Preferred Bank Q4 2024 Earnings Report

Preferred Bank EPS Results

• Actual EPS: $2.25
• Consensus EPS: $2.42
• Beat/Miss: Missed by -$0.17
• One Year Ago EPS: N/A

Preferred Bank Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $69.74 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Preferred Bank Announcement Details

• Quarter: Q4 2024
• Date: 1/27/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, January 28, 2025
• Conference Call Time: 2:00PM ET

Preferred Bank (NASDAQ:PFBC) provides various commercial banking products and services to small and mid-sized businesses and their owners, entrepreneurs, real estate developers and investors, professionals, and high net worth individuals. The company accepts checking, savings, and money market deposit accounts; fixed-rate and fixed maturity retail, and non-retail certificates of deposit; and individual retirement accounts. It also provides real estate mortgage loans that are secured by retail, industrial, office, special purpose, and residential single and multi-family properties; real estate construction loans; commercial loans comprising lines of credit for working capital, term loans for capital expenditures, and commercial and stand-by letters of credit; and small business administration loans. In addition, the company offers trade finance services, including commercial and export letters of credit, import lines of credit, documentary collections, international wire transfers, acceptances/trust receipt financing products, export financing, and bills purchase programs. Further, it provides cash management services; and internet, mobile, and tablet banking services. The company operates through full-service branch offices in the California counties of Los Angeles, Orange and San Francisco; Flushing, New York; Houston suburb of Sugar Land, Texas; and a satellite office in Manhattan, New York. The company was incorporated in 1991 and is headquartered in Los Angeles, California.

Preferred Bank Q4 2024 Earnings Call Transcript

Key Takeaways

• Full‐year net income of $131 million, with a 1.91% ROA and 18.8% ROE outperforming industry peers.
• Loan and deposit growth remained moderate at 7% and 3.6% respectively, in line with a slow‐growth banking environment.
• Credit quality improvement saw nonperforming loans cut in half to $10 million and criticized loans down 33% sequentially.
• Capital returns boosted by a dividend hike to $0.75 per share and $34 million in share repurchases during 2024.
• Stronger capital position as the leverage ratio rose to 11.33% and tangible book value per share grew from $50.54 to $57.86.

Presentation

[Operator]

Good day, and welcome to the Preferred Bank Fourth Quarter twenty twenty four Earnings Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Jeff Haas of Financial Profiles. Please go ahead.

[Jeffrey Haas, Investor Relations, Financial Profiles, Inc. at Preferred Bank]

Thank you, Michael. Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the ended Dec. 31, 2024. With me today from management are Chairman and CEO, Lee Yu President and Chief Operating Officer, Wellington Chen Chief Financial Officer, Edward Cica Chief Credit Officer, Nick Pai 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.

[Jeffrey Haas, Investor Relations, Financial Profiles, Inc. at Preferred Bank]

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. 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 that 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.

[Jeffrey Haas, Investor Relations, Financial Profiles, Inc. at Preferred Bank]

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, Chairman and Chief Executive Officer at Preferred Bank]

Thank you very much, Kate. Tomorrow, January '29, is a first day of a new year on the lunar calendar, which I personally observe. And I'd like to use this opportunity to wish every one of you a most happy and most healthy New Year. Now with Preferred Bank, we closed out the year with a net income of $131,000,000 or $9,.64 Return on assets was 19.1%. Return on investment of equity was 18.8%, okay.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Both numbers compares very well with the peer group and industry average. For the our net income was $3,030,000,0.0 or $2,.25 a share. This number was negatively impacted by a correction to the rental expenses accumulated over five years in the total amount of $810,000,0.0 This non recurring expense adjustment equal to roughly 0.42 on the after tax basis.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

The year

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

2024 is a slow growth year for the banking industry, okay. We too are not exception. Our loan growth for the year of 7% and deposit growth of 3.6% was moderate compared to previous year, but probably very much in line with the industry average. Looking forward, at present, we don't see the activity as significant increases yet. For the quarter, we have made good progresses in the credit front.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Non performing loans has reduced from $20,000,000 to $10,000,000 a 50% improvement. And criticized loans reduced 33% during the We hope the New Year will see further progress in this area. The unfortunate event of Los Angeles wildfire has brought very significant damage to our community. Early survey indicated that maybe 1 commercial real estate loans property may be significantly damaged. Wait for me, our mortgage loan portfolio seems to be unaffected.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

And also personally, I'm so pleased to see that none of our employees home suffered any significant damage. We at Preferred Bank will be dedicating our best effort to help rebuild our communities, our businesses and homes. In Dec. 0, our Board has announced the increase in dividends from $0.7 to $0,.75 payable in Jan. 0.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

This year, meaning 2024, we also repurchased $464,000,000.460,000 shares of our common stock with total consideration of $34,000,000 The leverage capital ratio has actually improved from 10.85% in the beginning of the year to 11.33% at the end of the year. And common share I mean tangible book value on common stock also improved from $50,.54 to $57,.86 All of us at Preferred Bank is looking forward to continue

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

our consistent

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

performances in the year of 2025. Thank you very much. Now we are ready for your questions.

[Operator]

We will now begin the question and answer session. The first question comes from Andrew Terrell with Stephens. Please go ahead.

[Andrew Terrell, Managing Director at Stephens Inc.]

Hey, good morning.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Good morning, Andrew.

[Andrew Terrell, Managing Director at Stephens Inc.]

I wanted to check-in just on the margin here to start off with. I mean, considering the kind of heavier mix of floating rate loans, you guys obviously did a really impressive job in the the margin only down 4 basis points or so. I just wanted to maybe get your thoughts on whether there was any kind of carry forward into 1Q that could maybe influence it a bit more negatively or just kind of your thoughts or early reads on the margin kind of as we add here into the

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

I will have add on to my comments. My personal feeling it would not have a major effect in We're also not looking just to that the Fed will change the rates in the So the margin the change of the sensitivity has been a growing effort for about one, two point five years. So it seems to be showed results in the And I think will be relatively stable from my personal estimate, maybe slightly affected, not much, relatively stable. Ed, do you have anything to add?

[Edward Czajka, Executive VP & CFO at Preferred Bank]

Yes. Andrew, just to give you the spot, because I know I'll get that question sometime on the call today, the spot margin for Dec. 0 was 3.98 with a quarterly NIM of 4.06%. You can see the pattern there. But to Mr.

[Edward Czajka, Executive VP & CFO at Preferred Bank]

Yoo's comment, not seeing a lot of further compression from where we're at. So I still think we're in the very, very high 3s going into

[Andrew Terrell, Managing Director at Stephens Inc.]

Got it. Okay. Yes. I was going to say the spot question for Matt, if he's on here. But do you have the amount out of the time deposits repricing in the and then the rate they're coming up at and what the kind of new offered rate is?

[Edward Czajka, Executive VP & CFO at Preferred Bank]

We have about just under $160,000,0.0 coming due in at a $1,000,000,000 excuse me, $1,000,000,000 did I say $1,000,000,000 at a weighted average rate of of $4,.75 So we'll look for that to continue to come down on the TCD side in terms of funding costs.

[Andrew Terrell, Managing Director at Stephens Inc.]

And then maybe in the range of Yes, offered.

[Edward Czajka, Executive VP & CFO at Preferred Bank]

Yes, offered rates now are below that.

[Andrew Terrell, Managing Director at Stephens Inc.]

Do you have kind of a range of offered rates?

[Edward Czajka, Executive VP & CFO at Preferred Bank]

Well, it depends on the term. Right now, we're seeing a very wide dispersion, not only amongst our own, but nationwide and our local area in terms of deposit rates based on maturity and duration. So we have priced it accordingly, but suffice to say we're anywhere from the low 3s to the mid 4s.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Actually, Andrew, also depend on competition, okay. And locally in the Asian community that many of our friends that is running a so called Chinese New Year special and prefer bank has to stay flexible to compete with them.

[Andrew Terrell, Managing Director at Stephens Inc.]

Yes, yes, understood. Okay. And then on capital, I saw some of the buyback in the quarter and then obviously the dividend announcement. Just wanted to get your thoughts on capital repatriation into 2025 and specifically whether you thought should we expect continued utilization of the buyback

[Andrew Terrell, Managing Director at Stephens Inc.]

this year?

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Buyback will probably depend on our continuous calculation between the loan growth prospect and then also the pricing of the stock and the deposits level and these kind of capital ratio, these kind of total consideration. So all these things would miss you on the continuous basis. But being we're selling at the low multiple, comparatively speaking and some of our local friends are selling at 19 times earnings, okay. So there's a chance if our stock is staying depressed, we're obviously thinking about buyback.

[Andrew Terrell, Managing Director at Stephens Inc.]

Got it. Okay. Well, thank you guys for taking the questions. I appreciate it.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Thank you.

[Operator]

The next question comes from Matthew Clark with Piper Sandler. Please go ahead.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

Hey, good morning everyone.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

And thank you, Andrew. I don't think I have a choice but to ask about the spot rate on deposits if you had it at year end

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

ideally?

[Edward Czajka, Executive VP & CFO at Preferred Bank]

The spot rate on deposits is three sixty three, Matthew.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

And is that for Dec. 0 or at year end?

[Edward Czajka, Executive VP & CFO at Preferred Bank]

That was Dec.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

0.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

Okay. And then how about on the expense run rate in the New Year? Just give us a sense for where you think you might start and kind of any projects you're planning to work on here as a part of that expense growth?

[Edward Czajka, Executive VP & CFO at Preferred Bank]

Well, we do have a number of things. I don't want to talk about the full year, but I will talk about the if that's okay. So far, we're going to have probably be making a fairly healthy donation to the local wildlife excuse me, wildfire relief funds. So that will increase our donation expense. We're also going to have payroll taxes elevated in as we normally do with incentive compensation payout.

[Edward Czajka, Executive VP & CFO at Preferred Bank]

In addition to that, professional services, specifically legal has been running higher than normal due to 2 of the assets we're working through. So right now, I'm looking at non interest expense at about $23,000,000 for

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

Okay. And of that $23,000,000 how much do you expect the charitable contribution to be?

[Edward Czajka, Executive VP & CFO at Preferred Bank]

Well, we're going to have a meeting about that later today actually, but it's going to be low 6 figures.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

Okay.

[Edward Czajka, Executive VP & CFO at Preferred Bank]

Low to mid 6 figures.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

Got it. Okay. Some of us tend to exclude that stuff.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

So I just want

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

to make sure.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

23.

[Edward Czajka, Executive VP & CFO at Preferred Bank]

20 3.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

Okay, great. And then just shifting to credit, can you just remind us the makeup of or maybe just give us a sense for the makeup of the charge offs this quarter? I know they were previously reserved for, but just kind of remind us of the situation there. And then in terms of your expectation for upgrading credits off criticized, is that just a function of what rates have done and how that's helped that service or just give us some more color on kind of your outlook on criticize?

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Nick, will you answer that question?

[Nick Pi, Executive VP & Chief Credit Officer at Preferred Bank]

Sure. Phil, the charge off actually because of the delay in our resolution of some of the impaired loans, we decided to charge off first and well recognized recovery in the future if there's any settlement or resolutions at that moment. So with the charge of our non accrual loans is quite dropped substantially. For the criticized, I believe as Mr. Mentioned in the release that we probably have some of the loans will be a paid off or refinanced through the and also a few of the other credits are scheduled to be settled and resolved and also a couple of the credit we probably with additional collateral, we're going to upgrade those loans in So we believe for criticized loans should be somewhat dropped

[Nick Pi, Executive VP & Chief Credit Officer at Preferred Bank]

in a good amount.

[Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies]

Great. Thank you.

[Operator]

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

[Gary P. Tenner, Managing Director and Senior Analyst at D.A. Davidson Companies]

Thanks. Good morning. I was curious about the comment about not really seeing any increased activity levels. You had 7.5% loan growth I think for the year, which most of them actually are very happy with. Is there a churn within the portfolio at all, payoffs versus production or are pipelines not building at this point in your customer

[Gary P. Tenner, Managing Director and Senior Analyst at D.A. Davidson Companies]

base?

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Jonathan?

[Wellington Chen, President & COO at Preferred Bank]

Well, the churning is always the factor. As you know, our bank,

[Wellington Chen, President & COO at Preferred Bank]

we

[Wellington Chen, President & COO at Preferred Bank]

do short term loans and quite a bit in the short term. And also on the C and I side, you can see the up and down. It's the nature of C and I revolving line of credit. And so over the year end, people feel a little bit bullish and increase expanding their business and all that. So that's the nature of our gain.

[Gary P. Tenner, Managing Director and Senior Analyst at D.A. Davidson Companies]

Okay. So a more sustainable increase in activity levels is what's missing at this point?

[Wellington Chen, President & COO at Preferred Bank]

Yes.

[Gary P. Tenner, Managing Director and Senior Analyst at D.A. Davidson Companies]

Okay.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Actually, the situation I stated earlier, so far at this stage, I think the entire banking industry, including us, is feeling that it will be moderate.

[Edward Czajka, Executive VP & CFO at Preferred Bank]

There is still certainly activity, but to Wellington's point, the payoff activity has been a little higher.

[Gary P. Tenner, Managing Director and Senior Analyst at D.A. Davidson Companies]

Okay. Appreciate that. And Ed, I know you've said you don't want to talk about the full year on expenses and I appreciate that. But I'm just thinking out loud in terms of the if activity levels remain relatively lower, is there hiring or anything to be done to try to drive increased activity through lenders or anything?

[Edward Czajka, Executive VP & CFO at Preferred Bank]

Well, certainly we always have when we do our annual planning, we certainly have a lot of new individuals budgeted in for relationship officers and business development officers. The question really becomes how well do we execute on that. In terms of other initiatives going forward, obviously IT costs continue to increase, but we are also establishing a branch right in the middle of Manhattan as well, which we expect to open in March 0. And that certainly adding to the will add to occupancy expense going forward as well as personnel expense.

[Gary P. Tenner, Managing Director and Senior Analyst at D.A. Davidson Companies]

Great. Thank you.

[Operator]

The next question comes from Tim Coffey with Janney. Please go ahead.

[Timothy Coffey, MD & Associate Director of Depository Research at Janney Montgomery Scott]

Thanks. Good morning, everybody. If I can just stick on that loan growth question as well and maybe more of a question about liquidity. Ed, the liquidity that you keep on balance sheet, a lot of it's kept short term instead of going to securities portfolio. Do you see any reason to change that strategy right now?

[Edward Czajka, Executive VP & CFO at Preferred Bank]

So thank you for the question, Tim. Very timely because over the last three weeks or so, we've been purchasing treasuries, specifically ten year. We made about $60,000,000 in purchases over the last three weeks in ten year treasury at an average yield of about $4,.66 So we've been taking trying to take advantage of some of the displacement that's been going on, on the longer end of the curve. I think we've done pretty well because this is 1 of the first times you have the ten year exceeding fed funds in quite a while.

[Timothy Coffey, MD & Associate Director of Depository Research at Janney Montgomery Scott]

Okay. That's good to hear. Is this kind of an initial salvo or is this kind of just see how it goes and then try to pay my look later on?

[Edward Czajka, Executive VP & CFO at Preferred Bank]

Yes. Take a look right now and then see what it looks like later on. Yes, Tim, we're not going to I don't foresee us continuing in that fashion, but certainly the time was here to start to put some money to work in a long term fashion given where rates are at relative to historical rates.

[Timothy Coffey, MD & Associate Director of Depository Research at Janney Montgomery Scott]

Okay, great. And then my other question was on the allowance ratio. It's been coming down throughout the course of 2024. And I'm wondering, is there a level where you think the company feels comfortable having that ratio at?

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Well, Nick, you want to answer that?

[Nick Pi, Executive VP & Chief Credit Officer at Preferred Bank]

Yes, Mr. There are still several factors we have to take like a moderate risk posturing calibrating our internal quantitative and also qualitative models because of the Fed slowing down and the rate reduction, so which are still kind of a high cost of financing, put a pressure on our customers and stress to our business and also the economy. And also, the policy changes from the new administrations and also Congress, we have to close watch on that may impact economy as well. And also the reason the LA Fires, we don't know at this moment, which might give some impact to the local economy. So we still have to factor all those in.

[Nick Pi, Executive VP & Chief Credit Officer at Preferred Bank]

However, with I do believe that all those points that I mentioned should not be really cause any deep trouble to the bank. And we believe based on the current loan quality trend, everything improvement, And we believe our future reserve should be gradually reduced. So by add on 6600000.0 charge off, we're still at 1.38%. However, as I mentioned earlier, we want to charge off those things first. And so I believe in the long run, it should be reduced to 1.15% to 1.25% range, I believe, which is also in line with our pure banks at this moment.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Tim, our philosophy is to charge up to fully reserve the loan loss once we finally try to be a little bit more progressive about that, okay? So that's the reason why all the charge offs we had in the previously fully reserved starting from last year, okay? So when we first identified the weaknesses in these credits, okay, and that has been our philosophy. That's why our reserve ratio is always slightly higher than our peer group. We've been in the one hundred

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

and forty, one

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

hundred and thirty five range, not at 1.27, I think it's still 15 to 20 basis points higher than our peer group. Okay.

[Timothy Coffey, MD & Associate Director of Depository Research at Janney Montgomery Scott]

Well, yes, I totally agree. Well, thank you very much. That was great color. Those are my questions.

[Operator]

Our next question comes from David Feaster with Raymond James. Please go ahead.

[David Feaster, Director at Raymond James Financial]

Hi. Good morning, everybody.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Hi. Good

[David Feaster, Director at Raymond James Financial]

morning. Hey. You know,

[David Feaster, Director at Raymond James Financial]

I just kind of wanted

[David Feaster, Director at Raymond James Financial]

to follow-up on the loan growth side. It sounds like you alluded to pay off activity being still somewhat elevated. I'm curious the competitive landscape, if you could touch on that and what you're seeing the payoffs for? Is it asset sales? Is it the competitive landscape?

[David Feaster, Director at Raymond James Financial]

Is it just folks just paying off for that matter? Just kind of curious what you're seeing?

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

We see a heavy payoff. I mean, comparatively speaking compared to previous quarter. I think 1 of them makes some of the transaction or sales transaction easy to do when the rates is down. The new buyer is able to finance it or prices correctly and so on. So mostly is the elevated payoff activity.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Our origination stays about consistent with the okay. So this is on the loan growth side of it.

[David Feaster, Director at Raymond James Financial]

Okay. That makes sense. And with rates coming down a bit, have you started to see any it doesn't sound like the pipelines changed much. Have you seen any change in demand from your clients? Just kind of curious the pulse of the landscape from your perspective and where you're seeing opportunities?

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Yes. It's kind of abstract on these things because we try to survey our customers by, I mean, have a constant, I mean, feedback from our relationship officer. Generally, I think the market feels that rate has not come down enough for them to really be very active about the thing. There's a lot of money on the sideline. There's a lot of people willing to invest, okay, or getting to new deal.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

They just haven't feel it's safe enough for them to do that at this point of time. So this is the best feedback that we can get from our customers.

[David Feaster, Director at Raymond James Financial]

What do you think gets them off the sidelines? Is it another 50 basis points of cuts? Is it slower inflation? Just kind of we got the election in the rearview. Just what do you think gets some of those guys off the sidelines?

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Well, that probably is a question to Chairman Howard. I'm kind of in that respect about how much, okay. But I think it probably takes some further cuts more than 2. Right now, I understand you are forecasting 2 cuts, okay, for the year.

[David Feaster, Director at Raymond James Financial]

Yes. Okay. And then just if I could squeeze 1 more in, going back to the credit side, the credit trends you're seeing are encouraging. Things are kind of working their way through the system. I was hoping you could just touch on the healthier borrowers.

[David Feaster, Director at Raymond James Financial]

Obviously, higher rates has impacted the floating rate borrowers, but it seems like you've had a lot of success with clients pledging additional collateral. Could you just touch on the health of your borrowers and what you're seeing on the credit broadly?

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Well, 1 of the you want to answer the first, okay? To see what else we can add on, okay? Nick and I, okay?

[Wellington Chen, President & COO at Preferred Bank]

The first, the health of our clients are very healthy. I think our clients we are relationship oriented. So we all know and our loans are fully sponsored and they have multiple flexibility. So that's where we benefit from. Anytime, if a certain project that we get into is some issue, we will work it out and the borrower will put up additional collateral or re margin the loan.

[Wellington Chen, President & COO at Preferred Bank]

That's all. That's the strength of our lending.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Nick, you want to add anything?

[Nick Pi, Executive VP & Chief Credit Officer at Preferred Bank]

Yes, just like willing to mention about our customer, especially our loans, we have very strong sponsor behind it. So whenever there's encounter any issues, a bit of those sponsors will step up to work with the bank and will work with each other to weather out the crisis. So during the past few quarters, you can see, weather out this high rate environment pretty well.

[Wellington Chen, President & COO at Preferred Bank]

Yes.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

David, it's starting from the underwriting, okay. Underwriting that our philosophy is obviously that the cash flow, okay. And in case of real estate property is value of the assets. But 1 of the dominant factor to us is the guarantor strength and most of the loan kind of guarantor, okay. So during a difficult time, you find out if the customer is personally guaranteeing the loan, they tend to be more serious to try to mitigate whatever the situation is happening.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

And that is on top of that, we think we have a fairly good group of customer in term of their well with all. Okay.

[David Feaster, Director at Raymond James Financial]

That's helpful. Have you started to see debt service started to improve as rates have come down?

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Obviously, debt service will improve when rates come down. But we also see that gradually the income level side of the thing to be stable. Right. Capitalized now.

[David Feaster, Director at Raymond James Financial]

That's great. Thanks, everybody.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to Mr. Li Yu for any closing remarks.

[Li Yu, Chairman and Chief Executive Officer at Preferred Bank]

Thank you so very much. We're happy with our year 2024. We just have positive also for 2025. Thank you.

Participants

Executives

• Jeffrey Haas, Investor Relations, Financial Profiles, Inc.
• Li Yu, Chairman and Chief Executive Officer
• Edward Czajka, Executive VP & CFO
• Nick Pi, Executive VP & Chief Credit Officer
• Wellington Chen, President & COO

Analysts

• Andrew Terrell, Managing Director at Stephens Inc.
• Matthew Clark, MD & Senior Research Analyst at Piper Sandler Companies
• Gary P. Tenner, Managing Director and Senior Analyst at D.A. Davidson Companies
• Timothy Coffey, MD & Associate Director of Depository Research at Janney Montgomery Scott
• David Feaster, Director at Raymond James Financial