Arif Inayatullah

Arif Inayatullah sought clarification on the diluted EPS of $2.79, specifically the after-tax impact of the OREO gain. He also asked if the bank provided financing for the OREO properties sold in Q4 and inquired about the payment status of the $121 million classified loans, the context of their 1.14x debt coverage ratio, and the bank's comfort regarding the adequacy of its allowance for credit loss.

Answer

CFO Edward J. Czajka confirmed the after-tax OREO gain impact on EPS was approximately $0.20. Chairman and CEO Li Yu stated that financing was provided for one of the OREO sales, while the other was a cash sale. He clarified that payments on the classified loans have been slowed down and are generally behind, attributing this to guarantors' litigation with other banks. He also explained that the allowance for credit loss is deemed adequate, with no specific reserve on the classified loans due to a 65% LTV, but an increased Q factor for the entire real estate segment.

Arif Inayatullah asked for clarification on the diluted EPS of $2.79, confirming if the after-tax OREO gain of approximately $0.20 meant an adjusted EPS of $2.59. He also inquired whether Preferred Bank provided financing for the OREO properties sold in Q4 2025 and sought details on the payment status of the $121 million classified loan relationship, given its reported 1.14x debt coverage ratio. Finally, he questioned management's comfort with the adequacy of reserves following the increase in criticized loans.

Answer

Edward J. Czajka, CFO, confirmed the adjusted EPS calculation was approximately correct, with Li Yu, CEO, adding the $1.8 million gain. Mr. Yu stated that financing was provided for one of the OREO sales, while the other was a cash transaction, meaning a smaller loan remains on one property. Regarding the classified loans, Mr. Yu clarified that payments have been slowed down and are generally behind interest services due to the guarantors' litigation with other banks. Nick Pi, CRO, explained that the $4.3 million provision was a combination of factors including loan growth and specific reserves, with the unsecured credit portion of this relationship fully reserved. He added that the Q factor was adjusted, increasing by five basis points for the entire real estate segment, and that Q factors now account for 42.5% of the total reserve, providing comfort in the adequacy of reserves.