Financial Data and Key Metrics Changes - The company finished the year strong with robust loan and core deposit growth, net interest margin expansion, and higher fee income [4] - Net interest margin expanded by 12 basis points to 2.75%, with net interest income increasing by 5% during the quarter [6][11] - Core deposits grew by 9% in the fourth quarter and 8% for the full year, while loans grew at an 11% pace [7] - Tangible book value per share grew 16.5% annualized and was up 15.3% year-over-year [7] Business Line Data and Key Metrics Changes - The construction sector was the largest driver of loan growth, particularly in affordable housing, which saw a 27% annualized increase in the fourth quarter [22] - Non-interest income rebounded in the fourth quarter, driven by increases in swap fees and letter of credit fees [16] - The company reported a 9.5% annualized increase in expenses during the fourth quarter, aligning more closely with expected asset growth [17] Market Data and Key Metrics Changes - The company is now the second-largest locally led bank in the Twin Cities, positioning itself well amid M&A disruptions in the market [9] - Core deposit growth was strong, with an annualized growth of 8.8% in the fourth quarter [18] - Loan balances increased by 8.9% annualized in the fourth quarter and 11.4% for the year, indicating robust demand across the market [19] Company Strategy and Development Direction - The company aims to optimize profitable growth while aligning loan growth with core deposit growth and expanding net interest margin [30] - There is a focus on gaining market share in the Twin Cities and expanding expertise in targeted verticals such as nonprofits and SBA [31] - The company plans to enhance its affordable housing vertical and leverage technology investments to support growth and efficiency [31] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the ability to continue driving net interest income growth and achieving a 3% net interest margin by the end of 2026 [12][29] - The company is monitoring the impact of recent events in the Twin Cities on team members and clients, emphasizing support for the community [9] - Management remains confident in the strength of the asset quality profile despite a modest uptick in non-performing assets and net charge-offs [24] Other Important Information - The company closed one of the two branches added through the First Minnetonka City Bank acquisition due to proximity to other branches, with minimal deposit attrition post-merger [8] - The CET1 ratio increased slightly from 9.08% to 9.17%, indicating a comfortable capital position [27] Q&A Session Summary Question: Can you unpack some of the deposit growth in the quarter? - Management noted that Q4 tends to be a seasonally high watermark for deposit growth, with expectations for modest growth in Q1 and Q2 [36][39] Question: What is the cadence of loan repricing? - Management indicated that loan repricing is well spread out, contributing to the target of achieving a 3% margin [40][41] Question: What are the expectations for expenses in 2026? - Management expects expenses to grow in line with asset growth, targeting high single-digit growth [42] Question: What is the company's appetite for potential acquisitions? - Management continues to engage with local bank owners for potential acquisitions but emphasizes organic growth as the primary focus [55] Question: How does the company view the affordable housing vertical's growth potential? - Management expressed confidence in the affordable housing space, indicating plans for continued growth without specific caps on size [59][60]

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]