Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the first quarter ended March 31st, 2026. With me today from management are Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward Czajka, 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 on 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.

Thank you very much. I'm very pleased to report the first quarter net income of $31.3 million, or $2.53 a share.

This quarter's net income was negatively impacted by the placement of a large relationship on nonperforming status. If you recall, at probably February and March, we have issued a press release informing all of you that we have placed a nine-loan relationship on a nonaccrual basis.

This relationship consists of two C&I loan of a small $2 million, and the rest are all in commercial real estate loans in the total amount of $177 million under nonaccrual basis. Shortly after the announcement, we're able to sell one loan at par of $9.4 million.

On April the 1st, we have sold another two loan at par for $48.5 million. As of today, we have effectively reduced the relationship by approximately 50%, and we continue our progress in the second quarter and in the third quarter.

Hopefully, by that time, that we should have substantial resolution on the situation. Loan growth is moderate, 1.1% sequentially, and deposit growth was moderate, 1.2% sequentially.

Market competition, especially in the pricing end of it, has been very severe, okay. It seems to me that the war in the Middle East is trending toward more stabilized basis.

I hope our country to soon concentrate on our economic affairs in the ensuing months. Our net interest margin is 3.47% 4 3.47% 4 3.57% for this quarter, which is down from 3.74% in the previous quarter, okay.

Again, the reversal of interest income is the main reason. Since this reversal of interest income is nonrecurring, we're very hopeful, especially when there seem to be no imminent rate movements, we're very hopeful that our net interest margin will rebound in the ensuing quarters.

Our operating overhead, all noninterest expense, has been stable, and we will continue to keep it on a stable basis in the future. For your information, that the bank has repurchased roughly 400,000 shares of our own common stock for the total consideration of roughly $89, $90 a share.

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

Hey, good morning, everyone.

Hi, Matthew.

Just on the loans held-for-sale, the move there, I'm assuming 48 and a half of that is the two loans that you sold on April 1st at par, but just want to confirm that and also what else is in there?

Yes. You're correct, part of that $76 million, 48 and a half is the two notes sold at par on April 1st.

There's two other notes in there that we are actively marketing at this point as well to sell the notes. That's why they're placed in held-for-sale.

Okay. Any pricing thoughts there on the other two?

We generally would like to get as close to the par as possible. We have been getting down some of the loans, this is our goal, okay.

Got it. Great.

Then on deposit costs, want to get a sense for where your deposit costs were either at the end of March or in March, and your thoughts on the competition going forward along those lines. Just remind us how much you have in CDs coming due in 2Q and the rate it's rolling off on and the renewal rate that you expect to come on

at. Hey, well, that's a lot of questions in one, Matthew, but I'll take a stab at it.

The deposit costs are coming down, but not in the same velocity they were in Q4. That is starting to slow in terms of the lowering of deposit costs as we go forward.

For your record, March deposit costs was 3.10 overall. In terms of maturities, we have $1.35 billion maturing in the quarter at a 3.89 rate.

Those will likely be put on at similar rates, maybe a little bit lower, but we're getting closer to the point where we're reaching stagnation in terms of the rolling off of CDs to newer, lower-priced CDs.

Great. Then last one for me, just on the expense run rate going forward, how should we think about noninterest expense?

We're at roughly 23 and a half for the quarter. Over a million of that was heightened levels of payroll tax related to bonus payout and related to stock vesting, which all both occurred in the first quarter.

As we go forward into Q2, I'm looking for something in the high 22s to low 23s.

Great, thanks again.

Mhm.

Thanks. Good morning.

Hey, Gary. Hey,

just wanted to ask on loan growth. The production, I think, must have been pretty decent this quarter just to have kind of the underlying growth of LH&I and loans held-for-sale.

If you talk about production, competition, and pricing in terms of the

loan book. Pricing is all over the place.

We're still facing a lot of people is pricing below 6% on a fixed-rate basis, and we can't afford to do that, okay. Especially when the movement of interest rate is unclear at this point of time.

We have not been getting the rate cuts that we previously forecasted, okay. Most people have been heading, let's say, frankly speaking, they're doing rates a little bit less than I expected.

Understood.

Okay. They're doing long-term fixed-rate loans lower than you want to do them.

In terms of just the activity levels and quality of credit that you're seeing come through, how does that look today?

We see the quality pretty much the same situation. I don't think the industry has been loosening on the quality,

and

based on our colleague has been very much controlling themselves in that aspect. Likewise, obviously, we try to do that too.

All right, thank you.

Hey, good afternoon.

Andrew.

Hey. I wanted to start on just the margin.

The $3.4 million interest reversal, it seems like that's 19, 20 basis points of margin or so just and as that normalizes in 2Q, I guess if we add that back in, it gets closer to a 3.75 type margin, similar to your fourth quarter. Just wanted to verify that's how you're kind of thinking about margin for 2Q or how else should we think about trends of the NIM going in to 2Q and then kind of throughout the year?

I think directionally you're correct, but probably about five basis points high there. The margin for March came in at 3.71, just so you know that.

We're looking for something in that area as we go forward. Now, with the sale of the note on April 1st, we are going to recoup some interest that we reversed out, so that's going to be a little bit of a tailwind for Q2, it might be a little higher than that.

Right around the 3.70 number, I think is probably good for us.

Great. Okay.

Then just on the note sales, good to see you guys get out of them in April at a pretty good price. Should we expect that when you talk about resolution of some of the remainder of these credits by kind of third quarter timeframe, is note sales the primary avenue in which you're seeking to remediate or any other planned kind of actions on the nonperformers?

It's

obviously that the note sale is the quickest best for us if we can get the price that we want to get, okay. That is really also a pricing issue for us, okay.

Actually, each loan has its different nature. The most clear situation is the loan-to-value ratio based on appraisal.

Normally speaking that, obviously, that when the situation narrow, you don't get as good a pricing as the others, the loan with a bigger margin, okay, in the situation. In the meantime, the other resolution process, which is foreclosure process, still going on.

Right now, most of the loan has been filed bankruptcy filing, we have to go through the dealing with the bankruptcy court, too. Depends on what the bankruptcy judge is awarding.

They might award in certain cases they have more time to selling it or to operate it, to reorganize it, okay. That's something out of our hand, okay.

To the extent we can get them immediately in our hand, then we will resell them. Therefore, each property has a different resolution nature.

Not that it's necessarily very predictable.

Understood. I appreciate it.

Then just one more for me on just some of the commentary around competition. Understand it's a tougher market here, just wanted to maybe reframe expectations on kind of loan and deposit growth for the year.

If I add back in kind of the HFS loans this quarter, it looks like you were kind of tracking mid-single digits. Do you feel like in this competitive backdrop that's a decent cadence through the year for loan growth, or are we more likely to see some compression just given the competitive environment?

I think about three months ago in the press conference, I was saying internally we're guiding ourselves doing high single digit, okay? However, internally, we didn't know there's a war in Iran, okay?

Whether how much that changed us that on that issue alone, we do not know. Plus, we seem to have an administration that is presenting more changes in every aspect of situations that usually bank gets related to in any of the changes they want to make, okay?

Our situation right now is that we're bouncing backwards and forwards in terms of our own internal expectations, on. We have to be realistic.

When the war is going on, when there's no petroleum or the price goes to the roof, you're not going to see the same loan demand as you are in a peacetime situation. I guess all these kind of situation, all we can do is stay alert, but we still hope that this will be a growth year for Preferred Bank.

Great. Thanks so much for taking the questions.

Hey, good morning, everybody.

Hey, David.

Good morning.

I just wanted to follow up on that growth discussion. I was hoping you could maybe help break down a bit of the dynamics behind this slower growth that we're seeing.

It sounds like, to your point, that we may be seeing somewhat of a slowdown in demand. Is that a fair characterization if I'm reading between the lines?

Then just any commentary on how payoffs and paydowns have been playing into this, and where you're seeing the most opportunity within the pipeline and to grow loans right now?

I think demand slowdown is a foregone conclusion, okay. Just think about with the petroleum price is going to $100 per barrel, okay, not petroleum, oil, okay.

When all the various products be related, and the short-term and long-term effect is hard to measure, and the supply nature also makes it immeasurable, okay. Definitely that will effect.

It's just we may not seeing it all yet at this point of time reflected in our economy, okay. That is what we are pretty much convinced in-house at Preferred Bank,

okay. Okay.

Then maybe just shifting gears back to the credit side. Obviously, look, you guys have been very active managing credit.

You've worked through a lot of issues, and so I assumed that you've done a pretty deep dive into the book at this point. Do you think we're at or near an inflection here?

Are you seeing continued migration, or is some of this broader macro side, do you think credit is not at that point yet and it's just still pretty uncertain?

Number one issue that I don't know in the past who have been this busy on credit or not, okay. It seems to be this transaction is really the inflection point on our current attention, on.

Even with that, it has been a group of loans that was performing, coming pretty well until there's some irregularity that was found by, I guess everybody knows that, by Western Security Bank, Western Alliance Bank, they published the announcement, and the whole thing just started to get sour from that point on in the next several months to the point we have to call it a nonaccrual, okay, and we had to resolve that immediately. Other than that, our total credit picture has been remaining generally stable.

I can send you the FDIC statistic about our 10-year charge-off ratio would probably the lower than the average of the banking group. I do not know that we have been struggling about credit in the past, but we are struggling about this credit, this group of credit right now, okay.

Okay. Maybe just last one for me.

You're still sitting on a lot of excess capital. You've been more active with the buyback.

I'm just kind of curious how you think about capital priorities today. The stock's moved a bit higher from where you've repurchased more recently, but just kind of curious how you think about capital priorities today.

There are two group of thoughts. One group representing the more so of the active trader investor type, okay.

Their idea is that you have enough capital, you just go to the buyback whatever you can immediately as much as you can, okay, and so on. That's one group.

Then we have another group of long-term investors, probably their position of bank hardly moves at all in the past 10 years. Plus, we have also rating agency, okay.

Both of them seem to say, "Well, you need to play it safe on your capital. What you need to do is look at the future economy, look at your earnings forecast, and so on, and determine on a flexible basis what you can do year from year," okay.

I guess our board decided the security is above all situation, we leaning a little bit toward about our long-term shareholder viewpoint.

Okay. That makes sense.

Maybe if I could just squeeze one more in. Just kind of curious with the rate backdrop today, you're obviously naturally asset-sensitive, but given the market's kind of looking at this is the Fed on pause, maybe for now at least.

Has your thoughts on managing rate sensitivity shifted at all?

I will say something and then Ed and I jointly did this matter all the time, okay? My feeling is that within the next few group of raises, for Preferred Bank particularly, we are sort of near neutral in assets sensitivity, particularly because of our large TCD portfolio, right?

Under the current status when the rate is not moving, actually, our TCD rate we're paying is slow improving at each quarter, at a very slowly issue nowadays, okay, because of market competition, okay. We just are not clear about our economy yet.

Again, likewise with all the things that were happening to us, obviously, we can always name the war is one of them, okay. What would that do to our economy?

Would you be able to tell me whether we're going to have recession ahead of us or we have low growth ahead of us or high growth ahead of us, okay? This question is puzzling generally almost everyone at this point of time, okay, because a lot of uncertainty we're facing, so.

This year, the challenge is, in my opinion, stay flexible.

Staying

alert, flexible. I don't know, Ed, how you feel.

I think, similarly, we haven't really changed much in terms of the balance sheet profile in probably the last 12 months since we, at the height of rates in '23, started doing more fixed-rate loans. That percentage between fixed and variable on the book is about the same as it's been, about 75/25, variable to fixed.

Along with that, we try to get more and more of our large corporate deposit accounts, interest-bearing checking and money market, tied directly to Fed funds, the large corporate accounts. To the extent we can tie them to Fed funds, it makes our asset-liability matching, as Mr.

Yu said, more closer to neutral than the asset sensitivity we had say going into 2021, 2022, when we were highly asset-sensitive and took advantage of all the rate hikes. I think we're kind of on a pause mode in terms of changing the balance sheet and want to kind of keep it where it is right now.

As Mr. Yu said, flexibility.

If this war continues and we get into a point where inflation creeps up, we may not be looking at rate cuts as the next rate change from the FOMC. I think we want to stay flexible, and what we've always done is keep both sides of the balance sheet short, and that way we can react to anything.

Got it. That's helpful.

Thank you.

Thank you so much for your interest in Preferred Bank, okay. We hope what we have described today is our roadmap going to the next few quarters, and hopefully that we can produce even better financial results in the next few period of time, okay.

Thank you very much.