Core Insights - Preferred Bank reported a GAAP net income of $32.8 million, or $2.52 per share, in Q2 2025, reflecting a sequential increase driven by approximately 7% annualized loan growth and an expanded net interest margin (NIM) of 3.85% [1] Capital Management - The company executed a $56 million share buyback at an average price of $80.81 per share, significantly below the current market price of $97.03, and has secured authorization for an additional $125 million buyback program, which has not yet commenced due to valuation sensitivity [2][3] - Management's disciplined approach to capital return indicates a willingness to deploy excess capital opportunistically while adhering to valuation thresholds that enhance per-share value creation [3] Funding and Deposit Stability - Despite competitive pressures, the cost of deposits remained stable at around 3.41%, with maturing certificates of deposit (CDs) totaling $1.4 billion being renewed at or just under 4% in Q3, supporting stable NIM performance and deposit retention [4] - The company has maintained flat deposit balances through active cost controls, balancing competitive rate offers with funding needs [5] Loan Growth and Asset Quality - The commercial and industrial (C&I) and commercial construction portfolios drove approximately 7% annualized loan growth, with a decline in nonaccrual, criticized, and past-due loans quarter over quarter, indicating improved asset quality [6][7] - Management asserts that loan loss reserves remain adequate, and further signs of increasing loan demand have appeared, although caution is maintained due to macroeconomic uncertainties [6] Future Outlook - Management provided guidance that noninterest expense will be in the range of $21.8 million to $22.6 million in Q3 and Q4, excluding expectations of further other real estate owned write-downs [8] - A new Silicon Valley branch is scheduled to open in the second half of 2025, expanding the bank's geographic reach, although no explicit quantitative forward guidance was provided for net interest income, loan growth, or NIM [8]

Industry Overview - The Zacks REIT and Equity Trust industry is experiencing volatility in mortgage rates due to macroeconomic uncertainty, leading to earnings pressure in the near term [1] - The industry consists of mortgage REITs (mREITs) that invest in and originate mortgages and mortgage-backed securities (MBS), focusing on residential or commercial mortgage markets [3] - Agency securities, backed by the federal government, are considered safer investments, limiting credit risks for mREITs [3] Current Challenges - High interest rates and volatility in mortgage markets are causing slight decreases in tangible book values for agency mortgage REITs, although they have been more stable than in 2023 [4] - The central bank's decision to maintain steady interest rates, despite a previous cut of 100 basis points in 2024, is increasing earnings pressure for highly leveraged mREITs [5] - Many industry players are cutting dividends to levels that can be covered by earnings, potentially leading to capital outflows and further declines in book values [5] Investment Strategies - mREITs are adopting a conservative approach to investments, focusing on risk and liquidity management, which may impede portfolio growth and robust returns in the short term [6] - Despite lower mortgage rates compared to last year, the demand for purchase applications and refinancing is improving, indicating some latent market demand [7] Performance Metrics - The Zacks REIT and Equity Trust industry ranks 162, placing it in the bottom 34% of 246 Zacks industries, indicating underperformance in the near term [8] - The industry's current-year earnings estimate has decreased by 6.5% over the last year, reflecting a negative earnings outlook [9] - Over the past year, the industry has gained 2.7%, underperforming the broader Zacks Finance sector's rise of 18.7% and the S&P 500's growth of 12.5% [11] Valuation - The industry is trading at a trailing 12-month price-to-book (P/BV) ratio of 1.00X, compared to the S&P 500's 8.42X, indicating a significant discount [14] - The Zacks Finance sector's trailing 12-month P/BV is 4.26X, further highlighting the industry's undervaluation [16] Company Highlights - **Annaly Capital Management (NLY)**: Focuses on prudent asset selection and capital allocation, with a diversified investment strategy that includes traditional Agency MBSs and non-agency assets. The company's 2025 earnings are estimated at $2.87 per share, reflecting a 6.3% year-over-year increase [19][22] - **Dynex Capital (DX)**: Engages in mortgage and consumer finance, with a focus on multi-family and commercial real estate loans. The company's 2025 earnings estimates are $1.97 per share, indicating a significant year-over-year jump of 662.9% [25][28] - **Ellington Financial (EFC)**: Invests in a diverse array of financial assets, including residential and commercial mortgage loans. The company's 2025 earnings estimates are $1.65 per share, showing a year-over-year growth of 13% [31][34]