Thank you, Cole. Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the second quarter ended June 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 documents the bank files with the Federal Deposit Insurance Corporation, or FDIC.

If any of these risks 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. Thank you all for joining our conference phone call.

Good morning. We are pleased to report that our net income for the second quarter of 2026 was $33.5 million, or $2.78 a share.

This number compares favorably with previous quarter and same quarter previous year. It also exceeded our internal budget.

For this quarter, we have been quite focused on the resolution of troubled assets, okay? Nonperforming loans during the quarter has been reduced $70 million, or 41.5%, okay?

Likewise, the criticized loans has been reduced by $90 million, or 34%, okay? With the large reduction in classified assets, criticized loans, the reserve requirement on these items has been reduced.

Therefore, our provision expense for the quarter is $1.2 million, okay? Looking ahead at June 30th, okay, we still have three more loans totaling $60 million, nonperforming loans totaling $60 million, scheduled to be resolved in the second half of 2026.

However, as each one of them is involved in its own bankruptcy case proceeding, okay, the exact timing of the resolution will be at the mercy of our legal system, okay? This quarter, we have satisfactory or good loan production activities.

Loan increased $125 million, or 2% in quarterly basis. If you count in we also made up the $70 million loan we sold, the actual origination effort was quite good, okay?

On the deposit side, it only increased $52 million, or 0.8% in quarterly basis, okay? We are well aware nationwide entire banking industry, is reporting stiff competition in deposits.

Going forward, this will also be our focused area. Net interest margin was 3.73%, favorably affected by the interest recovery, okay?

Our efficiency ratio was steady at 32% under currently an inflationary environment. All these underlying activities makes us feel pretty comfortable about our operations, and we are optimistic regarding the remainder of the year.

Thank you very much. I'm ready for your questions.

Hey, good morning. I guess first on the loan yields, nice interest recovery there.

Stripping that out, it looks like loan yields maybe reset to about 7% barring additional recoveries. I guess maybe any comments on loan pricing, whether or not you can kind of hold that yield if the Fed stays on hold or do you think there's some incremental pressure there?

I will first let Wellington answer that, okay, then I will add on, okay?

Okay? The market's very, competitive.

We, try to squeeze every, 10 bps, 25 bps out of each, transaction, and, we're at the mercy of, a lot of our competitors, who are still out there offering, much lower, kind of lower rate that, it just doesn't make sense. Now, having said that, a lot of uncertainties in the market, and, that's why we want to make sure that we are disciplined enough to, continue to, take on the loan that give us a some quality loan.

Again, quality loan that give us a, type of, return that we need, to continue our earnings.

Matthew, every bank every year is crying for loan competition. It's become a standard language nowadays, okay?

We're very fortunate. We're able to, I guess, because we turn over more stones, we get a little bit better yield than our peer group, okay?

That probably can verify that by the call reports,

okay? Great.

Then on the deposit pricing side, sounds like from the release that there was some upward pressure on deposits throughout the quarter. Do you have the cost of deposits in the month of June and then maybe remind us of the CDs that you have coming due over the next two quarters and the roll-off, roll-on rates?

Two quarters. You threw me a curveball there, Matthew.

First off, the cost of total deposits was 3.06% as of the month of June. Cost of interest-bearing deposits was 3.44%.

The cost of total deposits has been held in check, not necessarily by the rate environment, but by the fact that somewhat, we're seeing a slight change in the mix of our deposits. We've seen some decent growth in DDA, which has certainly helped keep the deposit costs down.

In terms of going forward, we have $1.5 billion maturing in the Q3 of total CDs at an average rate of 3.80%. Those will likely come back on at a slightly higher rate than 3.80%.

I don't have the fourth quarter roll-off, so.

That's okay. Okay.

NIM probably resetting back down to the low 3.50s is fair here in the 3Q?

On an adjusted basis, it was 3.60% for Q2, when you strip out the noise with respect to the interest recoveries, it was 3.60%. We would expect probably mid-3.50s for Q3.

Okay. Then last one for me, just on the expense run rate, relatively flat this quarter.

The outlook there in the second half?

We were a little disappointed with respect to noninterest expense this quarter, Matthew. Professional services, namely legal fees, were elevated because of the large relationship that we're working through right now that Mr.

Yu touched on. In terms of going forward, I would say Q3 is going to be fairly flat to Q2.

Might be a little better.

Let's hope. Because everything's start to catch up in cost, okay?

It's just simply every same service, same item is costly more nowadays.

Great. Thanks again.

Thanks. Good morning.

Just wanted to ask about loan growth. It sounded like you guys have a fairly constructive outlook for the back half of the year, if I interpreted that correctly.

Could you kind of talk about maybe expectations around that?

Loan growth. Okay.

Obviously Q2 was very strong. As Mr.

Yu mentioned, without the sale of the two notes, net growth would have been closer to $180 million. In terms of Q3--

Actually, $194 million. Then also that's after a large payoff activities, okay?

Things just bouncing around, partially affected by interest rate movement and the Fed level, okay? I still remember in early spring, okay, in springtime, the whole country is anticipating rate cuts and there's a lot of optimism going forward and people getting into the deal in the case of C&I activity or in the case of real estate, based on a new cap rate, they want to come into deal.

Then suddenly things take a change in June, and everybody's talking about, "Oh, there will be a rate increases in July," okay? Now it's July's call report Where is it?

We see a lot of hesitation on the customer side. At least they get that deal delayed or just not going forward as fast as it used to be.

That and the much increased level of activities from the nonbank lenders, their competition, okay? We think that going forward in the third quarter certainly will be a lot tougher than second quarter, okay?

Whether it will recover in fourth quarter and how it will become or not, we just have to be very flexible and take opportunity as they come. I don't know that answered your question or not, because that's about all we can do?

No, I appreciate the thoughts on that. Thank you.

Hey, good morning, everybody.

Morning, David.

Look, the loan origination trends is extremely encouraging. I'm curious how much of this is really a function of improving demand versus increasing productivity from your team, and where are you seeing strength, how's the pipeline shaking up, and, again, how is demand across your footprint?

From my angle, I see in the second quarter's increase in demand, I just mentioned earlier in the quarter, there's a lot more optimism in our customer's level than it is today, okay, regarding the rate, the cost they have to pay, okay? Obviously that the same level of optimism is not there anymore compared to the springtime.

How's the pipeline shaping up? How do you see the activities going forward?

Can you guys answer that?

You want to take a shot first?

I'll chime in. I have some idea.

David, the pipeline is still pretty good. I think the opportunities are still out there to review deals, and we're getting a lot of deals that we are looking at.

Not all of them seem to make sense from a combination of a pricing standpoint or what have you, but the pipeline is still pretty vibrant. It's just we're seeing more deals right now.

Okay. Again,

as I mentioned earlier, the loan demand is high out there, but it's the quality loan demand that we're looking for. Every quality loan demand, we even more competitive, because every banks out there, all private lender, they all want those type of loan, or maybe not private lender, but we try to squeeze every penny out, squeeze another 10 bps or maybe 20, whatever, little bit here and there.

Our production team, they work very hard, keep turning stone, keep turning up quality loan demand, and then we have to again be disciplined, be very selective. Having said all that, to repeat what we did in second quarter, as Mr.

Yu say, well, we always try to do our best to build a loan portfolio that's profitable and sustainable. Yeah.

Okay. Then we touched on the deposit pricing competition.

The NIB growth you saw this quarter was great, and that's obviously helped with the funding cost side and on the margin as well. I'm curious, how do you think about, again, with this competitive backdrop, how do you think about your ability to drive core deposit growth going forward?

That is also a mandate within our internal operation, okay? Realizing that everybody is doing the same thing, and realizing we got one more situation that is really affecting us, which is the stock market, and especially the opportunity that AI stock is providing to the general public.

We see many, many customers is invested excess cash into the stock market today, okay, as compared to the old days, okay, where saving in the bank make them comfortable, okay? The trend is that everybody is joining the stock market now.

This is another competition level that we're facing right now. We just have to try our best to improve our mix of deposit level,

okay?

Okay. That cost, you just have to pay whatever is out there.

Yeah. Maybe kind of just to that point, right, maybe a philosophical question.

How do you think about NII growth relative to the margin here? I know in the past we've discussed and you look at the margin is an output, not an input, right?

I'm curious, is that still the philosophy? Whether you're willing to compete, you talk about paying what you're going to pay, are you willing to compete on pricing and sacrifice some margin to drive NII growth and just help us think through the margin trajectory as we look forward kind of in this rate environment?

Frankly speaking, that this bank has traditionally gave up a lot of opportunity that our loan office bring to us, okay, but because many of the loan they bring over does not meet our rate requirement, which because that the deposit we had to pay, we like to be a little bit more selective in our rates, okay? Low-cost competition is never our answer to whole situation, and when you do too much, then you loaded your balance sheet with all kinds of low-rate loans, okay, and it's hard to get out of it.

I guess we all see several cases that caused some of even the bank failure. We are very careful that try to stay, first of all, hopefully asset sensitive, that will keep our deposits and loan rate aligned, okay?

Number two is situation selective rate of the loans we think is proper for us. The price come to us, we become a little bit more selective sometimes.

David, I'll just add to that, and you and I have had this discussion many times. We focus more on net interest income growth as opposed to managing to the margin.

The margin's simply a mathematical output of how well we execute.

Gotcha. Again, you're operating with a healthy margin.

I was just kind of curious if we're willing to sustain it there or if we're focused on expanding it as we kind of look beyond that, the fourth quarter and beyond.

I'm sorry, was there a question in there?

It was an open-ended statement, I guess.

Yeah. We've already talked about there's differential in loan yields on payoffs versus new origination.

Pricing is tight. Deposit pricing is difficult.

This kind of all point to some compression in the margin going forward and probably on into next year.

That's helpful. Thanks, everybody.

Thanks. Morning, everybody.

Just get back to the deposit question and the competition. I guess your first half of the year on deposit growth, you're running kind of low single digits.

Is that a reasonable run rate for the full year?

We hope not. We'd certainly like to increase that.

As we've talked about before, and Tim, you know this, there's no pipeline for deposits. That's the real challenge in not necessarily knowing what's coming 3 months, 2 months down the road.

We just have to continue to work. I think, as I said, the growth in DDA on a year-to-date basis is very encouraging.

We'd like to continue to work toward that end, for sure.

Okay. Then so how should I think about your loan-to-deposit ratio?

Because it does seem like you've got some room to kind of potentially hold it at the current level. Is there any appetite to take it higher?

Right now, we're running about 95%, okay, bounce around a bit here and there. Internally that we are both feel comfortable with that particular situation.

I guess short term, we can let it ride a little bit, but long term, we like to keep that ratio easy. We think liquidity for us is very important?

Right. Okay.

Got it. Then on the allowance, it's running at the low end of kind of a historical range, say 6 years or so.

Say everything remains kind of the way it is right now, no changes to really kind of the inputs that determine the provision at this point. Do you feel the need to kind of refill the bucket?

I think Nick probably should answer that. The question was, do we want to increase the ACL to the total loans?

Yes. For Q2, our ratio is 1.22% of the total loan.

Based on the current credit quality trend of the bank, and as Q2, we have a lot of resolutions and credit trend is heading on the right directions. We do quite a sizable reserve on the Q side as well in terms of the covering the current uncertainties regarding our inflation, our reserve, and our employment, all those kinds of things.

We believe for the upcoming quarters, it should still stay approximately at the similar level of the reserve at this moment. Definitely, if there's any changes, we will adjust that right away and in order to adjust our assumptions for our reserve side.

Great. Then this is my last question, has to do with capital.

Say loan growth doesn't pick up the way you're anticipating. Would you consider getting back into the market for buying back shares?

Yes. Obviously, that will be one of the use of the capital items that was continuous under evaluation going forward.

Great. Okay.

Those are my questions. I appreciate your time.

Thank you.

Thanks, Tim.

Thank you so very much, and I hope that we can continue to report results in excess of own expectations, okay? Good day to you all.