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Net interest margin expansion was primarily driven by lower funding costs following the strategic redemption of $93 million in high-interest subordinated debt.

Strong first-quarter loan growth of 2.7% resulted from robust new production of $431 million coupled with the lowest level of loan payoffs in four quarters.

The bank is intentionally shifting its loan mix toward floating-rate assets, with 62% of the portfolio now floating to better manage interest rate sensitivity and margin stability.

Management attributed the significant reduction in nonperforming assets to the successful $27.5 million payoff of a restructured multifamily loan by a life insurance company.

Strategic expansion continues through new full-service branches in Tyler and The Woodlands, alongside a key leadership hire to scale the wealth management platform in Dallas–Fort Worth.

Performance in the Texas markets remains a tailwind, with management noting that local economic growth is expected to outpace the broader U.S. economy.

Management maintains a mid-single-digit loan growth target for 2026, anticipating that currently low payoff levels will return to elevated historical norms later in the year.

The 2026 budget assumes two 25-basis-point interest rate cuts in June and September, though management notes an asset-sensitive position would benefit NIM if rates remain steady.

Funding strategy for the remainder of the year involves utilizing wholesale sources for approximately half of projected loan growth while targeting seasonal deposit inflows in the second quarter.

Noninterest expense is projected to stabilize at approximately $40.5 million per quarter following front-loaded retirement and debt redemption costs in the first quarter.

Management expects successful resolution of five recently downgraded substandard loans within six to twelve months through open market sales or refinancing.

Recorded a $791,000 one-time loss related to the early redemption of subordinated notes, which is expected to be offset by long-term interest savings.

A non-recurring retirement expense of $420,000 related to a new split-dollar agreement impacted first-quarter salary and benefit costs.

Four multifamily loans and one office loan were migrated to substandard status due to slower lease-up and oversupply in major Texas metro markets.

The securities portfolio duration was slightly reduced to 7.4 years, with management utilizing pre-purchases of mortgage-backed securities to hedge against potential prepay speed increases.

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Management expects new loan production to remain steady, but they are cautious about raising growth targets because several large real estate projects are nearing the end of their construction cycles.

Payoffs are expected to increase as construction projects reach stabilization and transition to permanent financing or open market sales.

The downgrades in the multifamily portfolio are attributed to temporary oversupply and rental concessions across Texas, rather than structural credit issues.

Management emphasized low loan-to-value ratios (sub-60%) and strong borrower equity as key mitigants, with one project already having a written term sheet for refinancing.

M&A remains the primary strategic priority for capital deployment, followed closely by opportunistic stock buybacks.

Management noted increased disruption in the Texas market from larger bank mergers is creating opportunities to recruit experienced talent and acquire displaced C&I customers.

Management expects the efficiency ratio to improve in the second quarter as one-time first-quarter expenses do not recur.

The goal remains to deliver positive operating leverage for the full year 2026 by keeping annual expense growth at or below 7%.

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