Preferred Bank (NASDAQ: PFBC) reported fourth-quarter and full-year 2025 financial results that reflected continued loan and deposit growth, a slight rise in annual profitability and pressure on net interest margins as market interest rates eased, according to the company’s earnings release on Thursday.
For the quarter ended Dec. 31, 2025, the Los Angeles-based commercial lender posted net income of $34.8 million, equal to $2.79 per diluted share. The quarterly net profit was down $1.1 million from the third quarter of 2025 but up $4.6 million from the year-ago period, which was affected by a non-recurring occupancy charge related to adoption of lease accounting standards in Q4 2024.
On a full-year basis, Preferred Bank reported net income of $133.6 million, or $10.41 per diluted share, compared with $130.7 million, or $9.64 per diluted share, in 2024. The increase in annual earnings was partly driven by lower provisions for credit losses and share repurchases that reduced the outstanding share count, which boosted earnings per share.
Revenue and Interest Margin Trends
Net interest income before provision for credit losses for the fourth quarter totaled $70.0 million, down from $71.3 million in the third quarter of 2025, as interest income on loans contracted amid a softer rate environment following Federal Reserve rate cuts in September and December. The bank’s net interest margin narrowed to 3.74 % from 3.92 % in Q3 2025 and declined from 4.06 % in the year-ago quarter, reflecting the lag between market rate cuts and deposit pricing adjustments.
Non-interest income for the quarter was $8.1 million, up from $3.6 million a year earlier, largely due to a $3.6 million gain from the sale of other real estate owned (OREO) properties and increased fee income, including letters of credit.
Expenses and Credit Costs
Total non-interest expenses for Q4 rose to $24.4 million from $21.5 million in Q3 2025, partly due to write-downs and other costs related to OREO properties that were subsequently sold, offsetting a decrease in personnel expenses. Compared with the fourth quarter of 2024, expenses were lower, as last year’s period included significant occupancy charges.
The provision for credit losses increased to $4.3 million from $2.5 million in the third quarter, as higher criticized assets led to elevated reserves. Despite the uptick, net charge-offs were negligible for the quarter, and the allowance for credit losses coverage ratio increased modestly.
Balance Sheet and Asset Quality
Preferred Bank continued to expand its balance sheet. Total gross loans climbed to $6.05 billion at year-end 2025, up about $413.6 million from Dec. 31, 2024, while deposits increased to $6.35 billion, a $428.6 million rise over the same period. Total assets grew to $7.60 billion as of Dec. 31, up from $6.92 billion a year earlier.
While loan growth remained robust, asset quality presented mixed signals. Non-accrual loans and loans past due totaled $51.3 million, up from $17.6 million at the end of the prior quarter, largely driven by the placement of a large, well-secured multifamily loan into non-accrual status late in the quarter. The bank also reported an increase in criticized assets, which management attributed to downgrades of some commercial real estate and unsecured credits, though the weighted average loan-to-value and debt-coverage ratios suggest limited expected losses.
Profitability and Efficiency
Preferred Bank’s return on average assets (ROA) for the quarter was 1.82 %, with a return on average equity (ROE) of 17.59 %. Efficiency ratios were elevated compared with the third quarter, reflecting the combination of lower net interest income and higher operating expenses.
Outlook and Commentary
Chairman and CEO, Li Yu, highlighted the bank’s profitability relative to peers and expressed optimism about loan demand and economic conditions in 2026, contingent on stable government policy and continued customer momentum. Management also pointed to growth opportunities as the bank pursues expansion of its commercial and real estate lending franchise.
Reasons to Pass on PFBC
- Declining net interest margins: Further confirmed at 3.74% in Q4 2025, down 18 bps QoQ and 32 bps YoY due to Fed rate cuts and slower deposit repricing.
- Quarterly net income drops: Fell to $34.8M ($2.79/share) from prior quarter’s higher level, despite beating analyst EPS estimates slightly.
- Rising asset quality risks: Non-accrual/past-due loans jumped to $51.3M (up $33.7M QoQ); criticized assets hit $248.5M from commercial real estate downgrades.
- Elevated credit provisions: Rose to $4.3M QoQ due to a large classified relationship, though allowance coverage holds at 1.30%.
- Increasing expenses: Non-interest expenses up to $24.4M QoQ from OREO costs, worsening efficiency ratio to 31.2% (missed estimates).
- Capital erosion: Tangible capital ratio slipped to 10.38% YoY, signaling potential strain amid growth.