Highlights for the Quarter:
Return on average assets was 1.67%
Return on average equity was 16.00%
Total loans increased by $68.6 million or 1.1%, linked quarter
Total deposits increased by $74.7 million, or 1.2%, linked quarter
The efficiency ratio for the quarter was 33.8%
Li Yu, Chairman and CEO, commented, "Net income for the first quarter ending March 31, 2026, was $31.1 million or $2.53 per diluted share compared to $34.8 million or $2.79 per diluted share recorded in the previous quarter. This quarter's net income was negatively affected by the Fed's rate cuts and reversal of interest income related to a large relationship which was placed on nonaccrual status.
"During the first quarter, we disclosed that we placed $117.6 million in loans related to one relationship on nonaccrual status. We have made good progress towards resolving these loans as well as other nonaccrual loans. We sold a $9.4 million loan at par during the quarter and also charged off the $2.0 million in C&I loans related to this relationship. In addition, on April 1, we sold two loans totaling $48.5 million also at par so this sale will not be reflected as of March 31, 2026. We are continuing to work with note buyers to resolve more of these loans.
"Total non-performing assets at March 31, 2026, to $172.1million, an increase of $117.3 million over the $54.8 million as of December 31, 2025. However, the $48.5 million loan sold in April 2026, it was included in the total above but is now gone as of today.
"Loans for the quarter have increased $68.6 million or 4.5% annualized. Deposits increased $74.7 million or 4.7% annualized. Competition remains intense for both loans and deposits as pricing remains tight. The Bank's net interest margin decreased to 3.57% for the quarter as compared to 3.74% for the previous quarter, the decrease entirely due to the reversal of interest income related to new non-accrual loans.
"During the first quarter, we repurchased 402,299 shares of our common stock for total consideration of $35.8 million as part of our ongoing $125 million stock repurchase plan which was approved by shareholders in May of 2025."
Results of Operations
Net Interest Income and Net Interest Margin. Net interest income before provision for credit losses was $65.3 million for the first quarter of 2026. This represents a $4.7 million decrease from the $70.0 million recorded in the prior quarter and a $2.7 million increase over the same quarter last year. The decrease compared to the prior quarter was due mainly to a $3.4 million net interest reversal due to loans placed on nonaccrual status during the quarter. The increase in net interest income over the same quarter last year was due to an increase in loan interest and a small decrease in total interest expense. The Bank's net interest margin ("NIM") contracted in the quarter to 3.57% due to the interest reversals from 3.74% last quarter and down from the 3.75% net interest margin recorded in the first quarter of 2025. Without the interest reversals this quarter, the NIM would have been 3.75%.
Noninterest Income. For the first quarter of 2026, noninterest income was $4.3 million compared with $4.0 million for the same quarter last year and compared to $8.1 million for the fourth quarter of 2025. The increase over the same quarter last year was mainly due to increases in letter of credit ("LC") fee income and other income partially offset by a decrease in gain on sales of loans and service charges on deposits. In comparison to the prior quarter, noninterest income was down primarily due to a $3.6 million gain on sale of OREO recorded in the fourth quarter of 2025.
Noninterest Expense. Total noninterest expense was $23.5 million for the first quarter of 2026 compared to $24.4 million for the fourth quarter of 2025 and compared to $23.4 million recorded in the same period last year. The primary reason for the decrease from the prior quarter was mainly due to a $3.1 million decrease in OREO expense partially offset by an increase in personnel expense of $2.4 million. The small increase over the same quarter last year was due to an increase in personnel expense of $621,000 and an increase in other expense of $876,000 partially offset by a decrease in OREO expense of $1.2 million. The Bank's efficiency ratio came in at 33.8% for the quarter, which compares to 31.2% last quarter and to 35.1% in the same quarter last year.
Income Taxes. The Bank recorded a provision for income taxes of $13.4 million for the first quarter of 2026. This represents an effective tax rate ("ETR") of 30.1% which is up from the 29.5% ETR for the same quarter last year and the same as the 29.5% ETR recorded in the fourth quarter of 2025. The Bank's ETR will fluctuate slightly from quarter to quarter within a fairly small range due to the timing of taxable events throughout the year.
Balance Sheet Summary
Total gross loans at March 31, 2026 were $6.12 billion, an increase of $68.6 million from the total of $6.05 billion as of December 31, 2025. Total deposits were $6.42 billion, an increase of $74.7 million from the $6.35 billion as of December 31, 2025. Total assets were $7.65 billion, an increase of $53.5 million over the total of $7.60 billion as of December 31, 2025.
Asset QualityNon-accrual loans and loans 90 days or more past due and still accruing totaled $169.1 million, an increase of $117.8 million over the $51.3 million reported as of December 31, 2025. The increase was from the previously mentioned large relationship that was placed on nonaccrual status during the first quarter. As previously mentioned, the Bank sold two of the nonaccrual notes totaling $48.5 million on April 1, 2026, at par so total nonperforming loans are $120.6 million as of this writing. Total net charge-offs (recoveries) on loans for the quarter were $5.5 million compared to $0 in the prior quarter and compared to net recoveries of ($97,000) in the first quarter of 2025. Total classified assets decreased to $171.7 million as of March 31, 2026 compared to $225.3 million as of December 31, 2025. The table below lists the Bank's nonperforming loans and their associated property appraised values:
C&I
SFR
CRE
Total
Balance
Appraised Value
Balance
Appraised Value
Balance
Appraised Value
Balance
Appraised Value
$
4,519,590
$
461,638
$
780,000
$
649,036
$
1,550,000
46,156
144,542
1,275,000
4,037,500
4,250,000
63,744
924,624
1,308,000
3,690,251
6,260,000
3,526
658,067
967,246
6,265,056
7,100,000
19,500,000
48,300,000
19,950,000
41,300,000
48,458,994
65,650,000
29,882,035
67,230,000
7,914,950
12,890,000
21,881,109
27,000,000
$
4,633,016
$
2,188,871
$
4,330,246
$
162,228,931
$
281,530,000
$
169,050,818
$
285,860,246
Note:
1) Weighted LTV: 57.5% (Total Nonperforming Loans / Total Appraisal Value)
2) $48.5 million CRE sold at par on 4/1/26
Allowance for Credit Losses
The provision for credit losses for the first quarter of 2026 was $1.5 million compared to $4.3 million in the prior quarter and compared to $700,000 in the same quarter last year. The Bank's allowance coverage ratio was 1.24% of total loans held for investment compared to 1.30% last quarter and compared to 1.28% in the first quarter of 2025.
Capitalization
As of March 31, 2026, the Bank's tangible common equity ratio was 10.05%, the leverage ratio was 10.37%, the common equity tier 1 capital ratio was 10.87% and the total capital ratio stood at 13.98%. As of December 31, 2025, the Bank's tangible common equity ratio was 10.38%, the Bank's leverage ratio was 10.54%, the common equity tier 1 ratio was 11.26% and the total capital ratio was 14.47%.
Conference Call and Webcast
A conference call with simultaneous webcast to discuss Preferred Bank's first quarter 2026 financial results will be held this afternoon, April 22, 2026 at 2:00 p.m. Eastern / 11:00 a.m. Pacific. Interested participants and investors may access the conference call by dialing 844-826-3037 (domestic) or 412-317-5182 (international) and referencing "Preferred Bank." There will also be a live webcast of the call available at the Investor Relations section of Preferred Bank's website at www.preferredbank.com.
Preferred Bank's Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward J. Czajka, and Deputy Chief Operating Officer Johnny Hsu will discuss Preferred Bank's financial results, business highlights and outlook. After the live webcast, a replay will be available at the Investor Relations section of Preferred Bank's website. A replay of the call will also be available at 855-669-9658 (domestic) or 412-317-0088 (international) through February 5, 2026; the passcode is 4064016.
About Preferred Bank
Preferred Bank is one of the larger independent commercial banks headquartered in California. The Bank is chartered by the State of California, and its deposits are insured by the Federal Deposit Insurance Corporation, or FDIC, to the maximum extent permitted by law. The Bank conducts its banking business from its main office in Los Angeles, California, and through twelve full-service branch banking offices in California (Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine (2), Diamond Bar, Pico Rivera, Tarzana and San Francisco (2)), two branches in New York (Manhattan and Flushing, Queens) and a branch office in the Houston, Texas suburb of Sugar Land. In addition, the Bank also operates a loan production office in Sunnyvale, California. Preferred Bank offers a broad range of deposit and loan products and services to both commercial and consumer customers. The Bank provides personalized deposit services as well as real estate finance, commercial loans and trade finance to small and mid-sized businesses, entrepreneurs, real estate developers, professionals and high net worth individuals. Although originally founded as a Chinese-American Bank, Preferred Bank now derives most of its customers from the diversified mainstream market but does continue to benefit from the significant migration to California of ethnic Chinese from China and other areas of East Asia.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the Bank's future financial and operating results, the Bank's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the Bank's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: changes in economic conditions; changes in the California real estate market; the loss of senior management and other employees; natural disasters or recurring energy shortage; changes in interest rates; competition from other financial services companies; ineffective underwriting practices; inadequate allowance for loan and lease losses to cover actual losses; risks inherent in construction lending; adverse economic conditions in Asia; downturn in international trade; inability to attract deposits; inability to raise additional capital when needed or on favorable terms; inability to manage growth; inadequate communications, information, operating and financial control systems, technology from fourth party service providers; the U.S. government's monetary policies; government regulation; environmental liability with respect to properties to which the bank takes title; and the threat of terrorism. Additional factors that could cause the Bank's results to differ materially from those described in the forward-looking statements can be found in the Bank's 2025 Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation which can be found on Preferred Bank's website. The forward-looking statements in this press release speak only as of the date of the press release, and the Bank assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those contained in the forward-looking statements. For additional information about Preferred Bank, please visit the Bank's website at www.preferredbank.com.
AT THE COMPANY:
AT FINANCIAL PROFILES:
Edward J. Czajka
Evan Niu
Executive Vice President
General Information
Chief Financial Officer
(310) 622-8243
(213) 891-1188
[email protected]
Financial Tables to Follow
PREFERRED BANK
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except for net income per share and shares)
For the Quarter Ended
March 31,
December 31,
March 31,
2026
2025
2025
Interest income:
Loans, including fees
$
103,382
$
109,747
$
101,491
Investment securities
13,301
14,677
12,810
Fed funds sold
192
209
228
Total interest income
116,875
124,633
114,529
Interest expense:
Interest-bearing demand
15,120
16,952
16,590
Savings
54
55
69
Time certificates
33,373
34,543
33,887
FHLB borrowings
1,690
1,783
-
Subordinated debt
1,325
1,325
1,325
Total interest expense
51,562
54,658
51,871
Net interest income
65,313
69,975
62,658
Provision for credit losses
1,500
4,300
700
Net interest income after provision for credit losses
63,813
65,675
61,958
Noninterest income:
Fees & service charges on deposit accounts
516
545
716
Letters of credit fee income
2,737
2,408
2,244
BOLI income
105
105
103
Net gain on sale of other real estate owned
-
3,609
-
Net gain on called and sale of investment securities
59
132
-
Net gain on sale of loans
24
93
275
Other income
869
1,202
660
Total noninterest income
4,310
8,094
3,998
Noninterest expense:
Salary and employee benefits
15,460
13,101
14,839
Net occupancy expense
2,426
2,430
2,294
Business development and promotion expense
203
163
462
Professional services
1,647
2,091
1,651
Office supplies and equipment expense
358
375
386
OREO valuation allowance and related expense
363
3,465
1,531
Other
3,082
2,752
2,206
Total noninterest expense
23,539
24,377
23,369
Income before provision for income taxes
44,584
49,392
42,587
Income tax expense
13,440
14,570
12,563
Net income
$
31,144
$
34,822
$
30,024
Income per share available to common shareholders
Basic
$
2.57
$
2.85
$
2.27
Diluted
$
2.53
$
2.79
$
2.23
Weighted-average common shares outstanding
Basic
12,105,359
12,210,077
13,226,582
Diluted
12,292,237
12,479,124
13,453,176
Cash dividends per common share
$
0.80
$
0.80
$
0.75
PREFERRED BANK
Condensed Consolidated Statements of Financial Condition
(unaudited)
(in thousands)
March 31,
December 31,
2026
2025
(Unaudited)
(Audited)
Assets
Cash and due from banks
$
805,161
$
807,098
Fed funds sold
20,000
20,000
Cash and cash equivalents
825,161
827,098
Securities held-to-maturity, at amortized cost
18,458
18,749
Securities available-for-sale, at fair value
553,184
566,186
Loans held for sale, at lower of cost or fair value
76,324
-
Loans
6,046,544
6,054,264
Less allowance for credit losses
(75,036
)
(78,992
)
Less amortized deferred loan fees, net
(7,923
)
(9,030
)
Loans, net
5,963,585
5,966,242
Other real estate owned and repossessed assets
3,010
3,510
Bank furniture and fixtures, net
8,972
8,064
Bank-owned life insurance
10,782
10,712
Accrued interest receivable
34,811
34,233
Investment in affordable housing partnerships
66,394
69,978
Federal Home Loan Bank stock, at cost
15,000
15,000
Deferred tax assets
43,492
41,976
Income tax receivable
-
3,884
Operating lease right-of-use assets
29,593
30,531
Other assets
5,871
5,002
Total assets
$
7,654,637
$
7,601,165
Liabilities and Shareholders' Equity
Deposits:
Noninterest bearing demand deposits
$
716,777
$
699,160
Interest bearing deposits:
2,200,374
2,205,914
Savings
26,822
30,376
Time certificates of $250,000 or more
1,795,883
1,754,273
Other time certificates
1,680,291
1,655,723
Total deposits
6,420,147
6,345,446
Advances from Federal Home Loan Bank
200,000
200,000
Subordinated debt issuance, net
148,766
148,706
Commitments to fund investment in affordable housing partnerships
18,873
23,327
Operating lease liabilities
34,383
