Financial Data and Key Metrics Changes - The company reported net income of $11.7 million or $0.69 per diluted share for Q2 2025, indicating strong performance [6] - Tangible book value increased to $24.42 per share, representing over 13% annualized growth quarter over quarter [8] - Total revenue reached $49.2 million, with net interest income expanding as anticipated [10] - Noninterest expenses were recorded at $32.6 million, aligning with targets [11] Business Line Data and Key Metrics Changes - Loan growth was strong at an annualized pace of 13% for Q2, exceeding expectations [9] - Deposit growth was sound at 5% quarter over quarter annualized, with a loan to deposit ratio of 85% [9][14] - Noninterest income rose to $8.9 million, exceeding projections due to higher insurance and mortgage banking revenues [16] Market Data and Key Metrics Changes - The company maintained a solid credit quality with non-performing assets at just 0.19% of total assets [16] - The average rate on new loan production was 7.11%, contributing to a quarterly portfolio yield of 6.07% [15][45] Company Strategy and Development Direction - The company is focused on leveraging growth and deepening its market presence in existing regions rather than pursuing new market expansions [20][33] - Talent acquisition remains a priority, with plans to add new revenue-producing team members across various regions [21][62] - The company aims to maintain a balance between revenue growth and expense management, targeting continued operating leverage [49] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth, expecting to continue achieving mid to high single-digit growth rates [20][22] - The company is preparing for potential rate cuts, which could further enhance net interest margin [47] - Credit quality remains strong, with no significant signs of weakness observed in the portfolio [72] Other Important Information - The company’s consolidated TCE ratio increased to 7.7%, and total risk-based capital ratio remained well above regulatory standards at 11.1% [18] - The management emphasized the importance of maintaining a strong company culture, which has been recognized as a great place to work [22] Q&A Session Summary Question: Loan growth and future potential - Management believes maintaining a high single-digit growth rate is feasible, with potential for low double digits if new hires are effective [26][28] Question: Geographic focus for new hires - New hires are spread across various regions, including Tennessee, Alabama, and the Gulf Coast [29][30] Question: Future revenue targets and growth strategy - The company is focused on deepening its market presence rather than major market expansions, with plans for 2026 already in progress [32][34] Question: Margin expectations and deposit costs - The company anticipates a slight increase in deposit costs but expects net interest margin to expand naturally [47] Question: Credit quality and stress testing - Credit metrics remain strong, with no signs of weakness, and stress testing has been conducted on lower yielding loans maturing soon [72][75] Question: Recruitment strategy and market opportunities - The company is consistently recruiting top talent, focusing on markets with significant growth potential [61][64] Question: Average loan size trends - The average loan size has not significantly increased, as the company continues to focus on smaller, sustainable transactions [86][90]

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]