PFBC

• Credit Quality Improvements • Non-performing loans were reduced by $70 million, a 41.5% decrease quarter-over-quarter • Criticized/classified loans were reduced by $90 million, a 34% decrease • $60 million in remaining non-performing loans across three remaining exposures are tied to ongoing bankruptcy proceedings • The allowance for credit losses currently stands at 1.22% of total loans, aligned with improved credit trends

• Loan Origination Activity • Q2 2026 loan production was stronger than peer group averages, driven by disciplined deal sourcing and underwriting • Management prioritizes high-quality loans that meet required return thresholds, rather than chasing low-margin volume • The overall deal pipeline remains vibrant, but customer demand has softened since June amid renewed interest rate uncertainty

• Deposit Performance • DDA (non-interest-bearing deposit) growth has been stronger than expected, helping to hold down overall deposit costs • The industry faces broad, stiff competition for deposits, with additional pressure from consumer and commercial cash flowing into equity markets • Management targets continued core deposit growth as a top operational priority for the second half of 2026

• Strategic Philosophy • The bank prioritizes net interest income growth over targeting a specific net interest margin, as margin is viewed as an output of execution rather than a strategic input • Management maintains a disciplined pricing approach, refusing to underprice loans to gain market share to avoid long-term balance sheet risk • The current loan-to-deposit ratio is ~95%, which management is comfortable with; limited near-term increases are acceptable, but liquidity remains a long-term priority

• Net interest margin: After adjusting for Q2 2026 interest recoveries, management expects NIM to land in the mid-350 basis point range for Q3 2026, with ongoing gradual margin compression expected through the end of 2026 and into 2027 driven by competitive deposit and loan pricing.
• Deposit costs: $1.5 billion in certificates of deposit (CDs) will mature in Q3 2026 at an average rate of 380 basis points; maturing CDs are expected to reprice at slightly higher rates, putting modest upward pressure on overall funding costs.
• Non-interest expense: Q3 2026 non-interest expense is expected to be roughly flat compared to Q2 2026, with a possibility of slight improvement as elevated legal fees from troubled asset resolution moderate, though all operating costs continue to see broad inflationary increases.
• Loan growth: Q3 2026 loan growth is expected to be meaningfully slower than the strong Q2 2026 pace, due to customer hesitation from renewed interest rate uncertainty and increased competition from non-bank lenders. Fourth quarter growth will depend on market conditions, and management will remain flexible to pursue opportunities as they arise.
• Remaining non-performing loan resolution: All remaining $60 million in non-performing loans are targeted for resolution in H2 2026, though exact timing is dependent on bankruptcy court proceedings.

As a diversified commercial bank, Preferred Bank does not break out separate product segments in this transcript. The overall firm Q2 2026 net income was $33.5 million, or $2.78 per diluted share, which exceeded internal budget and outperformed both the prior quarter and the year-ago quarter. Total loans increased $125 million on a reported basis; after accounting for $70 million in sold troubled loans, net origination growth would have been closer to $195 million. Total deposits increased $52 million in the quarter, an 8% quarterly growth rate. Reported net interest margin (NIM) was 3.73%, or 3.60% adjusted for one-time interest recoveries. The efficiency ratio held steady at 32% amid ongoing inflationary pressure. Provision expense for the quarter was just $1.2 million, driven by large reductions in classified and non-performing assets that lowered required reserve levels.

• Intense industry competition for both loans and deposits, with competitors offering below-threshold pricing that the bank will not match. Non-bank lenders have increased their market activity, adding additional pressure on loan pricing and origination.
• Deposit competition is further intensified by customer cash flowing into equity markets (driven by AI stock enthusiasm) rather than staying in bank deposits, which increases funding pressure.
• Macroeconomic uncertainty around Federal Reserve interest rate policy has caused customer hesitation, delaying loan origination and transaction activity.
• Ongoing inflation is pushing up all operating costs, creating pressure on the efficiency ratio even as management works to control expenses.
• The timing of remaining non-performing loan resolutions is completely dependent on the bankruptcy court process, so resolution may take longer than currently expected.
• If loan growth remains below expectations, credit quality trends could shift, requiring an increase to the allowance for credit losses.

Q: If the Fed holds rates steady, can Preferred Bank maintain current loan yields around 7%, or will incremental pricing pressure push yields lower? / A: Management confirms the market is extremely competitive, with many competitors offering far lower rates that do not meet Preferred Bank's return requirements. The bank maintains strict discipline to only pursue high-quality loans that hit its return targets, and has outperformed peer groups on yields historically due to proactive deal sourcing.

Q: What can we expect for loan growth in the back half of 2026 after the strong Q2 result? / A: Q2 had strong underlying origination, with net growth reaching ~$194 million after accounting for troubled asset sales. However, renewed interest rate uncertainty after June has caused significant customer hesitation, and competition from non-bank lenders has increased, so Q3 growth will be much tougher than Q2. Management will remain flexible and pursue opportunities as they arise, with no firm forecast for Q4.

Q: What is the bank's philosophy on balancing net interest income growth and net interest margin in this competitive environment, and will you sacrifice margin to grow NII? / A: The bank has always maintained a selective pricing approach, refusing to compete on low rates to chase volume, as underpriced loans create long-term balance sheet risk that contributed to recent bank failures. Management prioritizes net interest income growth over targeting a specific margin, viewing margin as a mathematical output of execution rather than a strategic input, and expects gradual margin compression going forward.

Q: With allowance for credit losses at the low end of the historical range, would management need to build reserves if conditions stay the same? / A: The current allowance ratio of 1.22% of total loans aligns with the improving credit trend from large Q2 non-performing loan resolutions. The existing reserve already accounts for current macro uncertainties including inflation and tight labor markets, so management expects the reserve level to stay roughly steady in coming quarters, with immediate adjustments if conditions change.

Q: If loan growth stays slow, would management consider share buybacks to deploy excess capital? / A: Management confirmed that returning capital to shareholders via buybacks is a continuously evaluated use of excess capital if organic loan growth does not meet expectations.