Preferred Bank (PFBC) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals several concerns: a significant increase in criticized assets, a large classified loan relationship, and unclear management responses on resolving these issues. Despite stable margins and expected loan growth, the absence of strong guidance and potential risks from classified loans overshadow positive elements. The Q&A highlights competition and uncertainties in deposit costs, and a cautious stance on share repurchases. Without a market cap, the negative sentiment, coupled with potential investor concerns over asset quality, suggests a stock price decline of -2% to -8%.
Key Financial Performance
Net Income (Q4 2025) $34.8 million or $2.79 per share, no year-over-year change mentioned.
Net Income (Full Year 2025) $134 million or $10.41 per share, no year-over-year change mentioned.
Net Interest Margin (Q4 2025) Declined from the third quarter due to federal rate cuts. The 70% floating rate loan portfolio reduced loan interest income, while the cost of deposits remained high.
Loan Growth (Q4 2025) $182 million or over 12%, no year-over-year change mentioned.
Deposit Growth (Q4 2025) $115 million or 7.4%, no year-over-year change mentioned.
Loan Growth (Full Year 2025) 7.3%, no year-over-year change mentioned.
Deposit Growth (Full Year 2025) 7.2%, no year-over-year change mentioned.
Noninterest Income (Q4 2025) Net gain of $1.8 million from the sale of 2 large pieces of OREO.
Nonperforming Assets (Q4 2025) Declined slightly, no year-over-year change mentioned.
Criticized Assets (Q4 2025) Increased by $97 million due to placing a large 9-loan relationship into classified status.
Loan Loss Provision (Q4 2025) $4.3 million, no year-over-year change mentioned.
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Operating Highlights
Loan Growth: Total loan growth for the quarter was $182 million, representing over 12% growth. For the year, loan growth was 7.3%.
Deposit Growth: Deposit growth for the quarter was $115 million, representing 7.4% growth. For the year, deposit growth was 7.2%.
Net Income: Net income for Q4 2025 was $34.8 million or $2.79 per share. For the full year, net income was $134 million or $10.41 per share.
Net Interest Margin: Net interest margin declined in Q4 due to federal rate cuts, impacting loan interest income. Cost of deposits remained high.
Nonperforming Assets: Nonperforming assets declined slightly in Q4, but criticized assets increased by $97 million due to reclassification of 9 loans.
Loan Loss Provision: Loan loss provision for the quarter was $4.3 million.
OREO Sales: Two large pieces of OREO were sold, resulting in a net gain of $1.8 million, reported under noninterest income.
Economic Outlook: Management anticipates 2026 to be a year of growth and stability, with improved customer outlook barring sudden government policy changes.
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Risk or Challenges
Net Interest Margin Decline: The net interest margin for the fourth quarter declined due to federal rate cuts, which reduced loan interest income. This was exacerbated by the high cost of deposits, which remains stubbornly elevated.
Criticized Assets Increase: Criticized assets increased by $97 million during the quarter, primarily due to the classification of a large number of loans into the criticized status.
Loan Loss Provisions: Loan loss provisions for the quarter amounted to $4.3 million, reflecting potential risks in the loan portfolio.
Economic and Policy Uncertainty: The company acknowledges potential risks from sudden changes in government policy or directions, which could impact growth and stability in 2026.
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Guidance & Outlook
Loan Demand: Loan demand is getting stronger, with total loan growth for the quarter at $182 million or over 12%. The bank expects 2026 to be a growth year barring sudden changes in government policy or directions.
Deposit Growth: Deposit growth for the quarter was $115 million or 7.4%, with an annual growth rate of 7.2%. This trend is expected to continue into 2026.
Economic Outlook: Most economists forecast 2026 to be a year of relative growth and stability. Customers also have an improved outlook for 2026.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What was the margin for December and the total cost of deposits?
A:The margin for December was 3.66%, slightly below the quarter's margin. The total cost of deposits was 3.17% for December, decreasing by about 6-7 basis points per month.
Q:What are the expectations for deposit beta going forward?
A:Deposit beta is expected to follow a similar pattern of 5-6 basis points decrease per month, influenced by competition and Federal Reserve rate cuts.
Q:What is the expected loan growth for this year compared to last year?
A:Loan growth is expected to step up slightly from the 7.3% pace of last year, with deposits expected to grow at a similar pace.
Q:What is the forecast for expenses in the first quarter?
A:Expenses are forecasted to be in the range of 21.5% to 22.5%.
Q:What are the CD maturities and expected rates for the first quarter?
A:Approximately $1.3 billion in CDs are maturing in Q1 at a weighted average rate of 3.96%. New CDs are expected to come on at rates around 3.70% to 3.80%.
Q:What was the repricing range for CDs in the fourth quarter?
A:CDs maturing in the fourth quarter were at 4.1%, and new CDs came in at the upper end of the mid- to high 3% range.
Q:What is the impact of the fourth quarter rate cuts on the floating rate portfolio?
A:The rate cuts affected about $150 million to $200 million of the loan book, with 45% of the floors in the 0 to 100 basis point bucket.
Q:What is the strategy for time deposit competition?
A:The strategy involves balancing deposit cost reduction with deposit growth, despite stiff competition from local and large money center banks.
Q:What is the status of the $123 million downgraded loan relationship?
A:The relationship is one of the largest for the bank. The bank is giving the customer time to resolve the issue but is prepared to foreclose if necessary. The properties have stable market value, and the loans were reasonably underwritten.
Q:What are the best opportunities for loan growth this year?
A:The best opportunities are in commercial real estate and C&I loans, with internal budgeting set higher than the previous year.
Q:What is the expected growth rate for noninterest expenses this year?
A:Noninterest expenses are expected to grow at a mid- to high single-digit rate.
Q:What are the thoughts on share repurchases this year?
A:Share repurchases depend on loan growth and deposit situations. The current situation is less conducive to repurchases compared to last year.
Q:What is the timeline for resolving classified loans?
A:The bank aims to resolve a majority of the classified loans within two quarters, depending on customer actions and legal procedures.
Q:What are the credit metrics for the downgraded $19.4 million multifamily loan?
A:The loan has an updated appraisal value of $49 million, significantly higher than the loan amount of $19.5 million.
Q:What is the baseline for fee income in 2026?
A:The 4Q number, excluding the one-time OREO impact, is a good baseline, though slightly lower LC fee income is expected.
Q:What is the expense guidance for this year?
A:Expenses will grow through the year, with some costs related to small OREO properties.
Q:Were any shares repurchased this quarter?
A:Yes, a nominal amount of shares was repurchased in October.
Q:What is the appetite for M&A this year?
A:The bank is open to M&A opportunities but finds current pricing structures unsatisfactory. They will continue to evaluate potential deals.
Q:What is the adjusted EPS excluding the OREO gain?
A:The adjusted EPS excluding the OREO gain is $2.59.
Q:Did the bank provide financing for the OREO properties sold in the fourth quarter?
A:Yes, financing was provided for one of the properties, while the other was an outright cash sale.
Q:What is the status of the $121 million classified loans?
A:The loans are behind in interest payments, primarily due to guarantors' litigation with other banks. The bank is in a first position trust lender and believes the loans are fully secured.
Q:How confident is the bank in its credit loss reserves?
A:The bank believes its reserves are adequate, with Q factors accounting for 42.5% of the reserve. Adjustments have been made based on loan growth, specific reserves, and credit trends.
Q:Review of Unclear Management Responses
A:Management avoided providing a clear answer on the timeline and specific outcomes for resolving the $123 million downgraded loan relationship, stating it was too early to predict. Additionally, they did not provide detailed metrics for the classified loans' resolution timeline, only offering a general two-quarter goal.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CEO President
Chief Risk
Conference Instructions
Instructions today
Officer Deputy
Profiles Sir
Risk Officer
Sir Forward
afternoon Preferred
assumption uncertainty
bank file
conference Financial
document bank
result today
risk Preferred
today event
PFBC Transcript
Preferred Bank (PFBC) Q4 2025 Earnings Call Transcript
Unknown1-22
The earnings call reveals several concerns: a significant increase in criticized assets, a large classified loan relationship, and unclear management responses on resolving these issues. Despite stable margins and expected loan growth, the absence of strong guidance and potential risks from classified loans overshadow positive elements. The Q&A highlights competition and uncertainties in deposit costs, and a cautious stance on share repurchases. Without a market cap, the negative sentiment, coupled with potential investor concerns over asset quality, suggests a stock price decline of -2% to -8%.
Preferred Bank (PFBC) Q3 2025 Earnings Call Transcript
Unknown10-21
The earnings call summary presents a mixed picture. Positive elements include improved asset quality, loan and deposit growth, reduced nonperforming loans, and a low efficiency ratio. However, economic uncertainties and unclear management responses in the Q&A introduce potential risks. The stable margin outlook and strategic deposit management are positives, but the lack of precise guidance on loan growth and competitive challenges tempers optimism. The share repurchase is a mild positive, but overall, the factors balance out, suggesting a neutral sentiment for the stock price over the next two weeks.
Preferred Bank (PFBC) Q2 2025 Earnings Call Transcript
Unknown7-22
The earnings call presents mixed signals. Financial performance is reasonable with improved net income and asset quality, but loan growth remains uncertain due to external factors like tariffs. The large stock buyback may have slightly impacted margins. The Q&A reveals concerns about deposit costs and economic uncertainties. While some growth prospects exist, the lack of clear guidance and ongoing challenges temper optimism. The absence of a market cap prevents assessing volatility, but overall, the sentiment is balanced, suggesting a neutral stock price movement in the short term.
Preferred Bank (NASDAQ:PFBC) Q1 2025 Earnings Call Transcript
Unknown4-29
The earnings call highlights several concerns: elevated non-performing loans, negative loan growth, and a decrease in net income and EPS due to charge-offs and interest reversals. Despite a dividend increase and share repurchase plan, the weak loan demand outlook, tariff-related uncertainties, and declining net interest margin overshadow positive aspects. The Q&A section reveals uncertainties and management's vague responses, exacerbating concerns. These factors suggest a negative sentiment, likely resulting in a stock price decrease of -2% to -8% over the next two weeks.
PFBC Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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