Preferred Bank Q2 FY2025 earnings call

• Net income improved to $32.8 million or $2.52 per share. • Loan growth of roughly 7% annualized; early July indicated increased loan demand but uncertainty remained. • Deposits were flat; efforts to control deposit costs. • Net interest margin increased to 3.85% from 3.75%. • Continued stock buyback of $56 million. • Asset quality improved with nonaccrual, criticized, and past due loans decreasing; loan loss reserve deemed sufficient. • Acknowledged economic uncertainties including tariffs, industry conditions, and inflation.

Preferred Bank's second quarter net income was $32.8 million or $2.52 per share. Loan growth was approximately 7% on an annualized basis. Deposits remained flat. The net interest margin for the quarter was 3.85% compared to 3.75% in the previous quarter. Additionally, the bank conducted a stock buyback of $56 million during the quarter.

• Early July showed increased loan demand but uncertainty persisted. • Continued evaluation of stock buyback based on share price relative to book value. • Anticipated OREO write-downs to not continue in future quarters; some insurance reimbursement reduced professional services costs related to resolved nonaccrual loans.

• Uncertainties in the economy, such as tariffs, industry dynamics, and inflation. • Potential material impact on results if these uncertainties materialize or assumptions prove incorrect.

Q: On the margin, if you had the average margin in the month of June and the cost of deposits as well?

A: The margin for June was 3.83% and the cost of deposits was 3.41%.

Q: Can you remind us what you have coming due on the CD side and the rate that it's rolling off on and what you're offering currently?

A: $1.4 billion is set to roll off in Q3 at a weighted average rate of 4.21%, with current offered rates just under 4%.

Q: On the expense side, a little bit higher this quarter with the OREO costs. What are your thoughts on the kind of run rate going forward in the second half?

A: Expect around $21.8 million to $22.6 million in the next couple of quarters; some insurance reimbursement lightened professional services costs and OREO write-downs are not expected in future quarters.

Q: But can you also just give us either the number of shares or the price at which you bought it back? And what's left in the remaining authorization?

A: The $56 million buyback was at an average of around $80-$81 per share; $125 million remaining in repurchase authorization but not yet executed due to share price relative to book value.

Q: So I was curious about loan growth. You made the comment that seems to have picked up a bit in July. But just looking at the second quarter growth, obviously a lot stronger than it was in the prior period, particularly in the C&I side and some commercial construction. So wondering if you could provide some color on kind of what occurred there in the second quarter and kind of the pipeline into the third quarter?

A: First quarter was affected by tariffs causing C&I clients to hold back; second quarter included usage of line of credit for business upsizing and finding new customers; pipeline remains uncertain but demand increased in July.

Q: I want to go back to the loan growth a little bit. It sounds like July a little bit better, and you obviously had really good growth in the second quarter. Just wanted to hear from you guys maybe your thoughts on competition right now and kind of where new loans are coming on at rate-wise?

A: Lenders offer low fixed rate loans; we are relationship-driven, providing quick and excellent service to existing customers to aid their growth.

Q: I just wanted to maybe start with the -- getting an update on the OREO that you've still got remaining. I'm glad to see one of those nonaccruals get resolved. Obviously, we took the write-down. It sounds like you had a contract that maybe fell through. Just kind of curious your thoughts on the time line for resolution of that? And just anything broadly, credit exclusive of those 2. It seems like it held up really well, but just kind of curious your thoughts on the credit side?

A: Property with high valuation continuously devalued; trying to market it with no specific timeline for resolution; credit quality otherwise good.

Q: I was just hoping you could get kind of an update on how things are going there and any other plans for de novos or organic expansion opportunities?

A: Manhattan branch is vibrant in loan generation; Silicon Valley branch to open in the second half of the year.

Q: I thought the commentary was pretty encouraging about maybe some of the uncertainty clearing up and increased clarity in the prepared remarks, maybe it sounds like that uncertainty still kind of an overhang. I'm just -- I was hoping you could maybe touch on the pulse of your clients. And just kind of what you're hearing from them? And at what point do you think growth can really start to accelerate?

A: Growth not necessarily linked to uncertainty clearing; aftershock of tariffs unknown; keeping monthly track of customers affected by tariff situation, with growth still uncertain.