Preferred Bank earnings totaled $32.9 million, or $2.73 per share, in the third quarter of 2026, as an interest-income reversal weighed on profitability. In its October 23 earnings discussion, management outlined competing fourth-quarter priorities: retaining deposits, rebuilding loan growth and resolving troubled credits whose court proceedings have delayed recoveries.
Key Takeaways
- A $2.1 million interest-income reversal reduced the quarterly net interest margin to 3.49%.
- Deposits grew sequentially, but just under $1.7 billion in CDs mature in the fourth quarter.
- Management expects a stronger lending pipeline, while some troubled-loan resolutions have slipped into 2027.
Table of Contents
- Preferred Bank earnings reflect an interest-income reversal
- CD maturities put deposit pricing in focus
- Court delays complicate problem-loan resolutions
- Fourth-quarter spending remains tightly guided
- Conclusion
Preferred Bank earnings reflect an interest-income reversal
Chief Executive Li Yu said the bank’s third-quarter net interest margin would have been 3.60% without the $2.1 million interest-income reversal, compared with the reported 3.49%. The 3.60% figure is therefore an illustration excluding that item, not a prior-quarter comparison.
Loans decreased by $40 million during the quarter. Management cited a large credit moved into for-sale status, unexpected payoffs and weaker production than in the second quarter. President and Chief Operating Officer Wellington Chen said some pipeline loans had been delayed, but the fourth-quarter pipeline was stronger.
Yu described Preferred Bank as asset-sensitive and said a potential increase in the federal funds rate would benefit its margin. That was a conditional assessment, not an announced rate change or a quantified earnings forecast.
| Item | Details |
|---|---|
| Maturing fourth-quarter CDs | Weighted average yield of 3.81%. |
| Expected CD renewal rates | Management indicated a range of 3.75%–4%. |
| September deposit cost | 3.06%, as reported by the CFO. |
| September spot margin | 3.58%, distinct from the full-quarter net interest margin. |
CD maturities put deposit pricing in focus
Deposits increased $77 million, or 1.2%, from the preceding quarter despite intense competition. Chief Financial Officer Edward Czajka said the quarter-end balance provided a reasonable starting point for the fourth quarter; late-quarter brokered deposit activity helped explain the difference between average and ending balances.
Yu said customers were moving money into Treasuries after CDs matured, highlighting their tax treatment as a competitive factor. TreasuryDirect’s explanation of Treasury interest taxation states that earnings on marketable Treasury securities are subject to federal tax but exempt from state and local taxes. That tax distinction provides background to the funding competition, rather than evidence of the bank’s deposit flows.
Czajka said management would prioritize controlling funding costs, even if that meant sacrificing some deposit growth. With just under $1.7 billion in CDs maturing in the fourth quarter, renewal pricing is a significant near-term funding consideration.
Court delays complicate problem-loan resolutions
Chief Risk Officer Nick Pi put total classified loans at $177.6 million, including $11.5 million of other real estate owned, or OREO. Yu said another $20 million of credits had been classified as substandard while remaining on accrual status.
Management described uneven progress on resolutions. Pi said the bank hoped to dispose of a couple of large loans by the fourth quarter of 2026, depending on court decisions; foreclosure and subsequent property sales were another possible route.
Separately, Yu said several credits awaiting resolution were tied up in court proceedings that had pushed expected outcomes into the third and fourth quarters of 2027. The distinction matters: potential near-term disposals would not mean all delayed problem credits had been resolved.
Fourth-quarter spending remains tightly guided
Czajka guided fourth-quarter noninterest expenses to $23 million–$24 million. He attributed the latest quarter’s expense reduction to lower professional-services costs, principally legal fees associated with problem loans, and a smaller incentive-compensation accrual.
The outlook combines controlled spending with management’s hope for stronger loan growth. Neither the pipeline commentary nor the expense guidance establishes that credit-related pressure will ease in the fourth quarter.
Conclusion
Preferred Bank’s next reporting period will test whether its stronger loan pipeline translates into growth while a heavy CD maturity schedule is repriced. Credit resolutions remain a separate uncertainty, with some outcomes dependent on court proceedings extending into 2027.
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