Hello, everyone, and thank you for joining us to discuss Preferred Bank's financial results for the first quarter ended March 31, 2026. With me today from management are Chairman and CEO Li Yu, President and Chief Operating Officer Wellington Chen, Chief Financial Officer Edward Chayka, 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 assumed 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 year. This quarter's net income was negatively impacted by the placement of a large relationship to the non-performing status. If you recall, in March, we have issued a press release informing all of you that we have placed a nine-loan relationship on a non-accrued basis. This relationship consists of two C&I loans of a small $2 million, and the rest are all commercial real estate loans in a total amount of only $77 million on a non-accrued basis. Shortly after the announcement, we were able to sell one loan at par of $9.4 million. And on April the 1st, okay, we have sold another true loan at par for $48.5 million. So as of today, we have effectively reduced the relationship by roughly 50%. And we'll continue our progress in the second quarter and in the third quarter. hopefully by the time that we should have substantial resolution. Loan gross is moderate 1.1 percent sequentially and deposit gross was moderate 1.2 percent sequentially. Market competition, especially in the at the end of it, has been our net interest margin was 3.47%, 3.57% for this quarter, which is down from 3.74% in the previous quarter. Again, the reversal of interest income is the main reason. This reversal of interest income is non-recurring. We're very hopeful, especially when there seems to be no imminent rate movements. We're very hopeful that our net interest margin will rebound. Our operating overhead or non-interest expense has been stable and will continue to keep it on a stable basis. And for your information, that the bank has repurchased roughly 400,000 shares of our own common stock for the total consideration of $19 a share. Thank you very much. I'm ready for your questions.

Thank you. We will now begin the question and answer session. To ask a question, please press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Matthew Clark with Piper Sandler. Please go ahead.

Hey, good morning, Ellen. 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, $48.5 million 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.

Any pricing thoughts there or on the other two?

We generally would like to get as much, as close to the part as possible, and we have been getting down some of the loans, so this is our goal.

And 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 CDE's coming due and 2Q and the rate it's rolling off on and the renewal rate that you expect to come on on.

Okay, 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. So that is starting to slow in terms of the lowering of deposit costs as we go forward. For your record, March deposit cost was $310,000 overall. In terms of maturities, we have $1.35 billion maturing in the quarter at a $389 rate. Those will likely be put on at similar rates, maybe a little bit lower, But we're getting close to the point where we're reaching stagnation in terms of the rolling off of CDs to newer, you know, lower-priced CDs.

Okay, great. And last one for me, just on the expense run rate going forward, how should we think about non-interest expense?

So we're at roughly 23.5 for the quarter. over a million of that was heightened levels of payroll tax related to bonus payout and related to stock vesting, which both occurred in the first quarter. So as we go forward in the Q2, I'm looking for something in the high 22s to low 23s.

Great. Thanks again.

The next question will come from Gary Tenner with DA Davidson. Please go ahead.

Thanks. Good morning, Gary. I just wanted to ask, hey, just wanted to ask on loan growth. I mean, the production, I think, must have been pretty decent this quarter, just to have kind of the line growth of LHI and, you know, loans halt for sale. So if you talk about production, competition, and pricing in terms of the loan book.

Well, pricing is all over the place. We're still facing a lot of people. It's pricing below six on the fixed rate basis. We can't afford to do that. so and especially when the movement of the interest when the movement of our interest rate is unclear at this point of time we have not been getting the rate cuts out previously for Canada okay so most people have been picking their doing rates a little bit less than I expected then you want to do in terms of

just the activity levels and quality of credit that you're seeing come through How does that look today?

Well, we see the quality pretty much the same situation. And I don't think the industry has been losing on the quality. And based on our colleague, they've been very much controlling themselves in that aspect. And likewise, obviously, we try to do that too.

The next question will come from Andrew Terrell with Stevens. Please go ahead.

Hey, good afternoon. Hey, I wanted to start on just the margin, the 3.4 million interest reversal. It seems like that's, you know, 19, 20 basis points of margin or so. Just, you know, as that normalizes in 2Q, I guess if we add that back in, it gets, you know, closer to like a 375 type margin.

So similar to your fourth quarter, just wanted to, you know, verify that's how you're kind of thinking about margin for 2Q or how should we think about, you know, trends of the NEM going to 2Q and then kind of throughout the year. yeah I think you're directionally you're correct but probably about five basis points high there so we're the margin for March came in at 371 just so you know that and so 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 so it might be a little higher than that, but right around the 370 number I think is probably good for us.

Great. Okay. And 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, you know, when you talk about resolution of some of the remainder of these credits by kind of third quarter time frame, is note sales the primary avenue in which you're you're seeking to remediate or any other plan kind of actions on the non-performers it's obviously that is the is that no sale is the quickest best for us if we can get the price that we want to get okay and that is really also like pricing issue and actually each loan because it's different nature. The most clear situation is the loan-to-value ratio based on appraisal. Normally speaking, obviously, when the situation is narrow, you don't get as good a pricing as the loan with a bigger margin in situation. So we have to go through the dealing with the bankruptcy too. And it depends on what the bankruptcy judge is awarding. They might award in certain cases they have more time to sell in it, or to operate it, to reorganize it. That's something I would ask here. But to the extent we can get them immediately again, then we will resell them. So therefore, each property has a different resolution nature. Not that it's very necessary.

Yeah, understood. Okay, I appreciate it. And then just one more for me on the, you know, some of the commentary around competition. I understand it's a tougher market here. Just wanted to maybe reframe expectations on that 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, you know, a decent cadence through the year for loan growth? or are we, you know, more likely to see some compression just given the competitive environment?

Yeah, I think about three months ago in the press conference, I was saying internally we're guiding ourselves doing high single digits, okay? Okay. So, however, internally we didn't know there's a war in Iran, right? okay so whether how much the change of that on that issue alone we do not know and plus we seem to have have administration that is presenting more changes in every aspect of situation that usually then gets gets related to any of the changes they want to make okay so we are situation right now is that we're bouncing backwards and forwards in terms of our own internal expectations. We have to be realistic. When there was going on, when there's no patrolling, when the pipes go to the roof, you're not going to see the same long demand as you are in a peacetime situation. So I guess all these kind of situations, all we can do is stay alert, but we still hope that this will be World's Year.

Great. Thanks so much for taking the questions.

The next question will come from David Feaster with Raymond James. Please go ahead.

Hey, good morning, everybody. 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 the 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 I'm reading between the lines, and 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? Now, just think about when the petroleum price is going to, I mean, $100 per barrel, okay, not petroleum oil, okay? When the products are related, all the various products are related, and the long-term, short-term and long-term, in fact, is hard to measure. And the supply nature also makes the immeasurable, okay? So definitely that will affect. It's just we may not see it all yet that it's for the time reflected in our economy, okay? So that is what we are pretty much confused in-house at Preferred Bank.

And then maybe just shifting gears back to the credit side. I mean, obviously, look, you guys have been very active managing credit. You've worked through a lot of issues. And so I assume 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 you know broader macro side like do you think credit you know is is not at that point yet and it's just still pretty uncertain okay well number one issue that I don't know in the past would have been this busy on credit or not okay it seems to be this transaction is really the inflection point on our current attention and so on. And even with that, it has been a long group of loans that was performing pretty well until some irregular return was found by, I guess everybody knows that, by Western Security Bank, Western Alliance Bank, they published an announcement, government, and the whole thing just started to get sour from that point on, and the next we have to call it. Other than that, our total credit picture has been remaining generally stable. And I can send you the FDIC statistics about our 10-year charge-off ratio, which is probably lower than the average of the banking group. 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. And 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. You know, the stocks moved a bit higher from where you've repurchased more recently. But just kind of curious, how do you think about capital priorities today?

Well, there are two group of pictures, two group of thoughts. One group representing the demoralizing or the active trader investor type, okay? And their idea is that you have enough capital, you just go do the buyback, whatever you can, immediately as much as you can. okay so that's that's one group and then we have another group of long-term investor probably their position of banks hardly move along the past past 10 years and plus we have also rating agency and both of those seem to say well you need to play it play it safe on your capital you know you what you need to do is look at a future economy look at your earning focus on and determine on a flexible basis what you can do year from year again. So I guess our board decided the security is above all situations. So we're leaning, give it two words, about our long-term shareholder viewpoint.

Okay. That makes sense. And then if I could just squeeze one more in.

I'm just kind of curious, with the rate backdrop today, you know, you're obviously naturally asset sensitive but you know given the markets kind of looking at this is the Fed on pause maybe for now at least I is as your thoughts on managing rate sensitivity shifted at all well I would say something and they might join me that's bad all the time my feeling is that there was in that was in the next group of rates, for preferment particularly, we are sort of like near neutral in assets sensitivity, particularly because of our large TCD portfolio. And under the current status, where the rate is not moving, actually our TCD rate we're paying is improving in each quarter, okay, out of a very slow rate in our nowadays. because of the market competition. So we just are not clear about our economy yet. Again, likewise with all the things that were happening to us, I mean obviously we can always name the war as one of them. What would that do to our economy create? 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. And this question is puzzling generally almost everyone, because a lot of uncertainty we're facing with us. So this year, the challenge is, in my opinion, is stay flexible. I don't know, Ed, how you feel.

Yeah, well, no, I think similarly, you know, we haven't really changed much in terms of the balance sheet profile in probably the last 12 months since we, you know, 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, you know, 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. Hughes said, more closer to neutral than, you know, the asset sensitivity we had, say, going into 2021, 2022, when we were highly asset sensitive and took advantage of all the rate hikes. So 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. You said, flexibility. I mean, if this war continues and, you know, we get into a point where, you know, inflation creeps up, we may not be looking at rate cuts as the next, you know, rate change from the FOMC. So I think we want to stay flexible.

And, you know, what we've always done is keep both sides of the balance sheet short. and that way we can react to anything that's helpful thank you and this will conclude our question and answer session I would like to turn the conference back over to management for any closing remarks well thank you so much for your for your interest in the program that we hope what we have described today is our our roadmap going into the next few quarters and hopefully that we can produce, I mean, even better cognitive results in the next few period times. Thank you. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.