Preferred Bank's Profits Jump in Q2 After Stock Buybacks

Preferred Bank (NASDAQ:PFBC) reported GAAP net income of $32.8 million, or $2.52 per share, in Q2 2025, a sequential increase driven by approximately 7% annualized loan growth and net interest margin (NIM) expanded to 3.85%. Key developments included a $56 million share repurchase at approximately $80.81 per share, stable deposit levels, improved asset quality, and early signs of rising loan demand heading into Q3.

PFBC materially enlarges capital return via aggressive repurchases

During the second quarter, the company executed a $56 million share buyback at an average repurchase price of $80.81 per share, substantially below the current market price of $97.03. Following the May shareholder meeting, management secured authorization for an additional $125 million buyback program, though this has not yet commenced due to valuation sensitivity.

The $56 million we did was right around $80 a share, $80.81 a share on average in Q2 2025. At the shareholder meeting in May, we announced that we got approval for another $125 million repurchase. We have not really started to execute on that simply because the price per share relative to book value right now is at a much higher spread than it has been. So we're, as Mr. Yu said, being cautious on buying back at a high price.
— Edward Czajka, Chief Financial Officer

This disciplined approach to capital return signals management’s willingness to deploy significant excess capital opportunistically, while preserving flexibility and adhering to valuation thresholds that enhance per-share value creation.

PFBC manages funding costs and deposit stability amid competition

Despite competitive rate pressures, cost of deposits remained relatively consistent at around 3.41%, while maturing certificates of deposit (CDs) totaling $1.4 billion at a weighted average 4.21% are being renewed at or just under 4% in Q3, supporting stable NIM performance and deposit base retention. Management attributed flat deposit balances to active cost controls over recent months, balancing competitive rate offers with funding needs.

"Our deposits remain flat. Perhaps one of the reasons is that we try to control our cost of the deposits. Net interest margin this quarter was 3.85% as compared to the 3.75% reported last quarter."
— Li Yu, Chairman and CEO

This approach underpins management’s focus on maintaining profitability and balance sheet stability.

Preferred Bank expands loans while maintaining asset quality improvement

The commercial and industrial (C&I) and commercial construction portfolios drove approximately 7% annualized loan growth, as clients showed increased line utilization and new funding requests; meanwhile, nonaccrual, criticized, and past-due loans all declined quarter over quarter, with management asserting that loan loss reserves remain adequate. In July, further signs of increasing loan demand appeared, though management remains cautious given continued macroeconomic uncertainty, including tariffs and inflation.

The second quarter will show good improvement in asset quality. Nonaccrual loans, criticized loans, and past due loans have decreased reasonably from the previous quarter, and we believe the trend should continue into the second half of the year. At this time, we have not identified any additional loss contents on these loans. We believe that the loan loss reserve is sufficient to cover any exposure.
— Li Yu, Chairman and CEO

Asset quality improved and loan growth continued, strengthening the company’s position.

Looking ahead

Management provided guidance that noninterest expense will be in the $21.8 million to $22.6 million range in Q3 and Q4, excluding any expectations of further other real estate owned write-downs in future quarters. A new Silicon Valley branch is scheduled to open in the second half of 2025, expanding the bank's geographic reach. No explicit quantitative forward guidance was provided for net interest income, loan growth, or NIM, and macroeconomic uncertainty, especially regarding tariffs and interest rates, remains a monitored risk factor impacting outlook.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.