Preferred Bank’s Q4 Earnings Call: Our Top 5 Analyst Questions

Commercial banking company Preferred Bank reported Q4 CY2025 results exceeding the market’s revenue expectations, with sales up 7.2% year on year to $78.07 million. Its non-GAAP profit of $2.79 per share was in line with analysts’ consensus estimates.

Preferred Bank (PFBC) Q4 CY2025 Highlights:

• Revenue: $78.07 million vs analyst estimates of $74.5 million (7.2% year-on-year growth, 4.8% beat)
• Adjusted EPS: $2.79 vs analyst estimates of $2.79 (in line)
• Market Capitalization: $1.14 billion

StockStory’s Take

Preferred Bank's fourth quarter results were met with a negative market reaction, as investors focused on rising deposit costs and credit quality developments despite the company reporting year-over-year revenue growth and non-GAAP profit in line with Wall Street expectations. Management attributed the margin pressures to federal rate cuts, with CEO Li Yu explaining that "the cost of deposits remains stubbornly high," even as loan demand and deposit growth improved. Additionally, the quarter saw an increase in criticized assets, driven by the downgrade of a large loan relationship, which management acknowledged as a key concern for near-term performance.

Looking ahead, Preferred Bank's outlook centers on managing deposit costs, navigating ongoing competition for funding, and addressing credit quality challenges. Management indicated that loan growth is expected to accelerate in the coming year, supported by strengthening commercial real estate and C&I loan demand, while deposit growth is being targeted at a similar pace. CFO Edward Czajka cautioned that "competition for deposits still remains very, very strong," and the company expects only gradual relief in funding costs. Li Yu emphasized the company's plan to resolve the classified loan exposures over the next two quarters, adding that stability in the broader economy and customer sentiment should underpin moderate growth in 2026.

Key Insights from Management’s Remarks

Management emphasized that net interest margin was pressured by higher funding costs and that credit quality trends were mixed, with both asset sales and loan downgrades impacting results.

• Deposit costs elevated: Management noted that the cost of deposits did not decline as quickly as anticipated, with intense competition from both local and large national banks keeping rates elevated, putting pressure on net interest margin.
• Loan growth gathering momentum: The bank reported stronger loan demand, with commercial real estate and commercial & industrial (C&I) loan categories both showing signs of revival. Management is budgeting for higher loan growth in the coming year compared to last year.
• Credit quality mixed: While nonperforming assets declined, criticized assets increased significantly due to the downgrade of a large loan relationship. The company described this as a unique situation but acknowledged it could take up to two quarters to resolve.
• OREO asset sales: Preferred Bank completed the sale of two large Other Real Estate Owned (OREO) properties, generating a net gain, though one sale included seller financing, which introduces some ongoing exposure.
• Provisioning and reserves: The quarterly loan loss provision increased, reflecting both loan growth and specific credit issues. Management adjusted its risk factors to account for the uptick in criticized loans but expressed confidence in reserve adequacy based on recent portfolio reviews.

Drivers of Future Performance

Management expects that future performance will depend on the pace of deposit repricing, credit quality resolution, and the sustainability of loan growth.

• Persistent deposit competition: Management flagged that competition for deposits remains intense, limiting the pace at which funding costs can fall, even as the Federal Reserve cuts rates. CDs (certificates of deposit) are rolling over at only slightly lower rates, keeping pressure on net interest margin.
• Classified loan resolution: The timeline for resolving the large classified loan relationship is a significant variable. Management hopes to make substantial progress within two quarters, but noted that legal proceedings and borrower actions could affect outcomes and result in further provisioning if conditions worsen.
• Loan and fee income growth: The company is targeting higher loan growth, particularly in commercial real estate and C&I lending. However, management cautioned that fee income may be slightly lower than recent quarters, as some one-time gains from OREO sales are not expected to recur, and strong letter-of-credit fee performance may normalize.

Catalysts in Upcoming Quarters

As we look to upcoming quarters, our team will monitor (1) the pace at which deposit costs decline relative to market interest rates, (2) tangible progress in resolving or reducing classified and criticized loan exposures, and (3) the ability to sustain above-average loan growth in the competitive commercial banking landscape. Any shift in credit quality or funding cost trends will be key to assessing the bank’s execution.

Preferred Bank currently trades at $93.64, down from $99.15 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).

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What Happened?

Shares of commercial banking company Preferred Bank fell 5.9% in the afternoon session after the company reported mixed fourth-quarter results that saw misses on key banking metrics, overshadowing a headline revenue beat. 

While the bank's revenue of $78.07 million surpassed analyst expectations, investors focused on underlying profitability concerns. The bank's net interest margin, a critical measure of lending profitability, came in at 3.7%, missing estimates of 3.8%. Additionally, the efficiency ratio, which measures a bank's overhead as a percentage of its revenue, was 31.2%, worse than the 29.7% analysts had anticipated. A lower efficiency ratio is better, so this miss indicated the bank was less efficient than expected. Although earnings per share of $2.79 met expectations and tangible book value per share posted a slight beat, the negative results in core profitability and operational efficiency metrics appeared to drive the negative market reaction.

What Is The Market Telling Us

Preferred Bank’s shares are not very volatile and have only had 5 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 6 months ago when the stock gained 6.8% on the news that the company reported second-quarter financial results that surpassed Wall Street expectations. 

The Los Angeles-based commercial bank announced earnings of $2.52 per share for the quarter, beating the Consensus Estimate. The bank's revenue also topped forecasts. The strong results were driven by an increase in net income compared to the previous quarter, an improved net interest margin, and growth in the bank's loan portfolio. Net interest margin, a key measure of a bank's profitability, rose to 3.85% from 3.75% in the first quarter. Additionally, the bank saw an improvement in its credit quality, with a notable decrease in non-accrual loans.

Preferred Bank is flat since the beginning of the year, and at $96.13 per share, it is trading close to its 52-week high of $102.45 from December 2025. Investors who bought $1,000 worth of Preferred Bank’s shares 5 years ago would now be looking at an investment worth $1,883.

Commercial banking company Preferred Bank reported revenue ahead of Wall Streets expectations in Q4 CY2025, with sales up 7.2% year on year to $78.07 million. Its GAAP profit of $2.79 per share was in line with analysts’ consensus estimates.

Preferred Bank (PFBC) Q4 CY2025 Highlights:

• Net Interest Income: $69.98 million vs analyst estimates of $70.23 million (1.2% year-on-year growth, in line)
• Net Interest Margin: 3.7% vs analyst estimates of 3.8% (6.6 basis point miss)
• Revenue: $78.07 million vs analyst estimates of $74.5 million (7.2% year-on-year growth, 4.8% beat)
• Efficiency Ratio: 31.2% vs analyst estimates of 29.7% (150 basis point miss)
• EPS (GAAP): $2.79 vs analyst estimates of $2.79 (in line)
• Tangible Book Value per Share: $64.83 vs analyst estimates of $64.45 (12% year-on-year growth, 0.6% beat)
• Market Capitalization: $1.22 billion

Li Yu, Chairman and CEO, commented, “I am pleased to report fourth quarter net income of $34.8 million or $2.79 per share and for the full year 2025, net income of $133.6 million or $10.41 per share, which makes our profitability among the top echelon of the banking industry.

Company Overview

Founded in 1991 with a focus on serving the Pacific Rim community in Southern California, Preferred Bank is a commercial bank that provides banking products and services to small and mid-sized businesses, entrepreneurs, real estate developers, and high net worth individuals.

Sales Growth

Net interest income and and fee-based revenue are the two pillars supporting bank earnings. The former captures profit from the gap between lending rates and deposit costs, while the latter encompasses charges for banking services, credit products, wealth management, and trading activities. Luckily, Preferred Bank’s revenue grew at a decent 10% compounded annual growth rate over the last five years. Its growth was slightly above the average banking company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Preferred Bank’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 1.2% over the last two years.

This quarter, Preferred Bank reported year-on-year revenue growth of 7.2%, and its $78.07 million of revenue exceeded Wall Street’s estimates by 4.8%.

Net interest income made up 95.6% of the company’s total revenue during the last five years, meaning Preferred Bank lives and dies by its lending activities because non-interest income barely moves the needle.

Net interest income commands greater market attention due to its reliability and consistency, whereas non-interest income is often seen as lower-quality revenue that lacks the same dependable characteristics.

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Tangible Book Value Per Share (TBVPS)

Banks operate as balance sheet businesses, with profits generated through borrowing and lending activities. Valuations reflect this reality, emphasizing balance sheet strength and long-term book value compounding ability.

When analyzing banks, tangible book value per share (TBVPS) takes precedence over many other metrics. This measure isolates genuine per-share value by removing intangible assets of debatable liquidation worth. EPS can become murky due to acquisition impacts or accounting flexibility around loan provisions, and TBVPS resists financial engineering manipulation.

Preferred Bank’s TBVPS grew at an incredible 13% annual clip over the last five years. The last two years show a similar trajectory as TBVPS grew by 12.6% annually from $51.17 to $64.83 per share.

Over the next 12 months, Consensus estimates call for Preferred Bank’s TBVPS to grow by 10.3% to $71.49, mediocre growth rate.

Key Takeaways from Preferred Bank’s Q4 Results

We enjoyed seeing Preferred Bank beat analysts’ revenue expectations this quarter. We were also happy its tangible book value per share narrowly outperformed Wall Street’s estimates. On the other hand, its EPS was in line and its net interest income was in line with Wall Street’s estimates. Zooming out, we think this was a fine quarter with no major surprises. The stock remained flat at $99.32 immediately after reporting.

Big picture, is Preferred Bank a buy here and now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here (it’s free).

Commercial banking company Preferred Bank will be reporting earnings tomorrow morning. Here’s what investors should know.

Preferred Bank beat analysts’ revenue expectations by 3.5% last quarter, reporting revenues of $74.98 million, up 3.7% year on year. It was a very strong quarter for the company, with a solid beat of analysts’ revenue estimates and an impressive beat of analysts’ net interest income estimates.

Is Preferred Bank a buy or sell going into earnings? Read our full analysis here, it’s free for active Edge members.

This quarter, analysts are expecting Preferred Bank’s revenue to grow 2.3% year on year to $74.5 million, improving from its flat revenue in the same quarter last year. Adjusted earnings are expected to come in at $2.79 per share.

Analysts covering the company have generally reconfirmed their estimates over the last 30 days, suggesting they anticipate the business to stay the course heading into earnings. Preferred Bank has missed Wall Street’s revenue estimates three times over the last two years.

Looking at Preferred Bank’s peers in the regional banks segment, some have already reported their Q4 results, giving us a hint as to what we can expect. ServisFirst Bancshares delivered year-on-year revenue growth of 22.9%, beating analysts’ expectations by 6.8%, and Simmons First National reported revenues up 17.2%, topping estimates by 5.3%.

Read our full analysis of ServisFirst Bancshares’s results here and Simmons First National’s results here.

Investors in the regional banks segment have had steady hands going into earnings, with share prices flat over the last month. Preferred Bank is down 2.3% during the same time and is heading into earnings with an average analyst price target of $109.25 (compared to the current share price of $96.93).