Financial Data and Key Metrics Changes - Fourth quarter net income totaled $10.2 million, or $0.59 per share, stable from the third quarter but more than double the earnings from the same quarter a year ago [3] - Return on Assets (ROA) and Net Interest Margin (NIM) were stable from the third quarter while increasing sharply from a year ago [3] - For the year, net interest income increased by 13% to $112 million due to loan growth and a 38 basis point decline in funding costs [8] Business Line Data and Key Metrics Changes - Loans grew at a solid 8.6% for the year, with fourth quarter originations at $145 million, 32% higher than in 2024 [4] - Non-performing loans decreased by 45% and non-performing assets decreased by 34% since the end of the previous year [6] - Fourth quarter pre-tax, pre-provision income was $2.3 million, 21% higher than a year ago [7] Market Data and Key Metrics Changes - Total deposits increased by 8.6% compared to the fourth quarter a year ago, with strong growth in interest-bearing non-maturity deposits [5] - Average demand deposits remained stable in 2025, comprising 16% of total deposits [5] - The average interest-bearing deposit rate declined by 55 basis points from the fourth quarter of 2024 [6] Company Strategy and Development Direction - The company aims to return to historic performance levels, focusing on resolving remaining non-performing assets [3] - There is an emphasis on maintaining pricing and structuring discipline in loan originations [4] - The company plans to be more active in buyback programs after addressing sub-debt [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that credit performance will continue to improve in future quarters [3] - The competitive landscape for deposits remains intense, impacting deposit costs [6] - Management expects to see incremental improvement in deposit costs in the first quarter of 2026 [9] Other Important Information - Tangible book value per share increased by 7.8% during 2025, ending the year at $26.42 [14] - The effective tax rate in 2026 is expected to be between 27% and 28% [10] Q&A Session Summary Question: What is the outlook for deposit beta going forward? - Management indicated that the deposit beta is expected to continue increasing due to a large portion of the funding base maturing over the next year [16] Question: Any updates on sub-debt refreshes in April? - Management is looking at opportunities to rightsize the sub-debt for the balance sheet and capital stack [17] Question: How should we think about the buyback this year? - Management expects to be more active in buyback programs after addressing sub-debt [18] Question: Can you discuss the margin outlook for 2026? - Management believes there is an opportunity for deposit costs to continue to come down, which could lead to margin expansion [26] Question: What is the competition like for commercial real estate loans? - Management noted that competition remains intense, but they are focused on maintaining strong relationships with clients [52]

Financial Data and Key Metrics Changes - For Q4 2025, the company reported net earnings of $55 million or $0.40 per share, an increase from $52.6 million or $0.38 per share in Q3 2025 and $50.9 million or $0.36 per share in Q4 2024 [3][4] - The return on average tangible common equity was 14.4% and return on average assets was 1.40% for Q4 2025 [3] - Pre-tax income increased by $5.4 million quarter-over-quarter and $6.3 million year-over-year [4] Business Line Data and Key Metrics Changes - Net interest income grew by $7 million, or 6%, from Q3 2025 and by $12.2 million, or 11%, from Q4 2024 [4] - Non-interest income was $11.2 million in Q4 2025, which was $1.8 million lower than Q3 2025 and $1.9 million lower than Q4 2024 [5] - Total loans increased to $8.7 billion, a $228 million, or 2.7%, increase from Q3 2025 and a $163 million, or 2%, increase from the end of 2024 [6][7] Market Data and Key Metrics Changes - Average total deposits were $12.6 billion in Q4 2025, compared to $12.5 billion in Q3 2025 [9] - Non-interest-bearing deposits declined by $122 million compared to Q3 2025, while interest-bearing non-maturity deposits grew by $234 million [9][10] - The cost of deposits decreased to 86 basis points in Q4 2025 from 90 basis points in Q3 2025 [10] Company Strategy and Development Direction - The company is focused on maintaining profitability and has a strong commitment to its mission of serving small to medium-sized businesses [96] - The pending merger with Heritage Bank of Commerce is expected to close in Q2 2026, with integration plans already underway [27][66] - The company aims to leverage the merger to enhance its product offerings and expand into new markets [87] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for 2026, citing strong loan pipelines and positive customer sentiment [26] - The economic forecast indicates modest growth, with real GDP expected to remain below 1.5% through 2027 [14] - The company is prepared for competitive pressures in the loan market but remains committed to maintaining credit quality [40] Other Important Information - The company incurred $1.6 million in one-time merger-related expenses during Q4 2025 [17] - The allowance for credit losses was $77 million, or 0.89% of gross loans, reflecting a decrease from the previous quarter [12] - The company repurchased 1.96 million shares at an average price of $18.80 during Q4 2025 [16] Q&A Session Summary Question: Non-interest-bearing deposits and customer behavior - Management indicated that the decline in non-interest-bearing deposits was due to normal seasonality and not a significant behavioral change among customers [22][23] Question: Non-dairy and livestock loan growth sustainability - Management noted that loan pipelines remain strong and expressed optimism about stable loan growth moving forward [24][26] Question: Update on the Heritage Bank deal - Management confirmed that the merger is progressing well and is on track for a Q2 2026 close [27] Question: Competitive landscape for deposits - Management stated that they are winning deposit business primarily from operating companies and are not focused on attracting customers with the highest rates [33][35] Question: Loan modifications and outlook for loan growth - Management explained that loan modifications can occur for various reasons, but the overall impact on the loan portfolio remains minimal [85]