Form 10-Q Quarterly Report

FEDERAL DEPOSIT INSURANCE CORPORATION

Washington, D.C. 20429

FORM 10-Q

Mark One

G QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025 or

□ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from to

PREFERRED BANK

(Exact name of registrant as specified in its charter)

California (State or other jurisdiction of incorporation or organization)	33539 (FDIC Certificate Number)	95-4340119 (I.R.S. Employer Identification No.)
601 S. Figueroa Street, 48thFloor, Los Angeles, California (Address of Principal Executive Offices)		90017 (Zip Code)

Registrant's telephone number, including area code: (213) 891-1188

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, no Par Value	PFBC	NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes G No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes G No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," "smaller reporting company," an "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated filer GAccelerated filer Non-accelerated filer Smaller reporting company Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No G

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  No 

Number of shares of common stock of the Registrant outstanding as of May 9, 2025, was 12,426,230 shares.

PREFERRED BANK

TABLE OF CONTENTS

Page Number

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition as of March 31, 2025 and December 31, 2024	1
	Consolidated Income Statement and Comprehensive Income for the three months ended March 31, 2025 and 2024	2
	Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2025 and 2024	3
	Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024	4
	Notes to Consolidated Interim Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52
Item 4.	Controls and Procedures	52
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 5.	Other Information	54
Item 6.	Exhibits	54
SIGNATURES		55

Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q (this "Report") may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such, may involve risks and uncertainties. We claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to, among other things, the Bank's financial condition, results of operations, plans, objectives, expectations of the environment in which we operate and projections of future performance or business. Such statements can generally be identified by the use of forward-looking language, such as "is expected to," "will likely result," "anticipated," "projected", "estimate," "forecast," "intends to," or may include other similar words, phrases, or future or conditional verbs such as "aims", "believes," "plans," "continue," "remain," "may," "might," "will," "would," "should," "could," "can," or similar language. Forward-looking statements by us are based on estimates, beliefs, projections and assumptions of management and are not guarantees of future performance. Our actual results, performance, or achievements may differ significantly from the results, performance, or achievements expected or implied in such forward-looking statements. When considering these statements, you should not place undue reliance on these statements, as they are subject to certain risks and uncertainties, as well as any cautionary statements made within this Quarterly Report, and should also note that these statements are made as of the date of this Quarterly Report and based only on information known to us at that time.

Factors causing risk and uncertainty, which could cause future results to be materially different from forward-looking statements contained in our 2024 Annual Report as well as from historical performance, include but are not limited to:

• Regulatory decisions regarding the Bank, and impact of future regulatory and governmental agency decisions including Basel III capital standards;

• Adequacy of allowance for credit loss estimates in comparison to actual future losses;

• Necessity of additional capital in the future, and possible unavailability of that capital on acceptable terms;

• Economic and market conditions that may adversely affect the Bank and our industry;

• Disruptions to the financial markets as a result of the current or anticipated impact of military conflict, including escalating military tension between Russia and Ukraine, terrorism or other geopolitical events;

• Possible loss of members of senior management or other key employees upon whom the Bank heavily relies;

• Changes in the interest rate environment, and levels of short- and long-term interest rates, may negatively affect the Bank's financial performance;

• Changes in governmental or bank-established interest rates or monetary policies, including the replacement of the LIBOR index on our loans which are tied to that index;

• Strong competition from other financial service entities;

• Possibility that the Bank's underwriting practices may prove to be ineffective;

• Changes in the commercial and residential real estate markets that could adversely affect the collateral value supporting our loans and increase charge-offs;

• Adverse economic conditions in Asia which could negatively impact the Bank's business;

• Catastrophic events, acts of war or terrorism, or natural disasters, such as earthquakes, drought, pandemic diseases (such as the COVID-19 pandemic), climate change or extreme weather events, any of which may affect services we use, may affect our customers, employees or third parties with which we conduct business, or could negatively impact the Bank's business;

• Geographic concentration of our operations;

• The economic impact of Federal budgetary policies;

• Failure to attract deposits, inhibiting growth;

• Interruption or break in the communication, information, operating, and financial control systems upon which the Bank relies;

• Changes in federal and state laws or the regulatory environment including regulatory reform initiatives and policies of the U.S. Department of Treasury, the Board of Governors of the Federal Reserve Board System, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau and the California Department of Financial Protection and Innovation;

• Changes in accounting standards as may be required by the Financial Accounting Standards Board or other regulatory agencies and their impact on critical accounting policies and assumptions;

• Potential changes in the U.S. government's monetary policies;

• Environmental liability with respect to properties to which the Bank takes title;

• Negative publicity;

• Information technology and cyber security incidents, disruptions or attacks and the possible blocking, theft or loss of Bank or customer access, functionality, data, funding or money

  As a result of the rapid rise in interest rates in 2022 and 2023, offset to an extent by a decrease in rates during 2024, resulting reductions in the value of investment securities portfolios throughout the industry, and recent bank failures, our forward-looking statements are subject to the following risks, uncertainties and assumptions specifically related to these circumstances:

• Attraction and retention of uninsured deposits in the short-term may be challenged;

• Deterioration in depositor confidence could result in deposit outflows and strains on our liquidity;

• Failures of additional banks could further erode depositor confidence and deposit withdrawals that could require us to borrow funds or sell securities, which could adversely affect our operating results;

• Replacement of withdrawn deposits with funds borrowed from the Federal Home Loan Bank, Federal Reserve Bank, or other sources likely will increase our marginal interest expense and could reduce our net interest income and reduce our net income and the rate of our quarterly cash dividend;

• Changes in regulations and examination standards in response to the recent bank failures could result in increased compliance costs and possible restrictions on operations and strategic initiatives; and

• FDIC premiums may increase if the Deposit Insurance Fund experiences additional costs in the resolution of the recent and any future bank failures, which could reduce our net income.

These factors are further described in this report and in our 2024 Annual Report on Form 10-K as filed with the Federal Deposit Insurance Corporation ("FDIC") on March 14, 2025 as amended by the Form 10-K/A filed with the FDIC on April 15, 2025, under the heading "Item 1A. RISK FACTORS - Risk Factors That May Affect Future Results." We do not undertake, and we specifically disclaim any obligation to update any forward looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.

ITEM 1. Financial Statements

PART I. FINANCIAL INFORMATION

PREFERRED BANK

Consolidated Statements of Financial Condition

(In thousands except share data)

Assets	March 31, 2025 (Unaudited)	December 31, 2024
Cash and due from banks	$ 905,183	$ 765,515
Federal funds sold	20,000	20,000
Cash and cash equivalents	925,183	785,515
Securities held-to-maturity, at amortized cost (fair value of $18,395 and as of March 31, 2025
and $18,273 as of December 31, 2024)	19,745	20,021
Securities available-for-sale, at fair value	390,096	348,706
Loans held for sale, at lower of cost or fair value	-	2,214
Loans	5,634,413	5,640,615
Less: allowance for credit losses on loans	(72,274)	(71,477)
Less: unamortized deferred loan fees, net	(9,652)	(9,234)
Net loans	5,552,487	5,559,904
Other real estate owned	13,650	14,991
Bank furniture and fixtures, net	8,276	8,462
Bank-owned life insurance ("BOLI")	10,502	10,433
Accrued interest receivable	31,775	33,561
Investment in affordable housing partnerships	63,612	58,346
Federal Home Loan Bank ("FHLB") stock, at cost	15,000	15,000
Net deferred tax assets	46,280	47,402
Income tax receivable	-	2,195
Operating lease right-of-use assets	20,281	13,182
Other assets	3,205	3,497
Total assets	$ 7,100,092	$ 6,923,429

Liabilities and Shareholders' Equity

Liabilities:

Deposits:

Demand	$ 730,270	$ 704,859
Interest-bearing demand	2,099,987	2,026,965
Savings	32,631	30,150
Time certificates of $250,000 or more	1,531,715	1,477,931
Other time certificates	1,678,132	1,676,943
Total deposits	6,072,735	5,916,848
Subordinated debt issuance, net of unamortized costs and premium of $1,471 and $1,531
at March 31, 2025 and December 31, 2024, respectively	148,529	148,469
Accrued interest payable	14,634	16,517
Commitments to fund investment in affordable housing partnerships	20,956	21,623
Operating lease liability	24,021	16,990
Other liabilities	40,613	39,830
Total liabilities	6,321,488	6,160,277

Commitments and Contingencies - Notes 6, 11 and 14 Shareholders' equity:

Preferred Stock, no par value. Authorized 25,000,000 shares; no issued or outstanding shares at

March 31, 2025 and December 31, 2024, resepectively	-	-
Common stock, no par value. Authorized 100,000,000 shares; outstanding 13,130,296
and 13,188,776 shares at March 31, 2025 and December 31, 2024, resepectively	210,882	210,882
Treasury stock, at cost; 3,269,480 and 3,113,129 shares at March 31, 2025 and
December 31,2024, resepectively	(214,406)	(201,172)
Additional paid-in capital	99,603	95,791
Retained earnings	705,360	685,108
Accumulated other comprehensive loss	(22,835)	(27,457)
Total shareholders' equity	778,604	763,152
Total liabilities and shareholders' equity	$ 7,100,092	$ 6,923,429

PREFERRED BANK

Consolidated Income Statement and Comprehensive Income

(In thousands, except share and per share data) (Unaudited)

Three months ended March 31,

Interest income:	2025		2024
Loans and leases	$ 101,491		$ 109,980
Investment securities	12,810		16,257
Federal funds sold	228		283
Total interest income	114,529		126,520
Interest expense:
Interest-bearing demand	16,590		22,290
Savings	69		75
Time certificates of $250,000 or more	15,640		16,501
Other time certificates	18,247		17,829
Subordinated debt	1,325		1,325
Total interest expense	51,871		58,020
Net interest income before provision for credit losses	62,658		68,500
Provision for credit losses	700		4,400
Net interest income after provision for credit losses	61,958		64,100
Noninterest income:
Fees and service charges on deposit accounts	716		845
Letter of credit fee income	2,244		1,503
BOLI income	103		105
Net gain on sale of Small Business Administration ("SBA") loans	275		103
Other income	660		509
Total noninterest income	3,998		3,065
Noninterest expense:
Salaries and employee benefits	14,839		13,900
Net occupancy expense	2,294		1,711
Business development and promotion expense	462		266
Professional services	1,651		1,457
Office supplies and equipment expense	386		473
Other real estate owned related expense, net	1,531		135
Other	2,206		2,086
Total noninterest expense	23,369		20,028
Income before income taxes	42,587		47,137
Income tax expense	12,563		13,671
Net income	$ 30,024		$ 33,466
Unrealized net gain (loss) on securities available-for-sale	5,744		(1,418)
Less: reclassification adjustments included in net income	-		-
Income tax (expense) benefit related to items of other comprehensive income	(1,122)		398
Other comprehensive income (loss)	4,622		(1,020)
Comprehensive income	$ 34,646		$ 32,446
Net income per share
Basic	$ 2.27	$ 2.48
Diluted	$ 2.23	$ 2.44
Weighted-average common shares outstanding
Basic	13,226,582	13,508,878
Diluted	13,453,176	13,736,986

PREFERRED BANK

Consolidated Statements of Changes in Shareholders' Equity

(In thousands, except for share and per-share amounts) (Unaudited)

Preferred Common Stock Treasury Stock Shares Stock Stock								Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' Equity
Balance as of January 1, 2025	$ -		13,188,776	$ 210,882		$ (201,172)		$ 95,791		$ 685,108		$ (27,457)		$ 763,152
Issuance of shares upon vesting of share-based awards	- 97,871			- -				-		-		-		-
Cash dividend declared ($0.75 per share)	- -			- -				-		(9,772)		-		(9,772)
Stock-based compensation	- -			- -				3,817		-		-		3,817
Stock surrendered due to employee tax liability	- (42,609)			- (3,681)				-		-		-		(3,681)
Stock repurchased	- (113,742)			- (9,553)				(5)		-		-		(9,558)
Net income	- -			- -				-		30,024		-		30,024
Other comprehensive income, net	- -			- -				-		-		4,622		4,622
Balance as of March 31, 2025	$	-	13,130,296	$	210,882	$	(214,406)	$	99,603	$	705,360	$	(22,835)	$	778,604

Balance as of January 1, 2024	$ -		13,583,285	$ 210,882		$ (163,175)		$ 86,827		$ 592,325		$ (31,754)		$ 695,105
Issuance of shares upon vesting of share-based awards	- 115,650			- -				-		-		-		-
Cash dividend declared ($0.70 per share)	- -			- -				-		(9,374)		-		(9,374)
Stock-based compensation	- -			- -				3,405		-		-		3,405
Stock surrendered due to employee tax liability	- (49,212)			- (3,595)				-		-		-		(3,595)
Stock purchased	- (256,986)			- (18,234)				(195)		-		-		(18,429)
Net income	- -			- -				-		33,466		-		33,466
Other comprehensive loss, net	- -			- -				-		-		(1,020)		(1,020)
Balance as of March 31, 2024	$	-	13,392,737	$	210,882	$	(185,004)	$	90,037	$	616,417	$	(32,774)	$	699,558

See accompanying notes to the unaudited consolidated interim financial statements.

3

PREFERRED BANK

Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

Three months ended March 31,

	2025		2024
Cash flows from operating activities:
Net income	$ 30,024		$ 33,466
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	700		4,400
Amortization of deferred loan fees, net	(865)		(1,135)
Amortization of investment securities discounts and premiums, net	73		144
Amortization of investment in affordable housing partnerships	3,515		2,422
Amortization of subordinated debt issuance costs	59		60
Loans originated for sale	(1,288)		(1,301)
Gain on sale of SBA loans	(275)		(103)
Proceeds from sale of loans held for sale ("LHFS")	3,777		1,159
Depreciation and amortization	517		573
Share-based compensation expense	3,817		3,405
Income from bank owned life insurance, net	(69)		(70)
Write-down of other real estate owned	1,341		-
Changes in other assets and liabilities:
Income tax receivable	2,281		2,391
Accrued interest receivable and other assets	(5,107)		(4,015)
Accrued interest payable and other liabilities	6,081		1,716
Net cash provided by operating activities	44,581		43,112

Cash flows from investing activities:

Proceeds from principal paydowns, maturities and redemptions of securities held-to-maturity

250 240

Proceeds from principal paydowns, maturities and redemptions of securities available- for-sale	2,895		4,883
Proceeds from sales and calls of securities available-for-sale	-		1,530
Purchase of securities available-for-sale	(38,587)		(27,517)
Purchase of investments in affordable housing partnerships	(9,448)		(1,177)
Proceeds from sale of loans from LHFS previously classified as portfolio loans	-		9,376
Proceeds from recoveries of written off loans	97		1
Net increase in loans	7,484		(64,661)
Purchase of bank premises and equipment	(331)		(841)
Net cash used in investing activities	(37,640)		(78,166)

Cash flows from financing activities:

Net increase in deposits	155,887		92,366
Increase in treasury shares	(13,239)		(22,024)
Payment of cash dividends	(9,921)		(9,540)
Net cash provided by financing activities	132,727		60,802
Net increase in cash and cash equivalents	139,668		25,748
Cash and cash equivalents at beginning of period	785,515		910,852
Cash and cash equivalents at end of period	$ 925,183		$ 936,600

See accompanying notes to the unaudited consolidated interim financial statements.

PREFERRED BANK

Consolidated Statements of Cash Flows - continued

(In thousands) (Unaudited)

Three months ended March 31,

	2025	2024
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest	$ 53,754	$ 58,426
Income taxes	1,686	1,085
Noncash activities:
Common stock dividends declared but not paid	$ 9,772	$ 9,374
Operating lease liabilities arising from right-of-use assets	8,086	1,421
Transfer of loans held for investment to loans held for sale	-	9,376
New commitments to fund affordable housing partnership Investment	8,781	-

See accompanying notes to the unaudited consolidated interim financial statements.

PREFERRED BANK

Notes to Consolidated Interim Financial Statements

(Unaudited)

Note 1 - Business

Preferred Bank (the "Bank") commenced operations in 1991 as a California state-chartered bank and offers a wide range of financial services. As of March 31, 2025, the Bank operates through thirteen full-service branch banking offices in Los Angeles, Orange, and San Francisco Counties in California, two full-service branches in New York (Queens County and Manhattan), one full-service branch in the Houston suburb of Sugar Land, Texas, a loan production office in Sunnyvale in California and a satellite office in New York City. As of March 31, 2025, approximately 89% of the total dollar amount of the Bank's gross loans were secured by real estate located in California and the Northeast Tri-State area (New York, New Jersey and Connecticut). The Bank is a member of the Federal Home Loan Bank system ("FHLB") and the Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC").

Note 2 - Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated interim financial statements include the accounts of Preferred Bank and its wholly-owned, inactive subsidiary, PB Investment and Consulting, Inc. (herein referred to as the "Bank", "we", "us" or "our"). All intercompany transactions and accounts have been eliminated in consolidation.

The unaudited consolidated interim financial statements of the Bank have been prepared in conformity with generally accepted accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, all adjustments, which consist of normally recurring adjustments necessary for a fair statement of the interim period results, have been made.

Through its branch network, the Bank provides a broad range of financial services to individuals and companies primarily located in SoutheCalifornia, the Bay Area of California and the Greater New York City area. These services include demand, time and savings deposits and real estate, business and consumer lending. While the Bank's chief decision makers monitor the revenue streams of various products and services, operations are managed and financial performance is evaluated on a bank-wide basis. Accordingly, the Bank considers all operations aggregated in one reportable operating segment.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. The results of operations for the three months

ended March 31, 2025 are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending December 31, 2025. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the registrant's Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the FDIC on March 14, 2025, as amended by the Form 10-K/A filed with the FDIC on April 15, 2025. Subsequent events have been evaluated through the date of the issuance of the unaudited Consolidated Financial Statements. No significant subsequent events have occurred through this date requiring adjustment to the financial statements or disclosures.

The accounting and reporting policies of the Bank are based upon GAAP and conform to predominant practices within the banking industry. The Bank has not made any changes in its significant accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024 filed with the FDIC, as amended by the Form 10-K/A filed with the FDIC on April 15, 2025.

Note 3 - Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. In December 2023, the FASB issued ASU 2023-09 to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The ASU also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The adoption of ASU 2023-09 on January 1, 2025 did not have a significant impact on our financial condition or results of operations.

ASU 2024-02, Codification Improvements-Amendments to Remove References to the Concepts Statements. In March 2024, the FASB issued ASU 2024-02 which removes references to the Board's concepts statements from the FASB Accounting Standards Codification (the "Codification" or ASC). The ASU is part of the Board's standing project to make "Codification updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance, and other minor improvements. These amendments are effective for public business entities for fiscal years beginning after December 15, 2024. Early application of the amendments in ASU 2024-03 is permitted for all entities, for any fiscal year or interim period for which financial statements have not yet been issued (or made available for issuance). The adoption of ASU 2024-02 on January 1, 2025 did not have a significant impact on our financial condition or results of operations.

Recently Issued Accounting Pronouncements

Following are the recently issued updates to the codification of U.S. Accounting Standards ("ASUs"), which are the most relevant to the Bank.

ASU 2024-03, Income Statement- Reporting Comprehensive Income-Expense Disaggregation Disclosures. In November 2024, the FASB issued ASU 2024-03 requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. In January 2025, the FASB issued ASU 2025-01 Income Statement-Reporting Comprehensive Income- Expense Disaggregation Disclosures- Clarifying the Effective Date which amends the effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of Update 2024-03 is permitted. The Bank is currently evaluating the impact of ASU 2024-03 on its disclosures.

Note 4 - Earnings Per Share

Earnings per share (EPS) are computed on a basic and diluted basis. Basic EPS is computed by dividing net income adjusted by presumed dividend payments and earnings on unvested restricted stock by the weighted average number of common shares outstanding. Losses are not allocated to participating securities. Unvested shares of restricted stock are excluded from basic shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shares in the earnings of the Bank.

The following tables set forth earnings per share calculations:

Weighted Per

Three months ended March 31, 2025 Net Income	$ 30,024		13,226,582
Basic EPS - income available to common shareholders	30,024		13,226,582		$ 2.27
Effect of dilutive securities	-		226,594
Diluted EPS - income available to common shareholders	$ 30,024		13,453,176		$ 2.23
Three months ended March 31, 2024 Net Income	$ 33,466		13,508,878
Basic EPS - income available to common shareholders	33,466		13,508,878		$ 2.48
Effect of dilutive securities	-		228,108
Diluted EPS - income available to common shareholders	$ 33,466		13,736,986		$ 2.44

Income Average Shares Share (Numerator) (Denominator) Amount

There were 209 and zero shares excluded from the computation of diluted earnings per share for the three months ended March 31, 2025 and 2024, because their impact on diluted earnings per share would have been anti-dilutive.

Note 5 - Share-based Compensation

The Bank remunerates employees and directors through, among other means, the 2014 Equity Incentive Plan (the "2014 Plan") and the 2024 Equity Incentive Plan (the "2024 Plan") (collectively, the "Equity Inventive Plans"), which are discussed below.

Equity Incentive Plans

The 2014 Plan provided for granting of nonstatutory stock options, incentive stock options, RSAs and RSUs to employees, officers, and directors of the Bank. Stock options granted under the 2014 Plan had an exercise price equal to the fair value of the underlying common stock on the date of grant. Stock options and share awards granted under the 2014 Plan are generally vested in installments between 20-25% each year, became fully vested after four to five years, and expired four to six years from the date of grant. All option and share awards provided for accelerated vesting if there is a change in control (as defined in the 2014 Plan). There were 2,500,000 shares authorized under this plan. The 2014 Plan has expired by its terms, which expiration has no effect on options and awards outstanding under the 2014 Plan. Under the 2014 Plan, there were no options outstanding as of March 31, 2025 and 2024 and no options were exercised during the three months ended March 31, 2025 and 2024. During the three months ended March 31, 2025 and 2024, no money was received from option exercises under the 2014 Plan

In October 2024, the Bank's shareholders approved the 2024 Plan. The 2024 Plan provides for grants of up to 670,000 shares of stock options, stock appreciation rights (SARs), stock awards and restricted stock units (collectively, "awards") to employees, consultants, non-employee directors of our company and its subsidiaries.

Restricted Stock Units

The Bank's Equity Incentive Plans provide for the granting of RSUs to employees, officers, and directors of the Bank.

The RSUs granted to our employees, officers and directors under the Equity Incentive Plans have an immediate-to-four year vesting period and the vested number of shares are distributed at the end of the vesting period. Unlike RSAs, RSUs do not entitle the recipients to receive cash dividends.

Performance-based RSUs are granted to our Chief Executive Officer at the target amount of awards, payable at the end of the three-year performance period. Based on achievement of pre-determined financial goals, the number of shares that vest can be adjusted to a maximum of 175% of the target.

The compensation costs of both time-based and performance-based awards are estimated based on awards ultimately expected to vest and recognized on a straight-line basis from the grant date until the vesting date of each grant. The total unrecognized compensation expense for outstanding RSUs as of March 31, 2025 were $12.1 million, and will be recognized over an average of 1.5 years, respectively. There were no outstanding RSAs as of March 31, 2025.

The total fair value of vested RSUs during the three months ended March 31, 2025 and 2024 was $8.5 million and $8.4 million, respectively.

During the three months ended March 31, 2025, the Bank granted 98,873 RSUs and recognized $1.8 million of compensation expense related to RSUs. During the three months ended March 31, 2024, the Bank granted 120,426 RSUs and recognized $1.6 million of compensation expense related to RSUs.

The following is a summary of the activities for the time-based RSUs and the performance-based RSUs that will be settled under the Equity Incentive Plans for the three months ended March 31, 2025. The number of outstanding performance-based RSUs stated below assumes the associated performance targets will be met at the target level:

Performance-basedTime-based

Weighted Average Weighted Average

	Number of Shares		Grant Date Fair Value		Number of Shares		Grant Date Fair Value
Non-Vested RSUs as of January 1, 2025	74,843		$ 73.11		273,754		$ 73.86
RSUs granted	15,163		84.81		83,710		86.38
Forfeited or expired	-		-		(860)		76.77
Vested	(26,250)		85.99		(71,621)		83.85
Non-Vested RSUs as of March 31, 2025	63,756		$ 70.58		284,983		$ 75.02

Note 6 - Off-Balance Sheet Commitments

The Bank enters into a variety of financial transactions with its customers in the normal course of business. Many of these products do not necessarily entail present or future funded asset or liability positions but are instead in the nature of executor contracts.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Financial instrument transactions are subject to the Bank's normal credit standards, financial controls and risk-limiting and monitoring procedures. Collateral requirements are based on a case-by-case evaluation of each customer and product. The most significant categories of collateral include real estate properties underlying mortgage loans, liens on equipment and inventory and personal property and cash on deposit with the Bank.

The Bank's exposure to credit risk under commitments to extend credit, standby letters of credit, and financial guarantees written is limited to the contractual amount of those instruments.

The following table sets forth the Bank's commitments to fund loans and other financial instruments as of March 31, 2025 and December 31, 2024:

March 31,

2025

December 31, 2024

(In thousands)

Commitments to extend credit	$ 1,265,660	$ 1,256,235
Commercial letters of credit	4,648	4,648
Standby letters of credit	478,441	471,560
Total	$ 1,748,749	$ 1,732,443

The majority of loan commitments have terms up to one year and variable rates of interest. Standby letters of credit have terms up to one year. Most standby letters of credit expire unused.

The Bank performs an analysis to estimate the credit losses for off-balance sheet commitments, including letters of credit, acceptances outstanding, and committed loan amounts, on a quarterly basis. The reserve is calculated by applying the historical loss factor for the quarter over the total outstanding letters of credit which is also applied to pass loans for allowance for credit losses on loans provision purposes. Under the current expected credit losses ("CECL") methodology, the look back period over the last 10 years period diluted the more recent loss experience so a rolling 4-year loss rate is applied until the historical loss rate equalizes.

The allowance for credit losses on off-balance sheet commitments was $1.2 million at March 31, 2025 and December 31, 2024 and is included in other liabilities on the statement of financial condition. Provision for credit losses on off-balance sheet commitments is included in provision for credit losses on the income statement. There was no provision for credit losses on off-balance sheet commitments for the three months ended March 31, 2025 and 2024.

Note 7 - Cash Dividend

On March 19, 2025, the Bank declared a cash dividend of $0.75 per share on 13,029,496 shares outstanding as of April 7, 2025, for distribution to holders of common stock on April 21, 2025. Total cash dividends of $9.9 million and $9.5 million were paid during the three months ended March 31, 2025 and 2024, respectively.

Note 8 - Investment Securities

The Bank classifies its debt investment securities in two categories: held-to-maturity or available-for-sale. Unrealized holding gains or losses, net of the related tax effect, on available-for-sale securities are excluded from income and are reported as a separate component of shareholders' equity as accumulated other comprehensive income net of applicable taxes until realized. Recognized gains and losses from the sale of available-for-sale securities are determined on a specific-identification basis. These securities are adjusted for the amortization or accretion of premiums or discounts. The Bank does not own any debt securities classified as trading or equity securities.

The carrying value of our securities classified as held-to-maturity was $19.7 million at March 31, 2025 and $20.0 million at December 31, 2024. The table below shows the amortized cost, gross unrecognized gains and losses and estimated fair value of securities held-to-maturity as of March 31, 2025 and December 31, 2024:

March 31, 2025 Gross Gross

Amortized unrecognized unrecognized Estimated

costgainslossesfair value (In thousands)

Mortgage-backed securities

$ 19,745 $

- $ (1,350) $

18,395

December 31, 2024 Gross Gross

Amortized unrecognized unrecognized Estimated

costgainslossesfair value (In thousands)

Mortgage-backed securities

$ 20,021 $

- $ (1,748) $

18,273

The following tables summarize unrecognized losses on our held-to-maturity investment securities, aggregated by the length of time the securities have been in a continuous unrecognized loss position, at March 31, 2025 and December 31, 2024:

Held to maturity:

March 31, 2025

Less than 12 months12 months or greaterTotal Estimated Unrealized Estimated Unrealized Estimated Unrealized

fair valuelossesfair valuelossesfair valuelosses (In thousands)

U.S. Agency mortgage-backed securities $ -$ -$ 18,395$ (1,350)$ 18,395$ (1,350)Total securities available-for-sale$ -$ -$ 18,395$ (1,350)$ 18,395$ (1,350)

Held to maturity:

December 31, 2024

Less than 12 months12 months or greaterTotal Estimated Unrealized Estimated Unrealized Estimated Unrealized

fair valuelossesfair valuelossesfair valuelosses (In thousands)

U.S. Agency mortgage-backed securities $ -$ -$ 18,273$ (1,748)$ 18,273$ (1,748)Total securities available-for-sale$ -$ -$ 18,273$ (1,748)$ 18,273$ (1,748)

The tables below show the amortized cost, gross unrealized gains and losses, and estimated fair value of securities classified as available-for-sale as of March 31, 2025 and December 31, 2024:

March 31, 2025 Gross Gross

Amortized unrealized unrealized Estimated

costgainslossesfair value (In thousands)

Asset-backed securities	$ 2,808	$ 11	$ (13)	$ 2,806
Corporate notes	126,061	578	(4,397)	122,242
U.S. Agency mortgage-backed securities	7,723	1	(204)	7,520
Collateralized mortgage obligations	142,955	-	(18,045)	124,910
Municipal securities	69,679	2	(10,111)	59,570
U.S. Agency principal-only strip securities	218	-	(14)	204
U.S. Treasury notes	73,069	2,074	(2,299)	72,844
Total securities available-for-sale	$ 422,513	$ 2,666	$ (35,083)	$ 390,096

December 31, 2024 Gross Gross

Amortized unrealized unrealized Estimated

costgainslossesfair value (In thousands)

Asset-backed securities	$ 2,822	$ 12	$ (7)	$ 2,827
Corporate notes	126,014	418	(6,068)	120,364
U.S. Agency mortgage-backed securities	8,024	-	(294)	7,730
Collateralized mortgage obligations	145,530	-	(20,246)	125,284
Municipal securities	69,797	3	(9,285)	60,515
U.S. Agency principal-only strip securities	235	-	(18)	217
U.S. Treasury notes	34,445	-	(2,676)	31,769
Total securities available-for-sale	$ 386,867	$ 433	$ (38,594)	$ 348,706

The following tables show the gross unrealized losses and estimated fair value of our available-for-sale investments aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2025 and December 31, 2024:

March 31, 2025

Less than 12 months12 months or greaterTotal Estimated Unrealized Estimated Unrealized Estimated Unrealized

fair valuelossesfair valuelossesfair valuelosses (In thousands)

Available for sale:
Asset-backed securities	$ - $ - $ 680			$ (13)	$ 680	$ (13)
Corporate notes	- - 78,370			(4,397)	78,370	(4,397)
U.S. Agency mortgage-backed securities	1,159	(13)	6,247	(191)	7,406	(204)
Collateralized mortgage obligations	1	-	124,908	(18,045)	124,909	(18,045)
Municipal securities	2,726	(58)	53,052	(10,053)	55,778	(10,111)
U.S. Agency principal-only strip securities	-	-	204	(14)	204	(14)
U.S. Treasury notes	-	-	12,656	(2,299)	12,656	(2,299)
Total securities available-for-sale	$ 3,886	$ (71)	$ 276,117	$ (35,012)	$ 280,003	$ (35,083)

December 31, 2024

Less than 12 months12 months or greaterTotal Estimated Unrealized Estimated Unrealized Estimated Unrealized

fair valuelossesfair valuelossesfair valuelosses (In thousands)

Available for sale:
Asset-backed securities	$ -	$ -	$ 702	$ (7)	$ 702	$ (7)
Corporate notes	13,170	(145)	76,853	(5,923)	90,023	(6,068)
U.S. Agency mortgage-backed securities	1,298	(15)	6,392	(279)	7,690	(294)
Collateralized mortgage obligations	1	-	125,282	(20,246)	125,283	(20,246)
Municipal securities	3,286	(49)	53,984	(9,236)	57,270	(9,285)
U.S. Agency principal-only strip securities	-	-	217	(18)	217	(18)
U.S. Treasury notes	19,491	-	12,278	(2,676)	31,769	(2,676)
Total securities available-for-sale	$ 37,246	$ (209)	$ 275,708	$ (38,385)	$ 312,954	$ (38,594)

In accordance with Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Bank performs a thorough annual review of each of the investment securities in its portfolio (other than US Government and Agency securities) to determine, among other things, the current financial status of the issuer as well as the issuer's ability to repay the debt. This analysis is performed in addition to the quarterly review that is performed on all investment securities which are in an unrealized loss position.

We do not intend to sell these securities until recovery and have determined that it is not more likely than not that we will be required to sell the securities prior to recovery of their amortized cost basis.

At March 31, 2025, there were a total of 17 investment securities that were in an unrealized loss position for less than 12 months and 114 investment securities that were in an unrealized loss position for 12 months or longer. Temporary impairments primarily related to corporate notes (which are all considered investment grade by Moody's, Standard & Poor's, Kroll Bond Rating Agency or Fitch rating agencies), mortgage-backed securities (which are generally guaranteed by the U.S. government and are highly rated by rating agencies and have a long history of no credit losses), and municipal securities are primarily attributable to declining market prices caused by dramatically higher interest rates, which began rising in March 2022, and subsequent to the date that these securities were purchased. None of the securities in the Bank's investment portfolio rely on an insurance wrap as a credit enhancement. Management believes that it is more likely than not that the Bank will receive all amounts due under the contractual terms of these securities. If economic conditions deteriorate, or if the financial condition of specific issuers within these portfolios deteriorates, then the Bank could record an allowance for credit losses for available for-sale ("AFS") debt securities under the ASC 326-30. ASC 326-20 requires the Bank to estimate lifetime credit loss allowance for the HTM debt securities. However, the Bank holds held-to-maturities ("HTM") debt securities that are guaranteed by the U.S. government which are highly rated by rating agencies and have a long history of no credit losses so no expected credit losses will be recorded. There were no debt securities considered past due at March 31, 2025 and December 31, 2024. There were no purchases of debt securities with credit deterioration during the three months ended March 31, 2025 and 2024.

There were no cash proceeds from sales, calls or maturities of securities available-for-sale for the three months ended March 31, 2025 and 2024. There were no net realized losses for sales and calls of securities for the three months ended March 31, 2025 and 2024.

The amortized cost and estimated fair value of securities at March 31, 2025, by contractual maturity, are shown below.

Mortgage-backed securities are classified in accordance with their estimated average life. Expected maturities differ from contractual maturities mainly due to prepayment rates; changes in prepayment rates will affect a security's average life.

Available-for-SaleHeld-to-maturity Amortized Estimated Amortized Estimated

Costfair valueCostfair value

(In thousands) (In thousands)

Due in one year or less	$ 66	$ 65	$ -	$ -
Due after one year through five years	35,020	34,790	10,690	10,476
Due after five years through ten years	185,336	180,867	-	-
Due after ten years	202,091	174,374	9,055	7,919
Total	$ 422,513	$ 390,096	$ 19,745	$ 18,395

Note 9 - Loans and Allowance for Credit Losses on Loans

The Bank's loan portfolio includes originated loans as well as purchased loans. The loans portfolio as of March 31, 2025 and December 31, 2024 are summarized as follows:

March 31, December 31,

20252024

(In thousands)

Real estate mortgage	$ 3,677,418	$ 3,630,840
Real estate construction	575,348	583,765
Commercial & industrial	1,373,748	1,418,445
SBA	7,104	6,833
Trade finance	631	485
Consumer & other	164	247
Gross loans	5,634,413	5,640,615
Less: Allowance for credit losses on loans	(72,274)	(71,477)
Deferred loan and fees, net	(9,652)	(9,234)
Total loans, net	$ 5,552,487	$ 5,559,904

We evaluate our allowance for credit losses quarterly. The allowance for credit losses ("ACL") is based upon management's assessment of various factors affecting the collectability of the loans using the relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.

Credit losses are estimated using the Current Expected Credit Losses ("CECL") methodology. This methodology is dependent largely on the availability of historical loan data based on loan level risk approach using Probability of Default / Loss Given Default ("PD/LGD"). PD is the probability that a borrower will default on its obligation. LGD is the amount of money a bank loses when a loan defaults net of any recovery expressed as a percentage of the outstanding loan amount at the time of default. We selected a software solution to help apply transition matrices to develop the PD/LGD approach. This method assesses historical loss data to estimate expected credit losses over the historical, current, and forecast periods that represents the life of loans under CECL. The considerations to establish a look back period are influenced by data availability, historical economic cycles, changes to lending practices, improvement in credit risk management practices and oversight control over the years.

Based on our assessment, we have decided to use a look back period beginning from January 2010. For the forecasted periods, management has considered a more near-term outlook of twelve months to be reasonable and supportable based on management's understanding of the current loan portfolio and management's best judgement to forecast credit

losses. Management has also considered a reversion period equal to half of the forecast period or equivalent to six months of the reasonable and supportable forecast. Accrued interest is not considered in computed expected credit losses.

The loan portfolio is segmented into pools with similar characteristics, primarily based on loan product type (collateral driven). The Bank examined the loan portfolio and the current loan segmentations reasonably reflect the homogenous risk characteristics related to each loan pool. The loan portfolio is segmented into seven main categories: commercial, international trade finance, construction, real estate, residential mortgage, cash secured and SBA. Within these categories, we further segment into 17 collective pools with similar risk characteristics. Management has examined the current loan pools and concluded the segmentations reasonably reflect homogenous risk characteristics related to each loan pool. The Bank remains focused on commercial loan products which have comprised the largest loan segmentation. The loan products have not changed over the years before or after the last economic cycle. The existing loan pools are considered appropriate for use to estimate ACL. The Bank has started to originate SBA loans that are partially guaranteed by the SBA.

Loans are individually evaluated for credit losses when they no longer exhibit similar risk characteristics with other loans in the portfolio. We individually review and analyze non-accrual loans, classified loans, and certain other loans as determined necessary. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower, based on management's assessment, is experiencing financial difficulty as of the reporting date. Collateral dependent loans are typically analyzed by comparing the loan amount to the fair value of collateral less cost to sell, with a prompt charge-off taken for the 'shortfall' amount once the value is confirmed. Other methods can be used; i.e. loan sale market price or present value of expected future cash flows discounted at the loan's effective interest rate.

The Bank also makes adjustments, if warranted, in both quantitative and qualitative modeling to estimate the allowance. Such adjustments are intended to account for conditions that management believes directly impact loss potential in the portfolio that is not currently being captured in the model. To the extent possible, management accounts for the impact of quantitative factors on a pool by pool basis, and qualitative factors on a portfolio basis. Qualitative factors consist of nine factors including recent trends and economic conditions. We apply environmental and general economic factors to our allowance methodology including: credit concentrations; delinquency trends; national and local economic and business conditions; the quality of lending management and staff; lending policies and procedures; loss and recovery trends; nature and volume of the portfolio; changes in the value of underlying collateral for collateral dependent loans; the quality of loan reviews; and other external factors including competition, legal, and regulatory factors. The Bank aggregates the sums of the estimates of probable loss for each category with the specific individually evaluated reserves to arrive at the total estimated allowance for credit losses.

The Bank had $78.9 million of non-accrual loans at March 31, 2025 compared to $36.8 million at December 31, 2024. These loans had interest due, but not recognized, of approximately $1.7 million and $693,000 at March 31, 2025 and December 31, 2024, respectively. The Bank had no loans that were past due 90 or more days and still accruing interest as of March 31, 2025 and $1.1 million that were past due 90 or more days and still accruing interest as of December 31, 2024.

The following tables show the Bank's past due and non-accrual loans by class as of March 31, 2025 and December 31,

2024:

Accruing Loans

March 31, 2025: 30-59 Days Past Due

60-89 Days Past Due

90+ Days Past Due

Total Past Due

Current Total Non-accrual Loans

Total Loans

Loan Class Real estate mortgage					(In thousands)
Residential	$ 1,270	$ - $ - $ 1,270			$ 774,067	$ 775,337	$ 32,625	$ 807,962
Commercial	46,817	- - 46,817			2,780,902	2,827,719	41,737	2,869,456
Total real estate mortgage Real estate construction	48,087	- - 48,087			3,554,969	3,603,056	74,362	3,677,418
Residential	-	-	-	-	306,283	306,283	-	306,283
Commercial	-	-	-	-	269,065	269,065	-	269,065
Total real estate construction	-	-	-	-	575,348	575,348	-	575,348
Commercial and Industrial	1,590	- - 1,590			1,367,638	1,369,228	4,520	1,373,748
SBA	-	- - -			7,104	7,104	-	7,104
Trade Finance	-	- - -			631	631	-	631
Consumer & other	-	- - -			164	164	-	164
Total as of March 31, 2025:	$ 49,677	$ - $ - $ 49,677			$ 5,505,854	$ 5,555,531	$ 78,882	$ 5,634,413

December 31, 2024:

Accruing Loans

30-59 Days	60-89 Days	90+ Days	Total Current
Past Due	Past Due	Past Due	Past Due

Total Non-accrual Loans

Total Loans

Loan Class Real estate mortgage Residential	$ 8,028	$ -	$ 1,100	$ 9,128	(In thousands) $ 779,972	$ 789,100	$ 969	$ 790,069
Commercial	2,927	67,947	-	70,874	2,740,425	2,811,299	29,472	2,840,771
Total real estate mortgage	10,955	67,947	1,100	80,002	3,520,397	3,600,399	30,441	3,630,840
Real estate construction
Residential	-	-	-	-	296,580	296,580	-	296,580
Commercial	-	-	-	-	287,185	287,185	-	287,185
Total real estate construction	-	-	-	-	583,765	583,765	-	583,765
Commercial and Industrial	3,646	-	-	3,646	1,408,489	1,412,135	6,310	1,418,445
SBA	-	-	-	-	6,833	6,833	-	6,833
Trade Finance	-	-	-	-	485	485	-	485
Consumer & other	-	-	-	-	247	247	-	247
Total as of December 31, 2024:	$ 14,601	$ 67,947	$ 1,100	$ 83,648	$ 5,520,216	$ 5,603,864	$ 36,751	$ 5,640,615

The following tables presents the Bank's non-accrual loans with and without an allowance for credit losses and related interest income recognized by class as of March 31, 2025 and December 31, 2024:

					Interest Income
		Nonaccrual Loans			Recognized
	without	with		Loans 90+ Days Past Due and	Three months
	ACL	ACL	Total	Accruing Interest	ended 3/31/25
			(in thousands)
March 31, 2025
Real estate mortgage:
Residential	$ 32,625	$ -	$ 32,625	$ -	$ -
Commercial	38,016	3,721	41,737	-	-
Total R/E mortgage	70,641	3,721	74,362	-	-
Commercial & industrial	-	4,520	4,520	-	-
Total	$ 70,641	$ 8,241	$ 78,882	$ -	$ -

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Preferred Bank published this content on May 12, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 12, 2025 at 22:22 UTC.