Preferred Bank 2026 Q3 Earnings Call

Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the third quarter ended September 30th, 2026. With me today from management are Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward Czajka, Chief Risk Officer Nick Pi, 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 document 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. Thank you.

Good day, everyone. Preferred Bank's third quarter net income was $32.9 million, or $2.73 per share. This quarter was negatively affected by a $2.1 million reversal of interest income. Deposits grew $77 million, or 1.2% on a linked quarter basis. As everybody is already aware of, the deposit market is very competitive. Looking forward, this condition will likely go into the year 2027. The banks are now not only facing more competition from non-bank institutions, but also strangely, we see many of our customers invest their extra funds into the Treasuries. Loans for the quarter decreased $14 million after we placed a large credit on the for-sale status. Unlike at the beginning of the third quarter when we reported on our last conference phone call, this time, our pipeline seems to be very solid.

We are very hopeful that in the fourth quarter to have good, solid growth. As we reported earlier, the net interest income was affected by a reversal of interest income, and that has affected our net interest margin. This quarter net interest margin was reported at 3.49%. Without this $2.1 million adjustment, it would have been 3.60%. Going forward, we see a stable interest rate market condition. If the Fed fund is going to adjust higher, then it will further benefit our net interest margin as Preferred Bank is an asset-sensitive bank. Resolution of nonaccrual loans is continuing, but slower than what we hoped for. The level of nonaccrual remains stubborn, largely because several credit was scheduled to be resolved in this quarter and are stuck in the court proceedings that has pushed back to third and fourth quarter next year.

The pace of migration seems to have slowed down or subsided. There were only $20 million of additional credit that was classified as substandard that remain on accrual status. The rest of them have all been included in the nonaccrual number.

We are pleased with our consistent cost control of overhead, even under a very inflationary period. We are constantly looking for opportunities to gradually improve our non-interest income. With the outlook of a strong 2027 economy and relatively stable interest rate environment, we are looking forward to a good 2027 year. Thank you. Ready for your questions.

Yeah, we have just under $1.7 billion maturing in the fourth quarter, so it is a fairly heavy quarter from a maturity standpoint. Weighted average yield is 3.81%. Those are likely to come on anywhere between 3.75% to 4% as they roll over.

Yeah, I do. Total deposit cost was 306 for the month of September. The spot margin was 358.