Bernard Von Gizycki

Bernard von Gizycki of Deutsche Bank asked for clarification on First Horizon's 15%+ sustainable ROTCE target, specifically whether the company has reached a sustainable 15% and is moving towards the 'plus' part, or if there's a specific timeframe for declaring sustainability. He also inquired about the reserve build outlook given the 11% sequential reduction in criticized and classified assets, zero provision, and expected loan growth.

Answer

Hope Dmuchowski, Chief Financial Officer, confirmed that the company has hit a sustained ROTCE number on a go-forward basis, averaging 15%+, though a single quarter could dip. Bryan Jordan, CEO, added that progress made in 2024 and 2025 is sustainable, with opportunities to further enhance it by managing capital levels. Thomas Hung, Chief Credit Officer, noted strong momentum in non-pass resolutions ($700 million in Q4, $2.2 billion for the full year 2025) leading to reserve releases. He stated that future reserves depend on economic outlook, loan growth, and business mix, emphasizing net charge-offs as the best credit performance indicator. Mr. Jordan added that the company is conservatively positioned with 6-7 years of reserve at the current run rate.

Bernard von Gizycki questioned First Horizon's 15%+ sustainable Return on Tangible Common Equity (ROTCE) target, asking if the 15% mark achieved in recent quarters is now sustainable and if the company is moving towards the 'plus' part of the target. He also inquired about the future reserve build given the reduction in criticized and classified assets, zero provision, and expected loan growth.

Answer

Hope Dmuchowski, CFO, confirmed that the 15% ROTCE is now a sustained number on a go-forward basis, though individual quarters might fluctuate. Bryan Jordan, CEO, added that the improved profitability is sustainable, and capital management will further enhance it. Thomas Hung, CCO, explained that strong momentum in non-pass resolutions led to recent reserve releases, and future reserve levels would depend on economic outlook, loan growth, and business mix. Mr. Jordan also noted that current reserve levels are conservative, representing 6-7 years of coverage at the current run rate.

Bernard von-Gizycki inquired about the $195 million in rent-regulated multifamily payoffs, whether there were any asset sales in that portfolio, and how the size of this book is expected to trend over the next 12 months. He also asked about the impact of these payoffs and mix shifts on loan yields and net interest margin expansion.

Answer

Lee Smith, Chief Financial Officer, confirmed that the rent-regulated multifamily portfolio will continue to decline mainly due to part payoffs, with no adverse selection observed across CRE asset classes. He noted that the $1.3 billion in Q3 payoffs had a blended weighted average coupon of 5.7%, reflecting a mix of low-coupon and already-reset loans. Joseph Otting, Chairman, President, and CEO, added that some payoffs also came from legacy C&I businesses with higher spreads. The bank expects continued part payoffs and reductions across all multifamily asset classes, aiding the strategy to diversify the loan portfolio.

Bernard Von Gizycki from Deutsche Bank asked if Flagstar is considering portfolio sales to reduce its rent-regulated multifamily exposure and inquired about any new reserve actions in Q2 related to the large borrower that filed for bankruptcy in Q1.

Answer

Senior Executive Vice President & CFO Lee Smith responded that for the performing portfolio, the bank is satisfied with the current strategy of securing par payoffs, but loan sales remain an option for non-accrual loans. He also confirmed that for the specific bankrupt borrower, an additional $18.8 million in charge-offs were taken in Q2 as new appraisals were received, with no new NIM reversal.

Bernard Von Gizycki inquired about the expected integration timeline for the merger with Keystone, focusing on operational compatibility and systems. He also asked for clarification on the conservative nature of the Q4 loan growth forecast, given strong October performance and pipeline visibility.

Answer

John McWhorter, CFO, and Bart Caraway, CEO, explained that the integration with Keystone is expected to be straightforward, with an early Q2 core conversion in 2026, aided by similar business practices and cultural alignment. Regarding loan growth, Mr. McWhorter noted $50 million in October, maintaining the $50-$100 million Q4 forecast due to unpredictable paydowns, while Mr. Caraway highlighted strong pipelines, market disruption benefits, and recent talent acquisition.

Bernard Von Gizycki asked about the expected integration timeline for the merger with Keystone Bancshares, inquiring about systems compatibility and operational alignment, and also questioned the conservatism of the Q4 loan growth forecast given strong October performance and pipeline.

Answer

John McWhorter, Chief Financial Officer, explained that a very early second-quarter core conversion is planned, noting similar business practices and cultural alignment with Keystone, which should make integration straightforward. Bart Caraway, Founder, Chairman, President and Chief Executive Officer, and John McWhorter reiterated comfort with the $50 million to $100 million loan growth target for Q4, acknowledging past volatility and difficulty in predicting year-end paydowns, but expressed confidence in strong loan pipelines, quality customers, and recent talent acquisition.

Bernard Von Gizycki from Deutsche Bank asked for the core Net Interest Margin (NIM) for Q2 excluding the securitization impact and sought to understand the drivers behind the 50 basis point sequential increase in loan yields.

Answer

CFO R. John McWhorter clarified that the core NIM, excluding the one-time securitization benefit, would have been in the 3.90% to 3.95% range. He explained the loan yield increase was driven by the $2 million non-recurring fee from the securitizations and a higher level of recurring capitalized loan fees, which are expected to continue contributing to the margin.

Bernard Von Gizycki from Deutsche Bank asked for details on the significant increase in fee income, particularly service charges, and whether this represents a recurring trend. He also requested guidance on expense expectations for Q2 and the remainder of the year.

Answer

Executive John McWhorter attributed the strong fee income to the treasury management division's growth and its quarterly and annual billing cycles, which are heaviest after year-end, rather than any pricing changes. Regarding expenses, McWhorter projected that Q2 noninterest expenses would remain relatively flat compared to Q1, at approximately $28 million, as the roll-off of seasonal payroll taxes would be offset by costs from the securitization and new hires.

Bernard Von Gizycki asked for the expense growth outlook for 2025 after the company surpassed its efficiency ratio target, and also inquired about near-term expectations for fee income growth.

Answer

Executive John McWhorter projected 2025 expense growth to be around 4% year-over-year, similar to 2024, with the Q4 run rate of approximately $27 million being a good baseline for the next few quarters due to recent hires. Executive Bart Caraway noted that a core system conversion would lead to cost savings in the second half of the year. For fee income, McWhorter expressed optimism, citing strong growth in treasury services and wealth management, and projected noninterest income to be in the $3 million range for the next several quarters.

Bernard Von Gizycki asked about future expansion plans in the Texas market, specifically regarding branch growth into 2025, and requested an outlook on fee income following a strong quarter for service charges.

Answer

Executive Bart Caraway stated that the bank's branch network is now largely complete and that de novo branch expansion will slow significantly over the next 12-24 months. Executive John McWhorter attributed the strong fee income to rapid growth in the treasury group and a large, albeit lumpy, loan fee. He indicated comfort with a quarterly fee income run-rate of $2.5 million or more.

Bernard Gizycki asked about expectations for ECR-related balances and costs, given they represent over a third of deposits and 30% of total expenses, and CFO Dale Gibbons' new role focusing on deposit initiatives. He also inquired if the Q3 equity income uptick was due to a reversal of Q1 losses and the outlook for this line item.

Answer

CFO Dale Gibbons explained that ECR is driven by mortgage warehouse and HOA deposits. He expects HOA deposits to grow slower than overall footings, reducing their proportion, and costs to decrease with lower rates. President and CEO Ken Vecchione clarified that the Q3 equity income uptick was not due to a Q1 reversal, and while the $8 million figure is higher than usual, a "haircut" is expected going forward, with no dramatic changes indicated.

Bernard von Gizycki inquired about the composition of Western Alliance Bancorporation's deposit base, specifically the ECR-related costs (representing 30% of total expenses), and expectations for changes, including efforts to reduce ECR balances or costs.

Answer

CFO Dale Gibbons explained that ECRs are primarily driven by mortgage warehouse and homeowners association (HOA) deposits. He anticipates that HOA deposits, while not shrinking, will grow slower than overall company footings, causing their proportion to decline. Mortgage warehouse deposits are expected to keep pace. Overall, ECRs will become less significant, and costs will fall with lower rates. In a follow-up on equity income, President and CEO Ken Vecchione clarified that the Q1 losses have not yet reversed. The Q3 uptick was due to "other types of things," and he expects a "haircut" going forward, with no dramatic improvement or worsening anticipated.

Bernard Von Gizycki inquired about the status of passing on insurance costs to depositors and the nature of the equity investment gains during the quarter.

Answer

CFO Dale Gibbons confirmed the process of passing on insurance costs is 'largely behind us,' with the decline also helped by paying down higher-cost brokered deposits. Regarding equity investments, Gibbons explained the Q2 gain was not a recovery of a prior charge and that he sees no reason for the historical pace of gains to slow, given favorable market valuations.

Bernard Von Gizycki from Deutsche Bank questioned the source of the increase in deposit service charges and asked for the drivers behind the updated guidance for ECR-related deposit costs.

Answer

President and CEO Kenneth Vecchione attributed the higher service charges to a concerted effort over the past 18-24 months to enhance treasury management services and client outreach. Chief Financial Officer Dale Gibbons explained the revised ECR cost outlook is due to an expected higher average balance of ECR-related deposits in Q2.

Bernard Von Gizycki asked about the $37 million in deposit insurance expenses, questioning if these costs could be passed on to depositors. He also sought color on the credit outlook for the C&I loan portfolio following a pickup in charge-offs.

Answer

Interim CEO and CFO Dale Gibbons explained that the bank has successfully passed these costs to clients by implementing a 40 basis point charge for those who opt into a fully insured deposit network. Chief Banking Officer Timothy Bruckner added that outside of CRE office, the C&I portfolio's credit quality has been stable and predictable, with no signs of negative migration trends.

Bernard Von Gizycki questioned the dynamics in the mortgage business, noting strong Q3 loan production but declining gain-on-sale margins. He asked what mortgage rate level would be necessary to meaningfully increase production volumes and revenues.

Answer

CEO Ken Vecchione suggested that mortgage rates falling into the low 6% range stimulates volume. He described breaking the "6% barrier" as a key milestone and identified the "sweet spot" for significant volume as the 5.50% to 5.75% range. CFO Dale Gibbons added that a more gradual rate decline might be more beneficial for sustainable activity.

Bernard von Gizycki asked about the timing and rationale behind the 8K filing, specifically regarding the awareness of legal actions by other banks and lenders, and how to put the broader credit picture in perspective given the isolated nature of the incident. He also inquired about the fee income outlook, focusing on broad-based growth beyond the outsized contribution from capital markets, and identifying other standout areas.

Answer

Chairman and CEO Harris Simmons explained the 8K filing was for transparency, as the lawsuit was public record, ensuring the market had the same information. President and COO Scott McLean detailed the broad-based fee income growth, noting strong performance in capital markets (on track to double over 3-4 years), treasury management (up 4%), business and retail service charges (showing nice growth), and mortgage business (generating more fee income from a held-for-sale approach). He also mentioned the wealth business, expecting nice growth in the coming year. Chief Credit Officer Derek Steward added that capital call lines have proven more stable despite lower returns.

Bernard Von Gizycki from Deutsche Bank asked for clarification on the timing and rationale behind the 8-K filing, particularly given awareness of legal actions by other banks, and sought broader perspective on the credit situation. He also inquired about the fee income outlook, specifically identifying growth areas beyond capital markets.

Answer

Chairman and CEO Harris Simmons explained that the 8-K was filed to ensure market transparency after a lawsuit became public record, preventing information asymmetry. President and COO Scott McLean highlighted strong growth in capital markets, treasury management, business and retail service charges, and mortgage fee income due to a shift to a held-for-sale approach, with wealth management also expected to grow nicely. Chief Credit Officer Derek Steward added that capital call lines have proven more stable despite lower returns.

Bernard Von Gizycki of Deutsche Bank asked for more detail on the drivers of the strong loan growth in the quarter and its expected continuation. He also inquired about potential benefits from deregulation and whether this could change the bank's M&A strategy.

Answer

EVP & Chief Credit Officer Derek Stewart explained that loan growth was led by C&I, driven by increased utilization and new originations. Chairman & CEO Harris Simmons stated that the most encouraging potential regulatory change is the tiering of long-term debt requirements. Regarding M&A, he reaffirmed a disciplined strategy focused on organic growth and strategic tuck-in deals, not large-scale acquisitions.

Bernard Von Gizycki inquired about the potential to reduce expenses to maintain positive operating leverage in a weaker revenue environment and asked for a breakdown of customer-related fee income drivers.

Answer

Chairman and CEO Harris Simmons confirmed they would manage expenses, noting headcount is already down, but will not cut investments crucial for long-term growth. President and COO Scott McLean detailed the fee income components, highlighting Treasury Management as the largest contributor, with expected growth from mortgage and wealth management services.

Bernard Von Gizycki asked for more detail on the assumptions behind the updated net interest income sensitivity model, specifically the increase in deposit beta, and inquired about the timing for the net interest margin (NIM) to return to the mid-3% range.

Answer

CFO Ryan Richards explained that the deposit beta assumption is in line with recent performance. He noted that the bank has tightened its assumption about noninterest-bearing deposit migration, leading to a more constructive NII outlook. Regarding the NIM, Richards stated they don't manage to a specific NIM target but believe a mid-3% level is not out of reach with a more normal yield curve, though the timing is uncertain.

Bernard Von Gizycki from Deutsche Bank inquired about the company's appetite for further M&A, such as branch acquisitions or whole bank mergers, following the recent First Bank deal. He also asked for an outlook on the capital markets business after its record quarter.

Answer

Chairman and CEO Harris Simmons described the company's M&A approach as "opportunistic" but not a primary focus for growth. Regarding capital markets, an executive highlighted the business's 10% compound annual growth rate over 3-4 years and expressed optimism for continued growth, attributing the success to sustained investment. President and COO Scott McLean added that the growth is "totally intentional" and the infrastructure is in place to support higher revenue. Simmons cautioned that the business is inherently more variable quarter-to-quarter.

Bernard von-Gizycki asked about the Q4 net interest income (NII) outlook, the expected exit run rate for the net interest margin (NIM) in Q4, and the longer-term fee income growth opportunity from HSA Bank, particularly with new legislation.

Answer

Neal Holland (CFO) guided Q4 NII to $630 million, implying a NIM of approximately 3.35%, factoring in seasonal effects, additional sub-debt, and lower-spread originations, and expects Q1 next year's NIM to be higher due to seasonality. Luis Massiani (President and COO) noted limited cross-sell of other banking products into HSA today but sees significant untapped opportunity, especially with the direct-to-consumer nature of new catastrophic/bronze plan eligibility, anticipating benefits from investments in 2026.

Bernard Von Gizycki from Deutsche Bank asked for the outlook on non-interest-bearing deposits and for clarification on which of the new HSA provisions is the main driver of the incremental deposit opportunity.

Answer

Senior EVP & CFO Neal Holland stated the bank believes it has reached the bottom for DDA declines and expects mild growth. COO & President Luis Massiani and CFO Neal Holland confirmed that new eligibility for Bronze ACA plan participants is the primary driver of the estimated $1B to $2.5B HSA deposit opportunity.

Bernard Von Gizycki from Deutsche Bank asked about flexibility in the expense base, questioning if projects could be delayed to protect profitability if the revenue environment weakens. He also inquired about the expected contribution from the sponsor finance business to loan growth for the rest of the year.

Answer

CFO William Holland confirmed that the bank has significant expense flexibility, highlighting that investments in Category IV readiness could be slowed if necessary. He also noted a continuous focus on efficiency. CEO John Ciulla stated that sponsor finance growth has recently been driven by lender finance and fund banking, not M&A-related activity. He expressed hope that the traditional sponsor business will rebound in the second half of the year but clarified that the overall loan growth forecast relies on broad-based contributions, not just one category.

Bernard Von Gizycki from Deutsche Bank asked for more detail on the drivers of 2025 expense growth beyond regulatory costs and inquired about growth expectations for deposits from 1031 exchange and digital channels.

Answer

CFO William Holland cited investments supporting business lines like Ametros, technology infrastructure, and routine items like merit increases as key drivers of expense growth. CEO John Ciulla noted that 1031 exchange deposit growth is tied to CRE transaction activity and that the bank expects strong, competitive growth from its digital and healthcare deposit verticals in 2025.

Bernard Von Gizycki from Deutsche Bank requested more detail on the actions taken to optimize risk-weighted assets (RWA) and the resulting capital impact. He also asked for color on the sequential increase in technology and related expenses during the quarter.

Answer

CFO William Holland explained that RWA optimization actions contributed 44 basis points to the CET1 ratio, driven by deep dives into the risk weighting of multifamily, lender finance, and public sector portfolios, plus a securitization. CEO John Ciulla clarified that the tech spend is part of a long-term strategic road map, not a new, isolated initiative, and that future expense guidance will be all-inclusive without outsized tech spending.

Bernard Von Gizycki asked for clarification on Synovus's accelerated hiring of revenue producers, specifically if the merger was a catalyst for the 25 hires in Q3 2025, the areas of these hires, and how to view this accelerated pace moving forward. He also sought expectations for the ramp-up in asset and deposit gathering from these hiring plans and any associated timing.

Answer

CEO Kevin Blair clarified that the 25 revenue producers in Q3 2025 reflected a new, broader definition adopted from Pinnacle, distinct from previous targets focused on commercial, middle market, specialty, and private wealth banking. He updated future targets to 80+ new hires in 2027, with teams already attracting top talent. Mr. Blair projected that the combined bank's growth profile would accelerate, with 2026 and 2027 growth expected to be higher than the aggregate mid-single-digit consensus, aiming for high single-digit growth by year three.

Bernard Von Gizycki of Deutsche Bank asked about normalized cash balance levels, the net interest margin (NIM) glide path with fewer expected rate cuts, and the drivers of core banking fee growth.

Answer

EVP & CFO Jamie Gregory stated cash balances should remain stable and that in a flat rate environment, NIM would accrete to the low 3.40s by year-end. CEO Kevin Blair attributed strong treasury fee growth to a repricing initiative and increased sales of cash management solutions, noting no unusual items in service charges.

Bernard Von Gizycki asked for an update on the expected benefit from fixed asset repricing and for an explanation of the weaker-than-expected capital markets revenue and its outlook.

Answer

CFO Andrew Gregory stated that the benefit from fixed asset repricing remains similar to past guidance for this year and next. CEO Kevin Blair explained the capital markets weakness was due to lower derivative swap fees and syndication fees, driven by loan mix and client reluctance to lock in fixed rates. He expects this to improve as loan production grows and the rate environment stabilizes.

Bernard Von Gizycki sought details on the 1-2% in efficiencies planned to offset expense growth and asked about the progress in refining delivery models for the payments, consumer banking, and wealth management businesses.

Answer

CFO Jamie Gregory identified personnel optimization via back-office automation and real estate footprint management as key efficiency drivers. CEO Kevin Blair detailed the delivery model refinements: expanding the third-party payments sponsorship business, deepening commercial client wallet share through a 'business under wealth' strategy, and shifting branch focus more toward small business clients while leveraging digital channels for consumers.

Bernard Von Gizycki questioned the outlook for share repurchases in the second quarter and asked for the specific NII benefit recognized in Q1 from the fourth-quarter securities repositioning.

Answer

CFO James Herzog indicated the potential for up to $100 million in Q2 repurchases but emphasized that the final amount will be opportunistic and dependent on market conditions, credit, and loan demand. He quantified the securities repositioning benefit as 'a little over half' of the $9 million quarter-over-quarter increase in securities income.

Bernard Von Gizycki asked for details on expansion efforts, including hiring targets in the Southeast and Mountain West, and also inquired about the company's current thinking on M&A, such as whole bank or portfolio acquisitions.

Answer

Chief Banking Officer Peter Sefzik described hiring as opportunistic in the Southeast and more aggressive in the Mountain West (Denver, Phoenix), while also noting opportunities in core markets. Chairman and CEO Curtis Farmer reiterated that the M&A strategy remains focused on organic growth, stating the bank is a 'patient acquirer' but may consider smaller team lift-outs or product capability additions.

Bernard Von Gizycki asked for a rule of thumb on the relationship between risk management hedge income and NII during rate cuts, and questioned the impact of recent forward curve changes on the AOCI unrealized loss projection.

Answer

CFO Jim Herzog did not provide a specific rule of thumb but pointed to the Q3 results, where a $10 million decline in risk management hedging income contributed approximately $8 million to NII, as a useful indicator. Regarding AOCI, Herzog acknowledged the forward curve has shifted since quarter-end but did not provide a revised projection, instead directing analysts to the general sensitivities on the capital slide.

Bernard Von Gizycki inquired about the assumptions underpinning the high and low ends of the 2025 net interest income guidance of $6.6 billion to $7.0 billion. He also asked if any further cost or revenue synergies from the SVB acquisition were factored into the 2025 forecast.

Answer

CFO Craig Nix clarified that the net interest income range accounts for a spectrum of zero to four potential interest rate cuts, with the baseline forecast anchored to two cuts. He detailed the expected NII trajectory for Q1 and the full year under the baseline scenario. Nix also confirmed that all material cost synergies from the SVB acquisition have been realized and are not a factor in the 2025 guidance.

Asked about the progress in building the C&I platform, revamping risk management, potential for further headcount reduction, and the target level for wholesale borrowings.

Answer

On the C&I buildout, they are 'rounding first base' with plans to grow from 30 to 130 hires. The risk infrastructure has seen significant progress with key hires and building out the three lines of defense. The executive management team is now fully deployed. For borrowings, they will use excess liquidity to reduce broker deposits in 2025 and repay home loan bank borrowings as customer deposits grow, but don't expect material reductions in '24 or '25.

Questioned the nature of the additional $2-5 billion in potential non-strategic asset sales and asked for insights from the recently received borrower financial statements, which showed higher-than-expected Net Operating Income (NOI).

Answer

The bank stated that the potential $2-5 billion in future sales are not in the current forecast and would target non-relationship loans. The updated borrower financials confirmed that while many borrowers are managing, some are under stress, validating the bank's credit review process. About two-thirds of NOIs were up year-over-year, while one-third were down, with the latter being a key area of focus.