Commercial banking company Preferred Bank (NASDAQ: PFBC) fell short of the market’s revenue expectations in Q2 CY2025, with sales flat year on year at $69.05 million. Its non-GAAP profit of $2.52 per share was 3.7% above analysts’ consensus estimates.

Is now the time to buy PFBC? Find out in our full research report (it’s free).

StockStory’s Take

Preferred Bank’s second quarter results drew a positive market response, as management pointed to modest loan growth and improved asset quality as key drivers. CEO Li Yu highlighted a 7% annualized loan growth rate, stable deposit levels, and a slight increase in net interest margin. The executive team attributed improved asset quality to a reduction in nonaccrual and criticized loans, noting that loan loss reserves remain sufficient. Management was cautious about deposit gathering, emphasizing a focus on controlling funding costs, while a sizable share buyback also played a role in the quarter’s financial dynamics.

Looking ahead, management expects loan demand to remain uncertain due to ongoing macroeconomic headwinds, including tariffs and industry-specific pressures. CEO Li Yu underscored that while early signs in July suggested increased loan activity, the durability of this trend remains unclear and will depend on the broader economic environment. The bank plans to monitor the impact of shifting supply chains and tariff developments on its clients, with Yu stating, “We are keeping our eyes very close on that.” Expansion initiatives, such as a new Silicon Valley branch, are expected to support future growth if conditions stabilize.

Key Insights from Management’s Remarks

Management attributed this quarter’s performance to disciplined margin management, selective loan growth, and improvements in asset quality, while navigating persistent economic uncertainty.

• Loan growth driven by C&I clients: Management noted that commercial and industrial (C&I) loan growth was stronger this quarter, partly due to clients increasing use of credit lines and new borrower activity. However, the team cautioned that macroeconomic uncertainty, especially related to tariffs, may keep clients cautious in the near term.
• Deposits managed for cost control: Deposit balances remained flat as the bank prioritized controlling funding costs over aggressive deposit gathering. CFO Edward Czajka explained that competitive pressures in the market continue, but the bank is maintaining discipline to avoid overpaying for deposits.
• Large share buyback executed: The bank repurchased $56 million of stock, a notable increase compared to prior quarters. Management indicated this impacted net interest income and margin, but emphasized that capital return remains a priority. A new $125 million repurchase authorization has been approved, though management is cautious on executing further buybacks at current price levels.
• Improved asset quality metrics: Asset quality improved, with nonaccrual, criticized, and past due loans all decreasing. CEO Li Yu stated that the loan loss reserve is sufficient and no new loss content has been identified, although the team is monitoring for aftereffects of economic pressures.
• Economic and regulatory uncertainty persists: Management emphasized that ongoing uncertainty around tariffs, inflation, and broader economic conditions continues to affect both client behavior and the bank’s outlook. The bank is tracking clients affected by supply chain shifts and tariff changes on a monthly basis to assess potential impacts.

Drivers of Future Performance

Future performance will hinge on the ability to sustain loan growth, manage deposit costs, and adapt to macroeconomic risks.

• Loan demand volatility: Management expects loan growth trends to remain uneven, with potential for higher demand if economic clarity improves. However, CEO Li Yu cautioned that ongoing uncertainty from tariffs and supply chain disruptions could limit business borrowing activity.
• Deposit cost management: The bank aims to balance deposit growth with cost control. CFO Edward Czajka indicated that deposit pricing will remain disciplined, and the bank may become more aggressive only if funding needs increase due to loan growth.
• Branch expansion opportunities: The opening of a new Silicon Valley branch and continued progress at the Manhattan location are expected to support growth, but the success of these initiatives will depend on local market conditions and broader economic developments.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will be watching (1) the pace and sustainability of loan growth in light of ongoing economic uncertainty, (2) the bank’s success in maintaining deposit cost discipline while supporting balance sheet expansion, and (3) the performance and customer acquisition at new and recently opened branches such as Manhattan and Silicon Valley. The evolution of tariff policy and supply chain disruptions will remain important variables.

Preferred Bank currently trades at $97.93, up from $92.49 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

High Quality Stocks for All Market Conditions

Donald Trump’s April 2024 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.