growth going forward?

Speaker #3: That is also a mandate within our internal operations, okay? But we realize that there's one more situation that is really affecting us, which is the stock market.

Li Yu: That is also a mandate within our internal operation. Realizing that everybody is doing the same thing and realizing we've got one more situation that is really affecting us, which is the stock market, and especially the opportunity that AI stock is providing to the general public. We see many customer is investing their excess cash into the stock market today as compared to the old days, where saving in the bank is something make them comfortable. The trend is that everybody is joining the stock market now. This is another competition level that we're facing right now. We just have to try our best to improve our mix of deposit level.

Speaker #3: And especially the opportunity that AI stock is providing to the general public. We see many, many customers investing their excess cash into the stock market today, okay?

Speaker #3: As compared to the old days, okay, where saving in the bank is to make something, make them comfortable, okay? But the trend is that everybody is joining the stock market now.

Speaker #3: So this another competition level that, that we're facing right now. And, we just we just have to, you know, try our best to increase our, our to, to improve our mix, okay, deposit level, okay?

David Feaster: Okay.

Speaker #1: Okay.

Speaker #3: The cost—you just have to pay whatever is out there, you know?

Li Yu: The cost you just have to pay whatever is out there.

David Feaster: Yeah. Maybe just to that point, maybe a philosophical question. How do you think about NII growth relative to the margin here? I know in the past you've discussed and you look at the margin is an output, not an input, right? I'm curious, is that still the philosophy and whether you're willing to compete? You talk about paying what you're going to pay. Are you willing to compete on pricing and sacrifice some margin to drive NII growth? Just help us think through the margin trajectory as we look forward in this rate environment.

Speaker #1: Yeah.

Speaker #7: And, and maybe kind of just to that point, right? Maybe a philosophical question. I, I, you know, how do you think about NII growth relative to the margin here?

Speaker #7: I know in the past we've discussed, and you know, you look at the margin as an output, not an input, right? I'm curious—is that still the philosophy, and are you willing to compete?

Speaker #7: You know, you talk about paying what you're going to pay. Are you willing to compete on pricing and sacrifice some margin to drive NII growth? And just help us think through the margin trajectory as we look forward, kind of in this rate environment.

Speaker #3: Frankly speaking, this bank has traditionally given up a lot of opportunities that our loan officers bring to us, okay? But because many of the loans that are brought over do not meet our rate requirement—which is because of the deposit rates we have to pay—we prefer to be more selective, you know, in our rates, okay?

Li Yu: Frankly speaking, that this bank has traditionally give up lot of opportunity that our loan office bring to us. Because many of the loans that bring over does not meet a rate requirement, which because that the deposit we have to pay, we like to be little more selective in our rates. I mean Competition. Low-cost competition is never our answer to the whole situation. When you do too much, then you loaded your balance sheet with all kinds of low-rate loans. It's hard to get out of it, I guess. We all see several cases that cause some of the even the bank failure. We are very careful that try to stay, first of all, hopefully asset sensitive, that will keep us deposits and loan rates aligned. Number two is situation, select the rate of the loans we think is proper for us.

Speaker #3: So, I mean, low-cost competition is never, never our answer to all situations. And when you do too much, then you lower your balance sheet with all kinds of low-rate loans, okay?

Speaker #3: And it's hard to get out of it, I guess. We all see several, several cases that cause some of the, even the bank failures, you know?

Speaker #3: So we are very careful to try to stay, first of all, hopefully as sensitive as possible, so that we'll keep our deposit and loan rates aligned, okay?

Speaker #3: And number two is situation-selective rate of the loans we think is profitable for us. So the, the, the, the, the place comes to us, we become a little bit selective sometimes, you know?

Li Yu: The clients come to us, we become a little bit selective sometimes.

Edward J. Czajka: David, I'll just add to that, you and I have had this discussion many times. We focus more on net interest income growth as opposed to managing to the margin. The margin's simply a mathematical output of how well we executed.

Edward Czajka: David, I'll just add to that, you and I have had this discussion many times. We focus more on net interest income growth as opposed to managing to the margin. The margin's simply a mathematical output of how well we executed.

Speaker #2: David, I'll just add to that. You and I have had this discussion many times. We focus more on net interest income growth, as opposed to managing to the margin.

Speaker #2: The margin is simply a mathematical output of how well we executed.

Speaker #1: Okay.

David Feaster: Okay. Again, you're operating with a healthy margin. I'm just curious if we're willing to sustain it there, if we're focused on expanding it as we look beyond that, the Q4 and beyond.

Speaker #7: and I mean, again, you're operating with a healthy margin. I just kind of curious if, if we're willing to, you know, sustain it there for focused on, on expanding expanding it as we kind of look beyond that, you know, the fourth quarter and beyond.

Speaker #2: I'm sorry. Was there a question in there?

Edward J. Czajka: I'm sorry, was there a question in there?

Edward Czajka: I'm sorry, was there a question in there?

Speaker #7: It was an open-ended—it was an open-ended statement, I guess.

David Feaster: It was an open-ended statement, I guess.

Speaker #2: Yeah, you know, I mean, it is what it is. I mean, we've already talked about, you know, there's differential in loan yields on payoffs versus new origination, pricing is tight, and deposit pricing is difficult.

Edward J. Czajka: Yeah. What it is, we've already talked about there's differential in loan yields on payoffs versus new origination. Pricing is tight. Deposit pricing is difficult. Those obviously all lead to, those all point to some compression in the margin going forward and probably on into next year.

Edward Czajka: Yeah. What it is, we've already talked about there's differential in loan yields on payoffs versus new origination. Pricing is tight. Deposit pricing is difficult. Those obviously all lead to, those all point to some compression in the margin going forward and probably on into next year.

Speaker #2: So, I mean, those obviously all lead to—you know, those kind of all point to—some compression in the margin going forward, and probably on into next year.

Speaker #1: That's helpful. Thanks, everybody.

David Feaster: That's helpful. Thanks, everybody.

Speaker #7: And our next question will come from Tim Kofe with Green Capital. Go ahead.

Operator: Our next question will come from Tim Coffey with Brean Capital. Go ahead.

Speaker #5: Thanks, Lauren. Everybody, let's get back to the deposit question and the competition. So I guess, you know, in the first half of the year, on deposit growth, you're running kind of low single digits.

Tim Coffey: Thanks so much, everybody. Just getting back to the deposit question and the competition. I guess your H1 of the year on deposit growth, you're running low single digits. Is that a reasonable run rate for the full year?

Speaker #5: Is that a reasonable run rate for the full year?

Speaker #2: Well, we hope not. We'd certainly like to increase that. But, you know, as we've talked about before—and Tim, you know this—there's no pipeline for deposits.

Edward J. Czajka: Well, we hope not. We'd certainly like to increase that. As we've talked about before, and Tim, you know this, there's no pipeline for deposits. That's the real challenge in not necessarily knowing what's coming 3 months, 2 months down the road. We just have to continue to work. I think as I said, the growth in DDA on a year-to-date basis is very encouraging. We'd like to continue to work toward that end, for sure.

Edward Czajka: Well, we hope not. We'd certainly like to increase that. As we've talked about before, and Tim, you know this, there's no pipeline for deposits. That's the real challenge in not necessarily knowing what's coming 3 months, 2 months down the road. We just have to continue to work. I think as I said, the growth in DDA on a year-to-date basis is very encouraging. We'd like to continue to work toward that end, for sure.

Speaker #2: So that's the real challenge, and not necessarily knowing what's coming three months, two months down the road. So we just have to continue to work.

Speaker #2: You know, I think the, you know, as I said, the growth in DDA on a year-to-date basis is very encouraging. We'd like to continue to work toward that end, for sure.

Speaker #5: Okay, and then, so, how should I think about your loan-to-deposit ratio? Because it does seem like you've got some room to kind of, you know, potentially hold it at the current level.

Tim Coffey: Okay. How should I think about your loan or deposit ratio? Because it does seem like you've got some room to potentially hold it at the current level. Is there any appetite to take it higher?

Speaker #5: Is there any appetite to take it higher?

Speaker #3: Well, right now, we're running about 95%, okay? It bounced around a bit in there. And internally, we both feel comfortable with that particular situation.

Li Yu: Well, right now we're running about 95%, it bounce around a bit in there. Internally that we are both comfortable with that particular situation. I guess short term, we can let it rise a little bit, but long term we'd like to keep that ratio. We think liquidity for us is very important.

Speaker #3: So, I guess, short term, we can let it rise a little bit, but long term, we like to keep that ratio, okay? We think liquidity for us is very important, you know?

Speaker #5: Right. Okay. Got it. and then on the allowance, it's, you know, it's, it's running at the low end of, of kind of the historical range, say, six years or so.

Tim Coffey: Right. Okay. Got it. Then on the allowance it's running at the low end of the historical range, say six years or so. Say everything remains kind of the way it is right now, no changes to really the inputs that determine a provision at this point. Do you feel the need to kind of refill the bucket?

Speaker #5: You know, say everything remains kind of the way it is right now—no changes to, really, kind of the inputs that determine a provision at this point.

Speaker #5: Do you feel the need to kind of refill the bucket?

Speaker #2: I—I’m not... I’ll let—I think Nick probably should answer that. So, the question was, do we want to, in terms of, increase the ACCL to the total loan?

Edward J. Czajka: I think Nick probably should answer that. The question was, do we want to, in terms of increase the ALL to the total loan?

Edward Czajka: I think Nick probably should answer that. The question was, do we want to, in terms of increase the ALL to the total loan?

Speaker #4: Yes. So, for Q2, our ratio is 1.22% of the total loan. And, based on the current credit quality trend of the bank—as you know, in Q2 we had a lot of resolutions.

Nick Pi: Yes. For Q2, our ratio is 1.22% of the total loan. Based on the current credit quality trend of the bank, as you know, Q2, we have a lot of resolutions. Credit trend is heading in the right directions. We do reserve quite a sizable reserve on the qualitative side as well in terms of the covering the current uncertainties regarding our inflations, our reserve, high employment, and all those kind of things. We believe for the upcoming quarters, it should be still stay approximately at the similar level of the reserve at this moment. Definitely if there's any changes, we will adjust that right away in order to adjust our assumptions for reserve side.

Speaker #4: And, credit, trend is heading in the right directions. So, we do, reserve, quite a sizable, reserve on the Q side as well in, in terms of, to covering the current uncertainties regarding our inflation is our reserve, you know, high employment, all those kind of things.

Speaker #4: So, we believe for the upcoming quarters, it should still stay at approximately the same level of the reserve at this moment. Definitely, if there's any changes, we will adjust that right away in order to adjust our assumptions on the reserve side.

Speaker #5: Okay, great. And then just my last question has to do with capital. You know, say loan growth doesn't pick up the way you're anticipating.

Tim Coffey: Okay, great. Just my last question has to do with capital. Say loan growth doesn't pick up the way you're anticipating, would you consider getting back into the market for buying back shares?

Speaker #5: I mean, would you consider getting back into the market for buying back shares?

Speaker #3: Yes, obviously that will be one of the uses of capital, and that item will be continuously evaluated going forward.

Li Yu: Yes. Obviously that would be one of the use of the capital items that was continuous under evaluation going forward.

Speaker #5: Great. Okay, those are my questions. I appreciate your time. Thank you.

Tim Coffey: Great. Okay. Those are my questions. I appreciate your time. Thank you.

Speaker #2: Thanks, Tim.

Li Yu: Thanks, Tim.

Speaker #7: And this will conclude our question-and-answer session. I'd like to turn the conference back over to Mr. Li Yu for any closing remarks.

Operator: This will conclude our question and answer session. I'd like to turn the conference back over to Mr. Li Yu for any closing remarks.

Speaker #3: Thank you so very much. And I hope that we can continue to record results and deliver on your expectations, okay? Thank you.

Li Yu: Thank you so very much. I hope that we can continue to report results and exercise only our expectation. Thank you.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

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