ConnectOne Bancorp (NasdaqGS:CNOB) Q3 2025 Earnings Call October 30, 2025 10:00 AM ET Speaker1Thank you and welcome to the ConnectOne Bancorp, Inc. third quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Siya Vansia, our Chief Brand and Innovation Officer. Ma'am, please go ahead. Good morning and welcome t ...

Financial Data and Key Metrics Changes - The company reported earnings per share of $1.19 for Q3 2025, down from $1.36 in the previous quarter and $1.32 in Q3 2024 [5][24] - Return on average assets was 1.11% and pre-provision return on average assets was 1.61% [6] - Net interest income increased by $5.5 million compared to the previous quarter, reaching $158 million, while net interest margin improved by two basis points to 4.23% [6][27] - Non-performing assets increased by $22 million, resulting in a ratio of 83 basis points compared to 71 basis points in the linked quarter [10][21] Business Line Data and Key Metrics Changes - Loan growth was annualized at 6%, amounting to $174 million, net of $22 million in guaranteed loans sold during the quarter [8][16] - Deposit growth was exceptional, with an increase of $240 million in the quarter, leading to a total deposit growth of $822 million year-over-year [9][19] - Specialty deposits grew by $189 million in the quarter and $681 million year-over-year, reflecting a 22% increase [20] Market Data and Key Metrics Changes - Growth was observed in the Southwest markets, particularly in Dallas and Las Vegas, contributing to high-quality loan growth [8][14] - The company experienced solid customer deposit growth across all regions year-over-year, with non-interest-bearing accounts representing over 32% of total deposits [19] Company Strategy and Development Direction - The company is focused on integrating new associates from recent branch acquisitions and enhancing its presence in strong markets [12] - The strategy emphasizes organic growth and maintaining a balanced deposit base while exploring potential M&A opportunities that align with its growth objectives [59][60] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding client confidence due to recent economic developments, including interest rate cuts and clarity in trade policies [12][13] - The company anticipates continued loan production and onboarding of new clients, with expectations for a strong finish to 2025 [13][34] Other Important Information - The company increased its quarterly dividend by $0.01 to $0.32 per share for Q4 2025, reflecting confidence in its financial performance [10][34] - The provision for credit losses increased to $8.4 million, primarily due to net charge-offs and an increase in non-performing loans [31] Q&A Session Summary Question: Can you provide clarity on the resolution timeline for the Southern California credits and the life insurance premium finance loan? - Management indicated that the resolution for the Southern California loans may take longer than anticipated due to a secondary bankruptcy filing, while the life insurance loan is expected to be resolved through litigation, with full principal coverage assured [40][41] Question: What is the company's exposure to non-depository financial institutions (NDFIs)? - The company maintains a portfolio of approximately $260 to $270 million in balances across various private lending relationships, focusing on first mortgage secured loans [42][43] Question: What is the expense outlook for the fourth quarter and into 2026? - The company expects total expenses to increase by approximately 3.5% year-over-year, with additional costs related to the branch acquisition factored in [49][50] Question: How does the company view fee income growth moving forward? - Management anticipates fee income growth to be mid-single-digit, with expectations for a rebound in the fourth quarter, although it may not reach the highs of previous quarters [50][73] Question: What are the company's priorities regarding capital deployment? - The primary focus is on organic growth, with M&A opportunities considered if they align with strategic goals; share buybacks are also on the table if suitable opportunities arise [59][76]

Financial Data and Key Metrics Changes - The company reported earnings per share of $1.19 for Q3 2025, down from $1.36 in the previous quarter and $1.32 in Q3 2024 [4] - Return on average assets was 1.11% and pre-provision return on average assets was 1.61% [5] - Net interest income increased by $5.5 million compared to the previous quarter, reaching $158 million, while net interest margin improved by two basis points to 4.23% [5][25] - Non-performing assets increased by $22 million, resulting in a ratio of 83 basis points compared to 71 basis points in the linked quarter [20][28] Business Line Data and Key Metrics Changes - Loan growth for the quarter was 6% or $174 million, net of $22 million in guaranteed loan sales [6][14] - Deposit growth was exceptional, with an increase of $240 million in the quarter, leading to a total year-over-year increase of approximately 7% [7][18] - Specialty deposits grew by $189 million in the quarter and $681 million year-over-year, reflecting a 22% increase [18] Market Data and Key Metrics Changes - The company experienced strong loan origination in the Southwest markets, particularly in Dallas and Las Vegas [6][13] - Growth in deposits was observed across all regions year-over-year, with non-interest-bearing accounts representing over 32% of total deposits [18] Company Strategy and Development Direction - The company is focused on integrating new branches acquired in Arizona and Kansas City, which will enhance its market presence [3][11] - The strategy emphasizes organic growth and maintaining a balanced approach to lending and deposit generation [11][58] - The management is optimistic about the economic environment, with expectations of continued loan production and client onboarding [12][13] Management's Comments on Operating Environment and Future Outlook - Management noted that clients are showing increased confidence due to recent economic developments, including interest rate cuts and clarity in trade policies [12][13] - The company expects to maintain or slightly accelerate loan production levels moving forward [12] - There is confidence in returning non-performing assets to historical levels in the coming quarters [10][21] Other Important Information - The company increased its quarterly dividend by $0.01 to $0.32 per share for Q4 2025 [9][31] - The acquisition of branches is expected to be accretive to net interest margin, despite recent interest rate cuts [27] Q&A Session Summary Question: Can you provide clarity on the resolution timeline for the Southern California credits and the life insurance premium finance loan? - Management indicated that the resolution for the Southern California loans may take longer than anticipated due to a secondary bankruptcy filing, while the life insurance loan is expected to be resolved through litigation, with full principal coverage assured [36][38] Question: What is the company's exposure to non-depository financial institutions (NDFIs)? - The company has approximately $260 to $270 million in balances across 18 to 20 relationships with private lenders, primarily secured by first mortgages on residential real estate [39][40] Question: What are the expectations for non-interest expenses in the fourth quarter? - The company anticipates total expenses to be around $112 million, factoring in branch acquisition costs and normalizing for non-recurring items [67] Question: How does the company view its capital priorities moving forward? - The focus remains on organic growth, with potential for share buybacks if suitable M&A opportunities do not arise [58][76] Question: What is driving the growth in specialty deposits? - The company has invested in people and systems, leading to a variable cost model that is profitable and allows for market share growth [77]

Financial Data and Key Metrics Changes - For Q3 2025, the company reported net income of $37 million or $0.82 per diluted share on revenue of $116 million, reflecting a quarter-on-quarter revenue growth of 13.6% and EPS growth of 19% year-on-year [10][11] - Pre-tax, pre-provision income was $55 million, with a pre-tax, pre-provision ROA of 2.25%, ROA of 1.5%, and ROTC of 15.1%, indicating strong profitability metrics [10][11] - The net interest margin expanded by 9 basis points to 4.27%, supported by an improved deposit mix and higher asset yields [11][15] Business Line Data and Key Metrics Changes - Total loans grew by 6% linked quarter and 11% year-to-date, ending at $7.5 billion, with originations of $264 million driven by commercial banking and equipment leasing [11][13] - Non-interest income totaled $15.9 million, up 9.5% from the last quarter, primarily due to a $7 million gain on the sale of loans [16] - Non-interest expense increased to $60.5 million, reflecting higher salary and employee benefits, but the efficiency ratio improved to 51% from 52.6% in the previous quarter [16][17] Market Data and Key Metrics Changes - Deposits totaled $7.8 billion, up 1% linked quarter and 7% year-to-date, with non-interest-bearing accounts increasing by $160 million or 9% linked quarter [11][14] - The company experienced stable demand for credit, with loan commitments growing and draw activity contributing to loan growth [11][13] Company Strategy and Development Direction - The company aims to build a preeminent commercial banking franchise in Chicago, focusing on expanding its commercial payments business and onboarding customers in 2026 [19][20] - The company remains open to disciplined M&A opportunities that align with its strategic goals, emphasizing capital flexibility and the potential for future growth [7][36] Management's Comments on Operating Environment and Future Outlook - Management noted stable to improving credit quality despite macroeconomic uncertainties and geopolitical tensions, with vigilance over potential risks [7] - The company anticipates crossing the $10 billion asset threshold in Q1 2026, which will delay the impact of the Durbin Amendment until 2027 [20][39] Other Important Information - The company was recognized with multiple awards for its workplace environment and employee engagement, contributing to low employee turnover [8] - The company refinanced $75 million in subordinated debt, benefiting from improved credit ratings and market demand [12] Q&A Session Summary Question: Discussion on margin and net interest income - Management discussed the assumptions behind net interest income and the impact of competitive rates on deposit resets [26][27] Question: Thoughts on M&A activity - Management expressed openness to M&A opportunities that align with their strategic goals, emphasizing the importance of capital flexibility [35][36] Question: Impact of government shutdown on SBA business - Management explained that while they continue to originate SBA loans, the shutdown may delay the sale of loans in the secondary market [44][45] Question: Commentary on credit reserves - Management clarified that reserve levels were adjusted based on the resolution of specific loans rather than overall portfolio performance [104] Question: Insights on commercial payments business - Management provided details on the commercial payments business, highlighting the onboarding process and expectations for growth in 2026 [68][71]

Financial Data and Key Metrics Changes - For Q3 2025, the company reported net income of $37 million or $0.82 per diluted share on revenue of $116 million, reflecting a quarter-on-quarter revenue growth of 13.6% and EPS growth of 19% year-on-year [10][11] - Pre-tax, pre-provision income was $55 million, with a pre-tax, pre-provision ROA of 2.25%, ROA of 1.5%, and ROTC of 15.1%, indicating strong profitability metrics [10][11] - The net interest margin expanded by 9 basis points to 4.27%, supported by an improved deposit mix and higher asset yields [11][15] Business Line Data and Key Metrics Changes - Total loans grew by 6% linked quarter and 11% year-to-date, ending at $7.5 billion, with originations of $264 million driven by commercial banking and equipment leasing teams [11][13] - Non-interest income totaled $15.9 million, up 9.5% from the last quarter, primarily due to a $7 million gain on the sale of loans [16] - Non-interest expense increased to $60.5 million, reflecting higher salary and employee benefits, including $2 million in higher incentive compensation accruals [16][17] Market Data and Key Metrics Changes - Deposits totaled $7.8 billion, up 1% linked quarter and 7% year-to-date, with non-interest-bearing accounts increasing by $160 million or 9% linked quarter [11][14] - The company experienced stable demand for credit, with loan commitments growing and draw activity contributing to loan growth [11][13] Company Strategy and Development Direction - The company aims to build a preeminent commercial banking franchise in Chicago, focusing on expanding its commercial payments business and onboarding customers in 2026 [19][20] - The company remains open to disciplined M&A opportunities that align with its strategic goals, emphasizing capital flexibility and the ability to fund growth [7][36] Management's Comments on Operating Environment and Future Outlook - Management noted stable to improving credit quality despite macroeconomic uncertainties and geopolitical tensions, with vigilance over potential risks [7] - The company anticipates crossing the $10 billion asset threshold in Q1 2026, which will delay the impact of the Durbin amendment until 2027 [20][38] Other Important Information - The company was recognized with multiple awards, including the 2024 SBA 7A, 504, and Expert Lender of the Year awards, and ranked as one of Chicago's best workplaces [8] - The company refinanced $75 million in subordinated debt, benefiting from improved credit ratings and market demand [12] Q&A Session Summary Question: Discussion on margin and net interest income - Management discussed the assumptions behind the model and the impact of competitive rates on deposit resets [26][27] Question: Thoughts on M&A activity - Management expressed openness to M&A opportunities, emphasizing the importance of financial and strategic attractiveness [35][36] Question: Impact of government shutdown on SBA business - Management explained that while origination continues, the shutdown affects the ability to sell and settle loans, potentially delaying gain on sale income [43][44] Question: Insights on commercial payments business - Management provided details on the commercial payments business, focusing on ACH transactions and payroll processing, with expectations for growth in 2026 [67][70] Question: Clarification on NDFI exposure - Management clarified that NDFI exposure is around $221 million, primarily consisting of commercial-related transactions [81][82]

Financial Data and Key Metrics Changes - The company achieved a record net income to common of $101 million, representing a 36% increase compared to the adjusted net income to common in Q3 of the previous year [15][7] - Earnings per share reached a record of $2.18, marking a 37% increase year-over-year [15][7] - The return on average assets was reported at 1.3%, exceeding the target of 1.1% [5][7] - Total revenue increased by $35.4 million, or 12% year-over-year, supported by a 13% growth in net interest income [13][7] Business Line Data and Key Metrics Changes - The Treasury Solutions platform saw a 91% increase in product fees over the past four years, indicating strong growth in this area [8][9] - Average commercial loan balances increased by 3%, or $317 million, during the quarter, with ending period balances up approximately $1 billion, or 9% year-over-year [16][7] - The firm is now a top-five Texas-based originator of SBA loans, reflecting its commitment to serving small businesses [9][7] Market Data and Key Metrics Changes - The company reported a 22% year-over-year increase in client interest-bearing deposits, excluding multi-year contraction index deposits, which were up $3.3 billion [17][7] - The allowance for credit loss finished the quarter at $333 million, or 1.79% of loans held for investment, which is the highest level relative to criticized loans since 2014 [22][7] Company Strategy and Development Direction - The company is focused on transforming into a full-service financial services firm, aiming to bank the best clients in its markets [4][7] - The strategic plan includes a disciplined capital allocation process aimed at driving long-term shareholder value [10][7] - The firm is committed to maintaining a strong capital position, with tangible common equity to tangible assets at an all-time high of 10.25% [6][7] Management's Comments on Operating Environment and Future Outlook - Management expressed a conservative view on the uncertain economic environment, maintaining a cautious approach to credit risk [15][7] - The company reaffirmed its revenue guidance of low double-digit percentage growth for the full year, despite anticipated rate cuts [24][7] - Management highlighted the importance of client selection as a key risk mitigant, emphasizing the proactive management of the loan book [41][7] Other Important Information - The firm repurchased 12% of shares outstanding at a weighted average price of $59 per share, reflecting a disciplined approach to capital management [10][7] - The company has made significant investments in its platform to enhance operational efficiency and client service [7][7] Q&A Session Summary Question: Loan growth and commitments outlook - Management noted that while loan growth may have slowed, commitments increased by 11% quarter-over-quarter, indicating potential for better performance in the fourth quarter [28][29] Question: Investment banking trading line item expectations - The firm reported a record investment banking quarter and narrowed the full-year fee income guidance to $230 to $235 million, with expectations for fourth-quarter non-interest income of $60 to $65 million [33][32] Question: NII growth amid rate cuts - Management indicated that net interest income is expected to be between $255 to $260 million for Q4, despite anticipated rate cuts, due to effective deposit pricing strategies [36][37] Question: Credit transformation since 2021 - The company reported a significant reduction in criticized loans, down $368 million or 41%, reflecting a strong focus on client selection and risk management [40][41] Question: Capital deployment opportunities - Management emphasized a disciplined capital menu, focusing on organic growth and platform investments, while also considering M&A opportunities in the future [49][50]

Financial Data and Key Metrics Changes - First quarter GAAP earnings per common share were $0.47, while distributable earnings were a loss of $0.09 per common share [15] - Net interest income declined to $14.6 million, primarily due to non-core assets moving to nonaccrual status, generating a cash yield of 1.3% [15] - Book value per share remained flat at $10.61, with total leverage declining to 3.5 times [18] Business Line Data and Key Metrics Changes - The total CRE loan portfolio was bifurcated into $5.9 billion core loans and $1.2 billion non-core loans, with a 5% decline in the core portfolio due to payoffs [7][8] - The core portfolio generated a levered yield of 10.2%, resulting in $43.4 million of net interest income, with 80% being current pay [10] - The non-core portfolio was reduced by 6% to $740 million, with expectations to further reduce it to approximately $270 million in the second quarter [10] Market Data and Key Metrics Changes - The multifamily sector showed resilience, with a 1% increase in rents in Q1 2025 despite macroeconomic pressures [5] - The twelve-month default rate for the SBA business was 3.2%, slightly better than the industry average of 3.4% [12] - The company anticipates SBA volume to be below $1.5 billion in 2025 due to current capital constraints and policy changes [13][52] Company Strategy and Development Direction - The company initiated a balance sheet repositioning plan in Q4 2024, focusing on liquidating non-core assets to reinvest in the core portfolio [14] - The strategy aims to restore net interest margin (NIM) to peer group levels by 2026, assuming stable macroeconomic conditions [14] - The company remains committed to supporting the Portland mixed-use asset project, which is expected to stabilize over time [11][42] Management's Comments on Operating Environment and Future Outlook - Management noted that the recovery in the commercial real estate (CRE) market has been affected by tariffs and recession risks, but the multifamily sector remains strong [5] - The company expects to maintain its current dividend level until the earnings profile warrants an increase [14] - Management expressed confidence in navigating the shifting policy landscape in the SBA business, despite potential short-term volume declines [12][50] Other Important Information - The company completed the UDF merger, resulting in a bargain purchase gain of $102.5 million, which added $167.1 million of equity to the balance sheet [17] - Liquidity remains healthy with unrestricted cash exceeding $200 million and $1 billion of total unencumbered assets [20] Q&A Session Summary Question: Impact of April's volatility on non-core book expectations - Management indicated that ongoing conversations with various parties regarding liquidations are progressing well, and they do not expect significant impact from April's volatility [23][24] Question: Near-term expectations for distributable earnings trajectory - Management expects the second quarter earnings profile to be similar to Q1, with upward movement anticipated post-reinvestment of equity [30] Question: Current views on share repurchases - Management is balancing the benefits of share repurchases with upcoming debt maturities and the need to reestablish net interest income [31] Question: Catalyst for CLO interest coverage issues - Management noted that elevated rates are impacting NOIs, leading to increased modifications in the portfolio [38] Question: Status of the Portland asset and stabilization timeline - The Portland asset is currently levered, and management plans to stabilize and sequentially exit its components over the next few years [42][45] Question: Expected moderation in SBA volumes - Management anticipates SBA volumes to be below $1.5 billion for at least a couple of quarters due to policy changes and administrative delays [52] Question: Freddie Mac business outlook - Management reported a decrease in Freddie Mac volume due to tightened processes and competition from banks and credit unions [56]

Financial Data and Key Metrics Changes - The company originated approximately $1.3 billion in loans during the first quarter, with a tangible book value per common share increasing to $13.42 from $13.15 in the prior quarter [3][4] - Net income for the first quarter was $3.2 million, or $0.23 per diluted common share, with net interest income declining to $14.3 million from $15.5 million in the prior quarter [10][11] - The net interest margin (NIM) decreased to 8.27% from 10% in the prior quarter, primarily due to a change in the mix of loan originations and lower rates on variable rate loans [11][12] Business Line Data and Key Metrics Changes - The largest student lending program had strong originations but is expected to decelerate in the second quarter due to school calendars [6] - SBA seven loan originations decreased slightly quarter over quarter, driven by a lower average loan size, while equipment leasing and owner-occupied commercial real estate lines showed solid growth [7][8] - The provision for credit losses was $3.3 million in Q1, down from $3.9 million in the prior quarter, with non-performing asset (NPA) balances reduced to $29.9 million from $36.5 million [9] Market Data and Key Metrics Changes - Average loan balances increased to $565 million from $522 million in the prior quarter, with average interest-bearing deposits rising to $430 million from $355 million [10][11] - The company expects gradual growth driven by existing programs and new partnerships, with loan originations tracking at a quarterly rate of $1.2 billion in early April [5][6] Company Strategy and Development Direction - The company announced a new strategic program agreement with Fintech partner BACT to provide business installment loans to small and medium-sized businesses [4] - The focus remains on migrating the loan portfolio to a lower risk profile while maintaining profitability and increasing tangible book value [3][5] - The company anticipates that the credit enhanced balance sheet program will significantly contribute to earnings in 2025, particularly in the second half of the year [5][15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term outlook for the business, despite a more uncertain macro environment [5] - The company is closely monitoring economic conditions but remains comfortable with the guidance for gradual growth from new partners throughout 2025 [36] - Concerns about potential macro risks, such as a slowdown in consumer spending, were acknowledged, but no immediate issues were reported [36] Other Important Information - The efficiency ratio remained relatively flat at 64.8%, with expectations for future decreases as revenue from new programs materializes [14] - The effective tax rate for the first quarter was 28.1%, with an expected rate of approximately 27.5% for 2025 [15] Q&A Session Summary Question: What is the current expense run rate and expectations for future expenses? - Management indicated that the efficiency ratio is around 64.8%, with expenses expected to remain flat and increase as revenues grow [19][21] Question: What is the outlook for net interest income (NII) growth given margin pressures? - Management expects NII growth to come from a return to normal origination levels and growth in traditional banking products, despite a continued decline in NIM [22][24] Question: What are the current credit enhanced loan balances and the timeline for growth? - The credit enhanced portfolio balance was slightly under $2 million at the end of the quarter, with expectations to reach $50 million to $100 million by year-end with existing partners [31][30] Question: How does the company view the health of its strategic partners in the current market? - Management reported no concerns about strategic partners, with origination levels remaining healthy and a gradual pickup expected from newer partners [36] Question: What is the yield on owner-occupied commercial real estate loans? - The gross yield on owner-occupied commercial real estate loans is expected to be around prime minus 100 basis points [63]

Financial Data and Key Metrics Changes - The first quarter GAAP net income was $19.2 million, with EPS of $0.65, including several non-core items [12][21] - Core ROA exceeded 1%, with core net interest margin expanding by eight basis points from the previous quarter [6][12] - Total deposits decreased by $53.2 million, primarily due to net decreases in non-interest bearing deposits [13][14] Business Line Data and Key Metrics Changes - Total loans held for investment remained relatively flat, down just $480,000, with total paydowns and payoffs matching new loan production at approximately $500 million [13][14] - Non-interest revenue contributed significantly to profitability, driven by strong swap fees and SBA loan gains [7][21] - The company experienced modest negative credit migration, with NPAs increasing from 0.42% to 0.69% [22] Market Data and Key Metrics Changes - Texas-based loans remained flat at approximately 41% of the overall loan portfolio [13] - The weighted average cost of deposits for the first quarter was 2.69%, down 12 basis points from the previous quarter [18] Company Strategy and Development Direction - The company aims for continual incremental improvement and is focused on optimizing its branch network [8][11] - The integration of Oakwood Bank is proceeding as expected, with a conversion set for September [8] - The company is open to future acquisitions but prioritizes growth within its current footprint in Louisiana and Texas [62][102] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating challenges and emphasized a strong start to the year, with better capitalized and diversified credit exposure [11][102] - The company expects loan growth in the low to mid-single digits for the upcoming quarters, despite macroeconomic uncertainties [27][86] - Management noted that deposit costs are expected to remain relatively flat in the near term, influenced by competitive pressures [17][82] Other Important Information - The company completed the sale of a branch in Kaplan, Louisiana, which included approximately $51 million in deposits at an 8% premium [9][15] - The company has a strong pipeline for loan growth and is focused on maintaining profitability without relying solely on loan growth [10][27] Q&A Session Summary Question: What are the internal expectations for loan growth for Q2 and the back half of the year? - Management expects loan growth in the low to mid-single digits quarter over quarter, potentially landing in the lower single digits by year-end due to a flat first quarter [27][86] Question: Can you provide updated thoughts on core margin progression throughout the year? - Management anticipates continued low single-digit basis point improvements in core margin, but does not expect to achieve the same level of expansion as in the first quarter due to interest rate uncertainties [29][30] Question: What are the expectations for deposit growth in the upcoming quarters? - Management indicated that the second quarter might be muted due to the recent branch sale, which started the quarter with a deposit deficit [44][48] Question: Are there any areas in the loan portfolio being deemphasized due to future credit expectations? - Management stated there are no specific areas being significantly downscoped, but they are monitoring C and D exposure to ensure it remains within comfortable bounds [59][60] Question: What are the current expectations for industry consolidation within the footprint? - Management believes M&A activity may slow temporarily due to current market uncertainties, but they remain prepared for future opportunities [101][102]

Financial Data and Key Metrics Changes - The first quarter GAAP net income was $19.2 million, with EPS of $0.65, including non-core items [13] - Core net income, excluding non-core items, was $19.3 million, also with EPS of $0.65 [13] - Core return on assets (ROA) exceeded 1%, with core net interest margin expanding by eight basis points [6][17] - Total deposits decreased by $53 million, primarily due to a reduction in non-interest bearing deposits [14][15] Business Line Data and Key Metrics Changes - Total loans held for investment remained flat, down $480,000, with total paydowns and payoffs matching new loan production at approximately $500 million [14] - Real estate construction loans decreased by $36.8 million, while real estate residential loans increased by $49.8 million [14] - Non-interest revenue was driven by strong swap fees and SBA loan gains, contributing significantly to profitability [7][22] Market Data and Key Metrics Changes - Texas-based loans remained flat at approximately 41% of the overall loan portfolio [14] - The weighted average total cost of deposits for the first quarter was 2.69%, down 12 basis points from the previous quarter [19] - The company generated approximately $380 million from new deposit account relationships despite the overall decline in deposits [15] Company Strategy and Development Direction - The company is focused on optimizing its branch network and managing expenses while investing in IT and infrastructure [8][21] - The acquisition of Oakwood Bank is progressing as planned, with integration set for September [8] - The company aims to maintain profitability without relying on loan growth, emphasizing net interest margin over volume [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the uncertain economic environment and highlighted a strong pipeline for the second quarter [11][28] - The company anticipates low to mid-single-digit loan growth for the upcoming quarters, with potential for higher growth in Q2 and Q3 [28][90] - Management noted that credit quality remains stable despite some negative migration in specific relationships [23] Other Important Information - The company completed the sale of a branch in Kaplan, Louisiana, which included approximately $51 million in deposits at an 8% premium [9][16] - The company has a contingent liquidity increase of approximately $600 million, enhancing its financial flexibility [17] Q&A Session Summary Question: Expectations for loan growth in Q2 and the second half of the year - Management expects loan growth in the low to mid-single digits, with a healthy pipeline for Q2 [28] Question: Updated thoughts on core margin progression - Management anticipates continued low single-digit basis point improvements in core margin, influenced by interest rate uncertainty [30] Question: Expectations for deposit growth and moving pieces on acquired balances - Management indicated that the recent branch sale would impact deposit growth, making Q2 potentially muted [46] Question: Areas of the loan portfolio under closer scrutiny - Management is not significantly downscoping any particular area but is focusing on maintaining a diversified portfolio [61] Question: Thoughts on capital return and potential buybacks - Management is considering capital return options but believes more capital build is needed before executing buybacks [53][55] Question: Current expectations for industry consolidation - Management noted a slowdown in M&A conversations due to recent market uncertainties but remains open to future opportunities [104]