Preferred Bank Q3 FY2025 earnings call

• Record earnings per share of $2.84 and net income of $35.9 million.
• Improved credit quality with nonperforming loans reduced and OREO sold for a gain.
• Loan growth of 2.3% and deposit growth of 2.5%.
• Net interest income and margin improved, efficiency ratio less than 30%.
• Repurchased $6.3 million of own shares.
• Correction in diluted earnings per share calculation for the first half.

Preferred Bank reported a record earnings per share of $2.84 for the third quarter of 2025, with net income of $35.9 million. Credit quality improved with nonperforming loans reducing from $52 million to $17 million, and an OREO sold for a gain. Loan growth was 2.3% ($133 million) and deposit growth was 2.5% ($151 million). Net interest income and margin improved, and the efficiency ratio was less than 30%. The company repurchased $6.3 million of its own shares. There was also a correction in diluted earnings per share calculation for the first half, underreporting net income by $0.05.

• Anticipates reasonable loan growth in the fourth quarter to match the third quarter's number.
• Expect margin benefits from CD maturing at lower rates and deposit growth.
• Noninterest expense expected to be around $22 million to $22.5 million in the near term, with a potential increase in 2026.
• Hopes for growth in CRE side with rate cuts making transactions more doable.

• Forward-looking statements subject to known and unknown risks, uncertainties, and factors beyond control, as detailed in SEC required documents.

Q: Update on the floating rate component of the loan portfolio and floor levels.

A: As of 9/30, 71% of the loan book is floating, with 98% having floors; about $55 million of loans are at or below the floor.

Q: Price sensitivity around share buyback.

A: Buyback measured against income level and share price, with activity in October repurchasing 128,000 shares for $11.2 million due to price softness.

Q: Margin in Q4 and CD maturing.

A: Margin for September was $3.87, cost of deposits $3.36; CDs maturing in Q4 at average 410, with new CDs coming in mid- to high 3s, expecting margin benefit.

Q: Credit migration in criticized and classified loans.

A: Asset quality in line with expectations, no significant issues currently.

Q: Loan growth pipeline and expense expectations.

A: Hopes for loan growth in Q4 similar to Q3; noninterest expense expected around $22-$22.5 million near term, increasing in 2026.

Q: Deposit composition and flows.

A: Preference for demand deposits, but harder to get; trend of cash moving to interest-bearing DDA; brokered CDs running off.

Q: Loan growth demand, competitive dynamics, and asset sensitivity.

A: Loan growth from existing and new customers, competitive dynamics with payoffs/paydowns continuing; ongoing proactive interest rate management to adjust loan portfolio sensitivity