Earnings call transcript: Preferred Bank’s Q2 2025 earnings beat expectations

Preferred Bank (PFBC), a $1.2 billion market cap regional bank with an "GREAT" InvestingPro Financial Health score, reported its financial results for the second quarter of 2025, surpassing earnings expectations with an EPS of $2.52 compared to the forecasted $2.43. The revenue, however, slightly missed projections, coming in at $70.65 million against the expected $70.85 million. The company’s stock responded positively, with a pre-market increase of 2.58%, reaching $95 per share. According to InvestingPro, the bank has maintained dividend payments for 12 consecutive years, with 8 more exclusive insights available to subscribers.

Key Takeaways

• Preferred Bank’s Q2 EPS of $2.52 exceeded forecasts by 3.7%.
• Revenue slightly missed expectations, with a $0.2 million shortfall.
• The stock rose 2.58% in pre-market trading.
• Continued focus on relationship-driven banking and quick service.
• New branch openings in Manhattan and planned expansion in Silicon Valley.

Company Performance

Preferred Bank demonstrated robust performance in Q2 2025, driven by a 7% annualized loan growth and an improved net interest margin of 3.85%, up from 3.75% in the previous quarter. The bank’s relationship-driven approach and strategic branch expansions signal a commitment to growth, despite facing competitive pressures in the lending market. The bank’s strong fundamentals are reflected in its impressive 17% return on equity and 14% return on invested capital over the last twelve months.

Financial Highlights

• Revenue: $70.65 million, slightly below projections.
• Earnings per share: $2.52, surpassing expectations.
• Net income: $32.8 million.
• Net interest margin: 3.85%, an increase from the prior quarter.
• Expense ratio: 22.5% in Q2.

Earnings vs. Forecast

Preferred Bank’s Q2 EPS of $2.52 was a positive surprise, exceeding the forecast of $2.43 by 3.7%. However, revenue fell short by 0.28%, with actual figures at $70.65 million against a forecast of $70.85 million. This mixed performance reflects the bank’s ability to manage costs and improve margins, despite revenue challenges.

Market Reaction

The market reacted favorably to Preferred Bank’s earnings beat, with the stock rising by 2.58% in pre-market trading to $95. This increase aligns with investor sentiment driven by the positive EPS surprise and strategic expansions. The stock remains within its 52-week range, with a high of $99.78 and a low of $71.9. Based on comprehensive analysis from InvestingPro, the stock appears slightly overvalued at current levels, trading at 1.56x book value with a P/E ratio of 10.07.

Outlook & Guidance

Looking ahead, Preferred Bank projects steady growth with an EPS forecast of $2.54 for Q3 2025 and $2.55 for Q4 2025. The bank plans to continue its expansion strategy with a new branch in Silicon Valley and maintains a cautious outlook amid economic uncertainties, including tariffs and interest rate fluctuations. Analysts maintain a moderate buy consensus, with target prices ranging from $90 to $96. For deeper insights into PFBC’s growth potential and comprehensive financial analysis, investors can access the detailed Pro Research Report available exclusively on InvestingPro.

Executive Commentary

CEO Li Yu highlighted the economic uncertainties affecting the bank, stating, "There’s still a lot of uncertainty in our economy, the tariff, the interest rate, and the inflation." President Wellington Chen emphasized the bank’s commitment to its customers, saying, "We are a relationship-driven bank and we always consistently provide quick and excellent service to our existing customers."

Risks and Challenges

• Economic uncertainties, including tariffs and interest rates, could impact future performance.
• Intense competition in the lending market with competitors offering low fixed-rate loans.
• Potential supply chain disruptions affecting operational efficiency.
• Inflationary pressures impacting deposit costs and margins.

Q&A

During the earnings call, analysts inquired about the bank’s certificate of deposit (CD) rolloff, with $1.4 billion at 4.21% set to roll off in Q3. The bank’s current CD rates are around 4%, and loan growth is primarily driven by commercial and industrial clients using credit lines. Additionally, most commercial construction growth stems from existing commitments.

Full transcript - Preferred Bank (PFBC) Q2 2025:

Conference 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.

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

Jeffrey Haas, Financial Profiles Representative, Financial Profiles: 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.

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.

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

Li Yu, Chairman and CEO, 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.

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.

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.

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.

Conference 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, Analyst, Piper Sandler: Hey, thanks and good morning.

Wellington Chen, President and Chief Operating Officer, Preferred Bank: Good morning.

Matthew Clark, Analyst, Piper Sandler: On the margin, if you had the average margin in the month of June and the cost of deposits as well?

Edward Chaika, Chief Financial Officer, Preferred Bank: 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, Analyst, Piper Sandler: 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?

Edward Chaika, Chief Financial Officer, Preferred Bank: 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, Analyst, Piper Sandler: 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?

Edward Chaika, Chief Financial Officer, Preferred Bank: 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.

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

Matthew Clark, Analyst, Piper Sandler: 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, Chairman and CEO, 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.

Edward Chaika, Chief Financial Officer, Preferred Bank: 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, Analyst, Piper Sandler: Understood. Thank you.

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

Gary Tenner, Analyst, 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.

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, Chairman and CEO, Preferred Bank: You want to answer the first?

Wellington Chen, President and Chief Operating Officer, 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, Analyst, 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?

Wellington Chen, President and Chief Operating Officer, Preferred Bank: Johnny? Well, Gary, majority of that is existing commitments, I think. But loans that were booked earlier are funding as construction progress.

Li Yu, Chairman and CEO, Preferred Bank: But we do see more new requests, right? Yes. Okay.

Gary Tenner, Analyst, 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?

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

Edward Chaika, Chief Financial Officer, Preferred Bank: 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.

Jeffrey Haas, Financial Profiles Representative, Financial Profiles: Thank you.

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

Andrew Terrell, Analyst, Stephens: 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, Chairman and CEO, Preferred Bank: Okay. You want to try that again?

Wellington Chen, President and Chief Operating Officer, 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, Chairman and CEO, Preferred Bank: Okay.

Andrew Terrell, Analyst, Stephens: 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, Chairman and CEO, 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, Analyst, Stephens: Got it. Okay. Thank you for taking the questions.

Li Yu, Chairman and CEO, Preferred Bank: Thank you.

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

David Fester, Analyst, Raymond James: Hi, good morning everybody.

Edward Chaika, Chief Financial Officer, Preferred Bank: Hi, Good morning.

David Fester, Analyst, Raymond James: 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.

Wellington Chen, President and Chief Operating Officer, Preferred Bank: Once

Li Yu, Chairman and CEO, Preferred Bank: 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.

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 Fester, Analyst, Raymond James: Yes. Okay. So so no real updated timeline on No. On resolution? Okay.

Wellington Chen, President and Chief Operating Officer, Preferred Bank: No.

Li Yu, Chairman and CEO, Preferred Bank: Not

David Fester, Analyst, Raymond James: 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, Chairman and CEO, 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 Fester, Analyst, Raymond James: 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, Chairman and CEO, 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

David Fester, Analyst, Raymond James: or

Li Yu, Chairman and CEO, Preferred Bank: 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.

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 Fester, Analyst, Raymond James: 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, Chairman and CEO, 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 Fester, Analyst, Raymond James: Yes. That’s great. Thanks everybody.

Conference 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 CEO, 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.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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