Net interest margin expanded 3 basis points linked-quarter to 3.65%, driven by a 13 basis point decrease in total cost of funds.
Commercial loan growth of 9.9% annualized reflects the successful execution of a strategic plan to invest in specialized banking talent.
Management attributed the 6.9% annualized growth in core deposits to a focus on operating accounts for business and municipal clients.
The bank maintained a disciplined balance sheet, using runoff from lower-yielding investments and consumer loans to fund higher-yielding commercial assets.
Credit quality remains sound with net charge-offs at only 2 basis points, though management is monitoring one specific commercial development exposure.
Profitability metrics remained strong with a return on average assets of 1.24%, supported by stable core fundamentals despite geopolitical uncertainty.
Management expects low double-digit growth in the commercial loan portfolio for 2026 based on a strong current pipeline.
The net interest margin outlook remains stable even if anticipated interest rate cuts do not materialize during the year.
The pending merger with HCB Financial Corp. is expected to provide excess liquidity that will be prioritized for deployment into commercial lending.
Net interest income in the first quarter of 2026 increased 7.3% over 2025, falling within the company’s forecasted range of 7% to 8%.
Cost savings from the HCB merger are expected to be 50% phased in during the first year and fully realized by the second year.
Non-recurring expenses totaled $1.9 million, including a $1.5 million litigation accrual for probable losses across outstanding matters.
A $0.4 million expense was recorded for retroactive deposit account opening incentives related to prior periods.
Mortgage servicing rights (MSR) valuation changes resulted in a $0.9 million gain, contrasting with a loss in the prior year period.
Management identified high energy prices as a potential macro risk that could mute future loan growth if geopolitical conflicts persist.
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Management confirmed that their margin forecast holds even if the Federal Reserve does not implement the two rate cuts originally embedded in their model.
The bank’s interest rate risk position is closely matched for small rate changes, with modest exposure to large declines.
