Financial Data and Key Metrics Changes - The company reported net income of $71.7 million or $0.69 per diluted share for the second quarter, compared to $50.2 million or $0.49 per diluted share in the first quarter [10] - Net interest income increased to $207.2 million, up by $2.2 million from the prior period, primarily due to a reduction in interest expense [10][11] - The net interest margin was 3.32% on a fully tax equivalent basis, with an increase of 12 basis points from the prior quarter [11] - Non-interest income decreased to $41.1 million, down by $0.9 million from the prior quarter [11] Business Line Data and Key Metrics Changes - The company experienced a decline in loans held for investment by $1 billion, influenced by strategic moves including the Arizona and Kansas transaction [16] - Non-interest expense declined by $5.5 million to $155.1 million, attributed to lower seasonal payroll taxes and reductions in incentive-based compensation [12] - Net charge-offs totaled $5.8 million, representing 14 basis points of average loans on an annualized basis [14] Market Data and Key Metrics Changes - Deposits declined by $102.2 million in the second quarter, remaining approximately flat compared to the prior year [17] - The company ended the quarter with a 72% loan to deposit ratio, indicating strong liquidity [8] Company Strategy and Development Direction - The company is refocusing capital investment, optimizing the balance sheet, and improving core profitability [6][24] - Strategic actions include outsourcing the consumer credit card product and ceasing new originations in indirect lending [6][7] - The company aims for organic growth through relationship banking and anticipates a high single-digit increase in net interest income in 2026 [8][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about stabilizing loan balances and returning to growth in the medium term despite near-term declines [16][19] - The company is focused on proactive credit risk management, with stability in nonperforming asset levels and a disciplined approach to repricing maturing assets [7][8] Other Important Information - The common equity tier one capital ratio improved to 13.43%, with expectations for continued accretion [17][19] - The company declared a dividend of $0.47 per share, yielding 7% [17] Q&A Session Summary Question: Timing on loan portfolio stabilization - Management anticipates modestly lower loans in the third quarter but is hopeful for stability in the fourth quarter [28][29] Question: Earning asset levels at year-end - The third quarter is expected to be the bottom for earning asset levels, with a shift towards investment securities [32][33] Question: Capital priorities and CET1 expectations - CET1 is expected to increase by approximately 40 basis points from the branch transaction, with strong capital levels providing flexibility for various options [34][35] Question: Special mention migration in classified loans - The increase in criticized loans was driven by new information on multifamily projects, but management remains confident in the underlying collateral [41][42] Question: Expense guidance and reinvestment of savings - Management anticipates higher reported expenses in the third and fourth quarters due to various timing factors, with no branch divestitures included in the guidance [43][44] Question: High single-digit growth in net interest income for 2026 - This growth expectation does not include the impact of the branch divestiture, which is not expected to materially alter the figure [47][48] Question: Loan portfolio and relationship-based loans - Most deliberate runoff has already occurred, with a focus on replacing loans with production and growth [69] Question: Capital deployment options - The company is considering various capital deployment options, including share buybacks and balance sheet restructuring, to enhance shareholder value [76][77]

Financial Data and Key Metrics Changes - The company reported net income of $71.7 million or $0.69 per diluted share for Q2 2025, an increase from $50.2 million or $0.49 per diluted share in Q1 2025 [10] - Net interest income was $207.2 million in Q2 2025, up by $2.2 million from the previous quarter, primarily due to a reduction in interest expense [10] - The net interest margin improved to 3.32% on a fully tax-equivalent basis, with a 12 basis points increase from the prior quarter [11] - Non-interest income decreased to $41.1 million, down by $0.9 million from the prior quarter [11] - Non-interest expense declined by $5.5 million to $155.1 million, attributed to lower seasonal payroll taxes and reductions in incentive-based compensation [12] Business Line Data and Key Metrics Changes - Loans held for investment decreased by $1 billion, influenced by strategic moves including $338 million related to the Arizona and Kansas transaction [15] - The company experienced a decline in classified loans by $24.4 million or 5.1%, while criticized loans increased by $176.9 million or 17.2% [14] - The yield on average loans increased by 6 basis points to 5.65%, driven by repricing and payoffs of lower-yielding loans [11] Market Data and Key Metrics Changes - The company’s deposit base remains strong, with 93% located in areas where it has top 10 market share, and about 70% in markets growing faster than the national average [9] - Deposits declined by $102.2 million in Q2 2025, remaining approximately flat compared to the prior year [17] Company Strategy and Development Direction - The company is focused on refocusing capital investment, optimizing the balance sheet, and improving core profitability [5][24] - Recent strategic actions include outsourcing the consumer credit card product and ceasing new originations in indirect lending [5] - The company anticipates a high single-digit increase in net interest income in 2026, supported by margin improvement and a disciplined approach to repricing maturing assets [19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about stabilizing loan balances and returning to growth in the medium term despite near-term declines [16] - The company is taking a proactive approach to credit risk management, with stability in nonperforming asset levels and modestly lower classified asset levels [6] - Management noted that they are seeing initial indications of increasing pipeline activity, suggesting a positive outlook for future loan growth [16] Other Important Information - The common equity tier one capital ratio improved by 90 basis points to 13.43% [17] - The company declared a dividend of $0.47 per share, yielding 7% [17] - The guidance reflects a 125 basis point rate cut for the remainder of 2025, with expectations for continued margin improvement [18] Q&A Session Summary Question: Timing on loan portfolio stabilization - Management anticipates modestly lower loans in Q3 but is hopeful for stability in Q4, with growth expected thereafter [30][32] Question: Earning asset levels at year-end - Management believes Q3 will be the bottom for earning asset levels, with a modest step down into Q4 expected [34] Question: Capital priorities and CET1 expectations - CET1 is expected to increase by approximately 40 basis points by year-end, with various capital deployment options being considered [36][37] Question: Increase in special mention loans - The increase in criticized loans was primarily driven by new information on multifamily projects, but management remains confident in the underlying collateral [44][45] Question: Expense guidance and branch divestiture impact - No branch divestitures are included in the current expense guidance, and management anticipates higher reported expenses in Q3 and Q4 due to various timing factors [46][48] Question: NII outlook and branch divestiture impact - The high single-digit growth in NII for 2026 does not include the impact of the branch divestiture, which is not expected to materially alter the figure [50][51] Question: Loan portfolio runoff and relationship-based loans - Management does not foresee significant deliberate runoff left in the loan book, with most larger loans already exited [73] Question: Market share and growth opportunities - The company aims to leverage existing density in growth markets rather than retreating from them, focusing on gaining market share [75]

Quarter in Review: Growth, Challenges, and Notable Events Loan and deposit growth underpinned much of the company's performance during the quarter. Deposits rose $189.0 million year over year in Q1 2025, and the total loan book reached $871.6 million. Small Business Administration and commercial loan originations marked a quarterly record, rising to $160.5 million. Loan growth was strongest in commercial real estate, though multifamily and residential portfolios declined. Despite broader loan diversificatio ...