- Net Income Growth Reported $71.7 million, up from $50.2 million in the prior quarter, with EPS of $0.69 per share.
- Net Interest Income $207.2 million, a slight $2.2 million increase from the prior period, driven by lower interest expense.
- Net Interest Margin 3.32% (3.26% excluding purchase accounting), a 12 basis point improvement from the prior quarter.
- Loan-to-Deposit Ratio 72% at quarter-end, with minimal short-term borrowings and no broker deposits.
- Capital Strength Common equity Tier 1 capital ratio of 13.43%, with expectations of further improvement from the Arizona and Kansas transaction.
Financial Performance and Guidance
The company's NII is expected to grow in high single digits in 2026, excluding any impact from the branch divestiture. The NII outlook assumes no change in the current interest rate environment. The company updated its guidance to reflect a 125 basis point rate cut for the remainder of 2025 and now assumes a more meaningful near-term asset allocation into the investment portfolio. The company anticipates net interest income to increase in the high single digits in 2026 compared to 2025. Noninterest income guidance is modestly lower, and noninterest expense guidance was reduced to 0% to 1% for the full year of 2025.
Capital Management and Valuation
The company's capital priorities include utilizing its strong capital levels to enhance returns, with options being considered. The common equity Tier 1 capital ratio improved 90 basis points to 13.43%. The company's price-to-tangible book value (P/TBV) is an important metric, and with a tangible book value accretion of roughly 2% expected from the Arizona and Kansas branch transaction, this could lead to a higher CET1 ratio by year-end. At current prices, the stock trades at a P/TBV of 1.23x and a dividend yield of 7.0%, indicating a relatively attractive valuation.
Credit Quality and Loan Growth
The company's classified loans decreased sequentially, but special mention assets increased. The company attributed the increase to new information on some multifamily projects, which are still collateralized and have strong guarantors. The company's loan growth is expected to be flat, with a 6-8% decline in loan levels in 2025, excluding indirect and held-for-sale balances. The company aims to replace these loans with new production and growth.
Valuation Metrics
Using valuation metrics, the stock currently trades at a P/E Ratio of 12.95, a P/B Ratio of 0.87, and a Dividend Yield of 6.53%. The EV/EBITDA ratio is 11.46, and the Free Cash Flow Yield is 10.78%. The ROIC is 1.69%, and the ROE is 6.82%. With a net debt-to-EBITDA ratio of -0.75, the company's financial performance and valuation metrics suggest a relatively attractive investment opportunity.