Preferred Bank Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 21, 2025

Key Takeaways

  • Positive Sentiment: Second quarter net income was $32.8 million or $2.52 per share, a sequential improvement.
  • Positive Sentiment: Loan growth reached an annualized 7% in Q2, with early July trends showing increased demand.
  • Positive Sentiment: Asset quality strengthened as non‐accrual, criticized, and past‐due loans all decreased and reserves remain sufficient.
  • Neutral Sentiment: The bank repurchased $56 million of stock at an average price of $80.81 per share and holds $125 million in remaining authorization.
  • Negative Sentiment: Management cited uncertainty from tariffs, interest rate fluctuations, and inflation as ongoing risks to the operating environment.
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Earnings Conference Call
Preferred Bank Q2 2025
00:00 / 00:00

Transcript Sections

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Operator

Good day, and welcome to the Preferred Bank Second Quarter twenty twenty five 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 zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star ask Please note this event is being recorded.

Operator

I would now like to turn the conference over to Jeffrey Haas of Financial Profiles. Please go ahead.

Jeff Haas
Director at Financial Profiles, Inc

Thank you, Betsy. Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the second quarter ended 06/30/2025. With me today from management are Chairman and CEO, Lee Yu President and Chief Operating Officer, Wellington Chen Chief Financial Officer, Edward Chaika Chief Credit Officer, Nick Pye 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. 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.

Jeff Haas
Director at Financial Profiles, Inc

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 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. Preferred Bank assumes no obligation to update such forward looking statements.

Jeff Haas
Director at Financial Profiles, Inc

At this time, I'd like to turn the call over to Mr. Li Yu. Please go ahead.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

Thank you. I'm very pleased to report that Preferred Bank's second quarter net income was $32,800,000 or $2.52 a share, which is a reasonable improvement from the previous quarter. This quarter, we have a loan growth of roughly 7% on annualized basis. Early indication in July is that the loan demand seems to have increased, okay. However, to the extent of which is still too early to tell.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

Our deposits remain flat. Perhaps one of the reason is that we try to control our cost of the deposits. Net interest margin this quarter was 3.85% as compared to the 3.75% reported last quarter. During the quarter, we have continued to buy back our stock in accordance with our policy of returning excess capital to our shareholders. However, this quarter's purchase is relatively large in the amount of $56,000,000 which may have affected net interest income, PPNR and net interest margin a little bit.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

Second quarter will show good improvement in assets quality. Non accrual loans, criticized loans and past due loans all decreased reasonably from the previous quarter. And we believe the trend should continue into the second half of this year. At this time, we have not identified any additional loss contents on these loans. We believe our loan loss reserve is sufficient to cover any exposure.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

There's still a lot of uncertainty in our economy, the tariff, the interest rate and the inflation. I just hope these matters will clear up very soon so we can have a clearer and better operating environment to work under. Thank you very much. And I'm ready for your questions.

Operator

We will now begin the question and answer session. The first question today comes from Matthew Clark with Piper Sandler. Please go ahead.

Matthew Clark
Matthew Clark
MD & Senior Research Analyst at Piper Sandler Companies

Hey, thanks and good morning.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

Good morning.

Matthew Clark
Matthew Clark
MD & Senior Research Analyst at Piper Sandler Companies

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

Executive

Yes. Hi, Matthew. The margin for June was 3.83%, cost of deposits 3.41%. And as a side note to that, those have been relatively consistent through the quarter. There's not been much change either on the asset yield side or on the cost of deposit side. It's been fairly steady.

Matthew Clark
Matthew Clark
MD & Senior Research Analyst at Piper Sandler Companies

Okay. And 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?

Executive

We have $1,400,000,000 that's going to roll off in Q3 at a weighted average rate of 4.21%. Current offered rate is right around 4%, maybe a touch above 4% and then some slightly below 4%. On average, probably just under 4%.

Matthew Clark
Matthew Clark
MD & Senior Research Analyst at Piper Sandler Companies

Got it. Okay. And then on the expense side, a little bit higher this quarter with the OREO cost. What are your thoughts on the kind of run rate going forward in the second half?

Executive

Yes. So looking forward, Matthew, we hit 22.5% this quarter. I'm looking at about anywhere from 21.8% to say 22.6% going out in the next couple of quarters. We did receive some insurance reimbursement on some legal matters related to a non accrual loan that was resolved in earlier quarters. So we did have some lightening up on professional services costs.

Executive

And then of course, obviously, we wouldn't expect the OREO write down in future quarters.

Matthew Clark
Matthew Clark
MD & Senior Research Analyst at Piper Sandler Companies

Yes. Okay, great. And then last for me, just on the buyback. It sounds like you bought back $56,000,000 worth in 2Q. 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?

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

I think the price right now is higher than we have experienced in the past couple of quarters. So we're continually evaluating the overall situation and we decide on the extended buyback we'll commit to.

Executive

Yes, Matthew, the $56,000,000 we did was right around $80 a share, dollars $80.81 a share on average. At the shareholder meeting in May and we renounced that, we got approval for another $125,000,000 repurchase. We have really not started to execute on that simply because the price per share relative to book value right now is at a much higher spread than it has been. So we're, as Mr. Yu said, being cautious on buying back at a high price.

Matthew Clark
Matthew Clark
MD & Senior Research Analyst at Piper Sandler Companies

Understood. Thank you.

Operator

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

Gary Tenner
MD & Senior Research Analyst at D.A. Davidson

Thanks. Good morning. So I was curious about loan growth. You made the comment that it 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 and I side and some commercial construction.

Gary Tenner
MD & Senior Research Analyst at D.A. Davidson

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 Okay.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

You want to answer the first?

Johnny Hsu
Johnny Hsu
EVP & Deputy COO at Preferred Bank

Yes. I think that the loan growth, as you can see the first quarter because of the tariff everything, so our C and I clients kind of held back on the lot of uncertainty in the second quarter. Of course, there's a combination of usage of their line credit to upsize their business in as well as find new customer. So going forward, as Mr. Yu mentioned, it looks like a demand is up, actual is uncertain. You never know, it depends on the market.

Gary Tenner
MD & Senior Research Analyst at D.A. Davidson

Okay. And how about on the commercial construction side? Is that just a function of is new transactions or just existing commitments funding?

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

Johnny?

Johnny Hsu
Johnny Hsu
EVP & Deputy COO at Preferred Bank

Well, Gary, majority of that is existing commitments, I think. But loans that were booked earlier are funding as construction progress.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

But we do see more new requests, right? Yes.

Gary Tenner
MD & Senior Research Analyst at D.A. Davidson

Okay.

Gary Tenner
MD & Senior Research Analyst at D.A. Davidson

Appreciate that. And then last thing for me. Just in terms of the $200,000,000 of borrowings that you put into the bond portfolio, it looks like that was pretty well in the mid part of the quarter. Just kind of taking a look at the average balance sheet. Any thoughts about doing any more of that in the back half of the year?

Gary Tenner
MD & Senior Research Analyst at D.A. Davidson

Is it dependent more on the pace of loan growth? Maybe just talk about the thought process around that.

Executive

No, I think it was just an opportunity that we saw relative to the funding and then the assets that we invested in. Obviously, it's going to dilute the margin a little bit, but obviously increase EPS. And we felt the ten year was at a very good level, especially from a long term perspective to put quite a bit of money there. So that's what we ended up doing and we funded it about 80 basis points cheaper.

Jeff Haas
Director at Financial Profiles, Inc

Thank you.

Operator

The next question comes from Andrew Terrell with Stephens. Please go ahead.

Andrew Terrell
Managing Director at Stephens Inc

Hey, good morning. Hey, 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?

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

Okay. You want to try that again?

Johnny Hsu
Johnny Hsu
EVP & Deputy COO at Preferred Bank

Competition stiff. I mean, we have there are lenders out there continue to offer very low fixed rate loans, all that. And that has been consistent. I mean, we always compete with the lenders out there in that market. But I think that we are relationship driven bank and we always consistently provide quick and excellent service to our existing customer to help them continue growth. So that's pretty much what we have.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

Okay.

Andrew Terrell
Managing Director at Stephens Inc

Thank you. And then I wanted to ask on the deposit side, just some rotation out of the interest bearing demand and non interest bearing categories this quarter. Anything specific driving that? And maybe just a little more on expectations around deposit growth?

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

This will be our goal is to continue to grow deposits. Obviously, of those situation condition is that we have to keep the cost in control. And we have worked on that for about four or five months now. And it seems to be that it's a reasonable situation. And depending on the funding needs or the loan growth, we may be livable aggressive on the deposits.

Andrew Terrell
Managing Director at Stephens Inc

Got it. Okay. Thank you for taking the questions.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

Thank you.

Operator

The next question comes from David Fester with Raymond James. Please go ahead.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

Hi, good morning everybody.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

Hi, Good morning.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

Just wanted to maybe starting with the getting an update on the OREO that you've still got remaining. Glad to see one of those non accruals 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 timeline for resolution of that and just anything broadly, you know, credit exclusive of those two, it seems like it's held up really well, just kind of curious your thoughts on on the credit side.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

Once in a while in our corporate life, we had some unlucky situation and only one thing, and this is obviously the one. The property side of that was very high valuation and has been continuously valued downward. Every time we get into escrow, it seems to be it's automatically fall out in the future. So we obviously want to get rid of that, okay? But we don't want to fire sell it.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

So we'll continue to try to market it. And when it gets too close to what we want, we get rid of it then. So obviously, if a good offer comes in next month, we will be selling it. We thought this thing was resolved about last year, but it's still hanging out there.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

Yes. Okay. So so no real updated timeline on No. On resolution? Okay.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

No. Not

David Feaster
David Feaster
Director - Banking at Raymond James Financial

Okay. And then, you know, one of the initiatives I I know you guys have been working on. We have the the new branch that came on online in Manhattan. I was just hoping you could get a kind of an update on on how things are going there and any any other plans for de novos or organic expansion opportunities?

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

Yes. Manhattan is one of our most promising new promising branch. Right now, they are very, very vibrant in their loan generation. So we're very happy with the progress they're making so far. And then, there will be new branches open that we will open up our Silicon Valley branch in the second half of the year.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

Okay, perfect. And then maybe last one, just kind of following up on some of the commentary you've already made and reading the release, I thought the commentary was pretty encouraging about maybe some of the uncertainty clearing up and increased clarity. You know, in the prepared remarks, maybe it sounded like that uncertainty is 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?

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

Well, growth to accelerate is not necessary condition of cleaning up of uncertainties. Okay? We may have the tariff clearing up, but the question is the aftershock effect is not known. Because when the tariff is being levied on other people, There are definitely the suppliers internationally that will not be able to meeting the tariff requirement today. And definitely, there will be some shifting and changes in supply chains from geographically or company within that. Because from my knowledge, as many of the product that was imported to this country is operating at the less than 20% profit margin, total profit margin. So needless to say, if somebody can do that and the market cannot absorb it here, then we're going to have changes. So we're waiting for the results of these things gradually come in, how many is affecting the our customer or the market in general. It's still unknown right now.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

Internally, we are keeping monthly tracking of all the employees all the borrowers that has a supply situation or affected by tariff situation. We've added them monthly and we're in contact with our customer monthly knowing what their plan is. If you know that every country got their numbers, the countries get their numbers, not everybody is agreeing to that.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

Okay. That makes sense. And so don't so you're kind of just reading between the lines. Don't get too excited about the drawdowns on the C and I lines. Still a lot of uncertainty.

Li Yu
Li Yu
Chairman & CEO at Preferred Bank

Are keeping our eyes very close on that. We are not a big bank, we have a lot of we're very close contact with our customers.

David Feaster
David Feaster
Director - Banking at Raymond James Financial

Yes. 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
Li Yu
Chairman & CEO at Preferred Bank

Thank you so very much, okay. And yes, we hope that we're able to handle the prevalence in the past few months. We certainly fear that we can continue to do that. Okay. But we do hope that the overall condition of the economy is clear. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
    • Li Yu
      Li Yu
      Chairman & CEO
    • Johnny Hsu
      Johnny Hsu
      EVP & Deputy COO
Analysts
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