Brendan Nosal

Brendan Nosal inquired about First Financial Bancorp's NDFI loan exposure, seeking details on its composition and risk profile. He also asked about the projected impact of anticipated rate cuts on the net interest margin for the fourth quarter and early next year, specifically regarding the 5-6 basis point pressure per cut.

Answer

Bill Harrod, Chief Credit Officer, detailed the NDFI portfolio as $434 million, diversified, and conservatively managed with no adversely rated credit, primarily consisting of traditional REITs ($304 million) and a securitization book ($73 million). Jamie Anderson, CFO and COO, explained that the Westfield acquisition would help mitigate asset sensitivity. He noted that the legacy company typically experiences about five basis points of margin pressure per 25 basis point rate cut, projecting a start to the year in the 3.90% range after two Q4 cuts, with Westfield's purchase accounting providing some margin improvement.

Brendan Nosal from Hovde Group inquired about First Financial Bancorp's NDFI loan exposure, seeking details on its composition, diversification, and risk profile, including the securitization book. He also asked about the net interest margin's sensitivity to potential rate cuts in Q4 and its projected trajectory into early next year, considering the Westfield acquisition.

Answer

Bill Harrod, Chief Credit Officer, detailed the NDFI portfolio at $434 million, noting its diversification, conservative management, and high investment-grade tier with no adversely rated credits. He specified $304 million in traditional REITs and $73 million in a securitization book. Jamie Anderson, Chief Financial Officer, explained that the legacy company's margin experiences about 5 basis points of pressure per 25 basis point rate cut, but the Westfield acquisition is expected to help mitigate some of this asset sensitivity, projecting a start to the year in the 390-ish range.

Brendan Nosal from Hovde Group sought insights into the overall level of fee income expected for Civista Bancshares to conclude the year, given its quarterly volatility and strong performance in the current quarter.

Answer

Dennis Shaffer (President and CEO, Civista Bancshares Inc) projected approximately $9.2 million in fee income for the fourth quarter, after backing out BOLI and security gains from the Q3 figure, including about $50,000 from Farmers.

Brendan Nosal asked about Civista Bancshares' confidence in achieving mid-single-digit loan growth for Q4 and mid-to-high single digits for 2026, given flat year-to-date balances. He also requested a breakdown of the gain on sale of loans for the quarter and an outlook for overall fee income for the remainder of the year.

Answer

Chuck Parcher, EVP and President, expressed confidence in loan growth, citing historical strength, a strong pipeline, and a shift from prior conservatism in real estate. Dennis Shaffer, President and CEO, added that some loan payoffs successfully retained deposits and wealth management relationships. Ian Whinnem, SVP and CFO, detailed the Q3 gain on sale: approximately $850,000 from mortgage, $300,000 from leasing, plus an additional $300,000 from equipment disposal. Dennis Shaffer noted potential for a significant uptick in mortgage gain on sale if rates drop below 6%. For Q4 fee income, Dennis Shaffer projected around $9.2 million, excluding BOLI and security gains, including $50,000 from Farmers.

Brendan Nosal of Hovde Group inquired about the outlook for Civista's core net interest margin for the remainder of the year and asked for an update on the competitive environment for both lending and funding.

Answer

CFO Ian Whinnem projected the Q3 margin to be in the low-to-mid 3.50s (around 3.52-3.53%), expanding further in Q4, driven by repricing loans and paying down borrowings with new capital. EVP & Chief Lending Officer Charles Parcher noted that the competitive landscape is intensifying, with regional banks becoming more aggressive in the market.

Brendan Nosal of Hovde Group asked for an outlook on fee income, noting its relative weakness in the quarter, and requested a detailed breakdown of gain-on-sale revenue between the mortgage and commercial leasing (CLF) divisions.

Answer

CEO Dennis Shaffer acknowledged the lighter-than-expected fee income, attributing it to typical first-quarter seasonality in mortgage and some choppiness in leasing, but expressed confidence in a Q2 rebound for both. CFO Ian Whinnem added that wealth management fees were impacted by market volatility affecting assets under management (AUM). Whinnem provided a specific breakdown: of the $600k gain on sale, 55% ($330k) was from mortgage ($19M volume) and 45% ($270k) was from leasing ($7.6M volume), noting a softer gain-on-sale margin for mortgages compared to the prior year.

Brendan Nosal inquired about the future run rate for fee income, particularly the volatile leasing component, after a successful year of replacing lost revenue. He also requested a breakdown of the Q4 net gain on sale of loans between the leasing and residential mortgage businesses.

Answer

CEO Dennis Shaffer expressed optimism for leasing and wealth management fees, noting the latter is benefiting from over $800 million in assets under management. He identified residential mortgage gain-on-sale income as the primary variable for 2025. CFO Ian Whinnem provided the Q4 gain-on-sale breakdown, stating it was approximately 60% mortgage ($750,000) and 40% leasing ($510,000), with sold volumes of roughly $40 million and $12 million, respectively.

Brendan Nosal asked for details on the $100 million in deposits from the Ohio Homebuyer Plus program, specifically their duration, and inquired about the expense trajectory for the remainder of the year and into early 2025.

Answer

President and CEO Dennis Shaffer explained that the $100 million in state deposits from the Ohio Homebuyer Plus program is the maximum amount and can remain for up to five years, though funds are returned as participants buy homes. SVP and Chief Lending Officer Chuck Parcher noted the favorable trade of paying a premium on ~$11 million in customer deposits to receive $100 million at just 89 basis points. Regarding expenses, SVP and CFO Ian Whinnem projected a relatively flat expense base for Q4, with normal merit increases and technology investments planned for 2025, while Dennis Shaffer suggested a budget around $28.4 million for Q4 is a reasonable estimate.

Brendan Nosal inquired about Horizon Bancorp Inc.'s updated strategic narrative and key areas of emphasis, given the significant balance sheet repositioning and resolution of past capital concerns.

Answer

CEO and President Thomas Prame highlighted Horizon's new narrative focusing on consistent stewardship of capital, accelerated capital generation from the de-risked balance sheet, and strategic optionality for profitable deployment. He mentioned measured approaches to accretive M&A, team expansion, and acquisition of fee income platforms. Regarding M&A criteria, Mr. Prame emphasized logical, accretive transactions for franchises between $300 million and several billion dollars, with a focus on Michigan and Indiana markets, leveraging Horizon's improved financial profile.

Brendan Nosal asked about Horizon Bancorp Inc.'s new strategic narrative and key areas of emphasis following the balance sheet repositioning, and inquired about potential capital deployment options beyond organic loan growth and M&A, as well as specific criteria for future M&A opportunities.

Answer

CEO and President Thomas Prame highlighted the organization's focus on positive capital stewardship, durable returns, and the optionality presented by the de-risked balance sheet. He noted that future capital deployment would be measured, potentially including accretive M&A (logical, additive to community banking, $300M-$4B range, focused on Michigan and Indiana), expansion of teams, or acquisition of fee income platforms. He also emphasized Horizon's stronger position and attractiveness as a partner for M&A.

Brendan Nosal of Stephens inquired about Horizon's capital allocation strategy following the mortgage warehouse sale, specifically asking about the potential for share buybacks, and sought guidance on the expected level of average earning assets for the second quarter.

Answer

Executive Thomas Prame stated that while the company has multiple options for capital deployment, including dividends and M&A, share buybacks are currently viewed as attractive given the stock's price-to-book value. EVP & CFO John Stewart clarified that the average earning asset base would likely be slightly lower than the end-of-period assets and down from the previous year's average of $7.3 billion due to deleveraging activities.

Brendan Nosal inquired about Horizon's strategy to achieve its mid-single-digit loan growth target for 2025, particularly how it will balance strong commercial growth with the runoff of its indirect auto portfolio while maintaining credit and pricing discipline. He also asked about capital deployment plans for 2025, including the potential for share repurchases.

Answer

Lynn Kerber, EVP and Chief Commercial Banking Officer, explained that the company will maintain its mid-to-high single-digit growth cadence in core commercial lending, bolstered by the equipment finance division established in 2024. Executive Thomas Prame added that growth is supported by thriving markets in Indiana and Michigan and strong local talent. Regarding capital, John Stewart, EVP and CFO, confirmed that building capital offers more flexibility and that stock buybacks are a key option, noting a current authorization for 1.1 million shares.

Brendan Nosal inquired about the expected net interest margin (NIM) for 2025 after accounting for all strategic actions and rate cuts, and also requested an update on the fair value of the held-to-maturity (HTM) portfolio.

Answer

John Stewart, EVP and CFO, outlined several factors that will favorably impact the 2025 NIM, including continued earning asset mix changes, modest benefits from anticipated rate cuts, and the redeployment of cash from recent security sales. He also noted a mathematical lift to the margin in Q2 2025 from the paydown of FHLB borrowings. Mr. Stewart did not have the HTM portfolio's fair value figure immediately available.

Brendan Nosal asked for a detailed breakdown of the increase in Old National Bancorp's loan yields during the third quarter, specifically identifying the contributions from backbook loan repricing, new origination yields, and any pull-through from the fair value mark on the Bremer book. He also inquired about the company's strategy for liquidity deployment and plans for the overall size of the securities book if funding inflows consistently outpace loan growth.

Answer

CFO John Moran clarified that the fair value mark was relatively unchanged, and the credit component of Bremer added about one basis point to the total margin. He attributed the bulk of the loan yield improvement to fixed asset repricing, with production yields remaining steady. Regarding liquidity, John Moran stated that Old National Bancorp welcomes deposits in excess of earning asset growth as client acquisition, viewing it as a 'high-quality problem' that would lead to deployment in short liquidity.

Brendan Nosal asked for a breakdown of the quarter's increase in loan yields, specifically the contributions from backbook repricing, new origination yields, and fair value mark pull-through from the Bremer book. He also inquired about the company's liquidity deployment plans and the future size of the securities book if deposit inflows continue to outpace loan growth.

Answer

CFO John Moran clarified that the fair value mark was relatively unchanged, with a small impact from a full quarter of Bremer operations adding about one basis point to the total margin. He noted that production yields were steady, and fixed asset repricing drove the bulk of the loan yield improvement. Moran stated that the company welcomes deposits in excess of earning asset growth, viewing it as a 'high-quality problem,' and would deploy such excess liquidity in short-term instruments.

Brendan Nosal of Hovde Group sought to unpack the loan growth guidance, asking about the expected contribution from easing paydown pressures versus a pickup in originations. He also asked about the assumed growth in non-loan earning assets within the NII guide.

Answer

An executive, likely Mark Sander, explained that production pipelines remain strong and that a return to normal paydown levels would be sufficient to achieve the 4% to 6% growth target. Another executive, likely John Moran, stated that non-loan earning assets are expected to be 'pretty flat,' with no plans to actively grow the securities book.

Brendan Nosal from Hovde Group asked for the outlook on the net interest margin (NIM) trajectory for 2025 amid potential rate cuts and questioned if the recent uptick in charge-offs indicated gradual weakening.

Answer

CFO John Moran stated that the NIM is likely bottoming in Q3/Q4 2024 and has an upward bias for 2025, aided by a deinverting yield curve. Chairman and CEO James Ryan addressed credit, stating the higher charge-offs represent a 'normalization of credit' and remain well within the company's full-year guidance.

Brendan Nosal asked for more detail on Bridgewater Bancshares' margin outlook, specifically regarding assumptions for the yield curve's belly and how the projected 40 basis points of margin improvement would be bifurcated between funding cost relief and loan yield pickup. He also questioned the comfort level and growth potential for the national affordable housing portfolio.

Answer

Joe Chybowski, President and Chief Financial Officer, explained that the assumption for the belly of the yield curve is to remain stable or see slight declines, with slope being a favorable factor. He noted that margin improvement would come from continued asset repricing throughout 2026 and deposit cost sensitivity to rate cuts, with a coordinated effort from both sides. Nick Place, Chief Banking Officer, expressed high comfort with the national affordable housing portfolio, citing the bank's deep history in the space since 2007, focus on top-tier borrowers, and the short-term, relationship-driven nature of the transactions, which also generate core deposit growth.

Brendan Nosal inquired about the decision-making process for share repurchases, specifically how the company balances buying back stock at attractive prices against the capital requirements for funding renewed loan growth.

Answer

President and CFO Joseph Chybowski stated that the approach to buybacks is a dynamic evaluation of multiple factors, including valuation, capital needs for organic growth, and potential M&A opportunities. He emphasized that while the company will support the stock during periods of volatility, ensuring sufficient capital to fund strong growth prospects is a key priority.

Brendan Nosal of Piper Sandler inquired about the drivers behind the improved 2025 loan growth outlook, asking whether it was due to increased credit supply from the bank or higher market demand. He also sought clarification on the high-teens expense growth guidance and requested more detail on the 'modest' net interest margin (NIM) expansion forecast for 2025.

Answer

Chief Banking Officer Nicholas Place explained that the bank is now positioned to be more aggressive on growth after intentionally aligning loan and deposit growth in 2024, supported by strong core deposit momentum and the First Minnetonka acquisition. President and CFO Joseph Chybowski clarified that the high-teens expense guidance incorporates the full cost base of First Minnetonka. Regarding the NIM, Mr. Chybowski projected Q1 2025 expansion would be similar to Q4 2024's, noting the bank's guidance assumes only one Fed cut, which could limit some upside on funding costs.

Brendan Nosal asked for early thoughts on the pace of loan growth for 2025, considering factors like core funding alignment and elevated payoffs. He also inquired about the responsiveness of deposit pricing to the recent Fed rate cut, the spot deposit cost at the end of Q3, and a modeling clarification on average loan balances for Q4.

Answer

Chief Banking Officer Nicholas Place stated that a mid-single-digit loan growth rate is an attainable target for 2025, which aligns with the strategy of improving the balance sheet mix. President and CFO Joseph Chybowski noted that deposit pricing responded to the Fed cut through proactive client education, though the market remains competitive. Place confirmed the spot deposit cost was in the low 3.40% range at quarter-end and that loan balances, excluding the acquisition, are expected to be relatively flat in Q4.

Brendan Nosal inquired about the current stage of RBB Bancorp's asset quality resolution efforts, using a baseball analogy, and sought clarity on what levels of problem assets would signify 'mission accomplished.' He also asked about the remaining authorization for the share repurchase program and the company's plans for re-upping it.

Answer

CEO Johnny Lee acknowledged significant progress in Q3 due to disciplined focus but emphasized that more work remains, aiming for the 'ninth inning' of credit resolution. CFO Lynn Hopkins added that resolving a handful of significant non-accrual relationships (representing 93% of NPLs) and selling REO would be key indicators of 'mission accomplished.' Regarding capital, Lynn Hopkins stated approximately $4 million remains in the current buyback program, noting the attractive stock price. She mentioned considering future buybacks alongside potential sub-debt refinancing next year.

Brendan Nosal inquired about the current stage of RBB Bancorp's asset quality resolution efforts, using a baseball analogy, and sought clarity on what levels of problem assets would signify 'mission accomplished.' He also asked about the remaining authorization for the share repurchase program and the company's plans for re-upping it.

Answer

CEO Johnny Lee acknowledged significant progress in Q3 due to disciplined focus but emphasized that more work remains, aiming for the 'ninth inning' of credit resolution. CFO Lynn Hopkins added that resolving a handful of significant non-accrual relationships (representing 93% of NPLs) and selling REO would be key indicators of 'mission accomplished.' Regarding capital, Lynn Hopkins stated approximately $4 million remains in the current buyback program, noting the attractive stock price. She mentioned considering future buybacks alongside potential sub-debt refinancing next year.

Brendan Nosal of Hovde Group inquired about RBB Bancorp's capital strategy, specifically the new stock buyback program, and sought more details on asset quality, including the drivers of loan downgrades and the sustainability of pursuing loan growth while managing credit issues.

Answer

EVP & CFO Lynn Hopkins stated that the stock is attractive and the modest buyback is manageable alongside credit workout efforts, given sufficient capital and liquidity. EVP & Chief Credit Officer Jeffrey Yeh explained that special mention downgrades were part of an enhanced credit control process for bridge loans that remain current. President & CEO Johnny Lee affirmed the bank can sustain its dual path of managing nonperforming loans while pursuing healthy, selective loan growth.

Brendan Nosal of Stephens Inc. inquired about RBB Bancorp's plans for share repurchases in 2025, the timing of FHLB debt repricing within the quarter, and the quantitative impact of nonaccrual loans on the net interest margin.

Answer

Lynn Hopkins acknowledged that a share buyback is a favorable use of capital and the company hopes to announce a plan soon. She clarified that the FHLB repricing was fully reflected in the March net interest margin and quantified the potential income gain from resolving nonaccrual loans, noting that returning $20 million to accrual status could add approximately $1.2 million in annual interest income.

Brendan Nosal inquired about the specifics of the $26 million C&D loan that moved to nonaccrual status and asked about the company's appetite for a new share repurchase program.

Answer

EVP & CFO Lynn Hopkins explained that the C&D loan project is over 50% complete and that the bank has taken a $4.5 million specific reserve against it. She also confirmed RBB's interest in a new stock buyback program in 2025 after addressing the immediate credit concerns.

Brendan Nosal inquired about the potential magnitude of net interest margin (NIM) expansion into 2025 and asked if there were any signs of recovery in the secondary market for loan sales that could boost fee income.

Answer

Executive Lynn Hopkins explained that as a liability-sensitive bank, RBB's NIM expansion will be driven by the repricing of its CD portfolio, with $800 million at an average rate just under 5% set to reprice next quarter. She suggested the quarter-end deposit spot rate of 3.53% is a good indicator of the minimum potential improvement. Regarding loan sales, Lynn Hopkins and executive Johnny Lee noted that SBA loan premiums have been stable at 8-9%, but margins on mortgage banking products remain thin due to competition.

Brendan Nosal with Hovde Group inquired about Mercantile Bank Corporation's credit quality, specifically where net recoveries are being found and what a normalized charge-off ratio would be given the current portfolio mix. He also asked about the future trajectory of the net interest margin, balancing the headwinds of potential rate cuts against the tailwinds of deploying liquidity from the Eastern Michigan Financial Corporation acquisition, and sought details on the size and rates of lower-rate loans and securities repricing opportunities over the next 12 months. Additionally, he followed up on the fourth-quarter expense guidance, seeking clarification on whether it includes partial run-rate expenses from the Eastern Michigan Financial Corporation acquisition or only merger charges, and inquired about the significant increase in debit and credit card income, asking if there were any unusual factors and what the expected future run rate for this line item would be.

Answer

Ray Reitsma, President and CEO, explained that recoveries stem from a conservative charge-off stance and relentless pursuit of recovery, even for older charge-offs. Chuck Christmas, Executive Vice President and CFO, added that a recent recovery was from a Q4 prior year charge-off and that the company typically budgets for 5% to 10% in net charge-offs, excluding the Great Recession. Regarding the net interest margin, Chuck Christmas stated that the Eastern Michigan Financial Corporation acquisition would be beneficial, and the repricing of lower-rate loans and securities, along with higher-rate time deposit maturities, would provide strong tailwinds, offsetting potential Fed funds rate reductions to maintain a relatively steady margin. He quantified the repricing opportunity, noting approximately $90 million in securities yielding about 1% (reinvesting at 3.75%-4%) and $160 million in commercial real estate loans maturing next year at an average rate of about 4.5%, plus some adjustable-rate mortgage loans. Ray Reitsma further clarified that the fourth-quarter expense guidance primarily includes approximately $1 million in anticipated closing costs for the Eastern Michigan Financial Corporation acquisition, assuming a year-end consummation, with no income statement impact from Eastern Michigan Financial Corporation's operations. Regarding debit and credit card income, Ray Reitsma noted that while the reported increases seemed high, the commercial card program continues to grow well due to its volume-driven nature and strong customer adoption, indicating continued opportunities for growth through penetration of existing and new C&I customer bases.

Brendan Nosal from Hovde Group followed up on the Q4 2025 expense guidance, asking if it included run-rate expenses from Eastern Michigan Financial Corporation or only merger charges. He also inquired about the significant 30% linked-quarter and year-over-year increase in debit and credit card income, seeking clarification on any unusual factors and future expectations for this line item.

Answer

President and CEO Ray Reitsma clarified that the Q4 expense guidance includes only anticipated merger closing costs of approximately $1 million, with no run-rate expenses from Eastern Michigan Financial Corporation, assuming a year-end closing. Regarding debit and credit card income, Ray Reitsma attributed the strong growth to the successful, volume-driven commercial card program and anticipates continued growth through increased penetration among existing and new C&I customers.

Brendan Nosal of Stephens Inc. questioned the tempered loan growth outlook, asking if it stemmed from conservatism or an actual slowdown, and inquired about the bank's capital deployment strategy, particularly regarding share repurchases.

Answer

President and CEO Raymond Reitsma explained the loan growth forecast was adjusted because the commercial pipeline, while large, has shifted more toward discussions rather than committed deals due to economic uncertainty. EVP and CFO Charles Christmas added that while share buybacks are considered, the primary focus is on preserving capital for future asset growth and navigating potential economic slowdowns.

Brendan Nosal of Hovde Group inquired about the primary drivers of the strong deposit growth in the quarter, particularly the increase in noninterest-bearing balances. He also asked how deposit pricing reacted to the recent 50 basis point Fed rate cut and questioned the strategy regarding the use of excess deposits, specifically the trade-off between purchasing securities and reducing wholesale borrowings.

Answer

President and CEO Raymond Reitsma attributed the deposit growth to a focused strategy on new client acquisition and tapping into deposit-rich opportunities, especially in business banking. EVP and CFO Chuck Christmas added that the rise in noninterest-bearing deposits was largely due to seasonal factors, with businesses building cash for year-end payments. He confirmed that deposit pricing for money market and CD products promptly decreased by about 50 basis points, in line with the market. Regarding excess funds, Christmas stated the bank aims to reduce wholesale borrowings as they mature, though some are kept for match-funding fixed-rate loans.

Brendan Nosal from Hovde Group asked about the potential gain on a pending loan sale, capital deployment priorities, and the reasons for flat revenue in the retirement business despite AUA growth. He also followed up on the full-year fee income outlook, questioning the conservative guidance given strong year-to-date results.

Answer

EVP & CFO Al Villalon noted the upcoming loan sale would have a minimal loss. President & CEO Katie Lorenson reiterated capital priorities of organic growth, dividends, and retirement M&A. EVP & Chief Retirement Services Officer Forrest Wilson clarified that a one-time cleanup of zero-balance HSA accounts caused a participant decline without impacting revenue. Al Villalon attributed the fee income guidance to a seasonal downturn in mortgage and no assumed market improvements.

Brendan Nosal inquired about the expected trend for the core net interest margin, the status of a specific nonaccrual construction loan, and the timing of fee assessments for the wealth and retirement divisions.

Answer

Chief Financial Officer Alan Villalon stated that the core margin is expected to continue improving, driven by strong loan growth spreads. Chief Operating Officer Karin Taylor updated that the construction project is substantially complete, with leasing at 36% and a required listing for sale this quarter. Mr. Villalon also clarified that retirement fees are based on average daily balances, while wealth management fees are billed at quarter-end.

Brendan Nosal asked for clarification on the fee income guidance, questioning why the annualized Q4 core run rate appeared higher than the full-year 2025 outlook. He also inquired about the expense run rate and its expected progression as cost savings from the recent acquisition are realized.

Answer

CFO Al Villalon explained the Q4 fee income was elevated by a one-time $3.5 million property sale gain and $1 million in lumpy client swap fees. Regarding expenses, he noted that cost savings would be more front-end loaded in 2025 as contracts roll off, but declined to give a specific quarterly dollar run rate due to volatility from production-based compensation, reiterating the full-year adjusted efficiency ratio target of below 70%.

Brendan Nosal of Hovde Group sought to understand the drivers of the quarterly margin compression, asking for the specific basis point drag from new nonaccrual loans and whether that impact would be recurring. He also questioned if there was any effect from a recent swap maturity and asked about the stronger-than-expected performance in the mortgage business.

Answer

CFO Alan Villalon clarified that the nonaccrual loans created a 7-8 basis point drag on the margin for the quarter, which was due to an interest reversal and is not expected to recur in Q4. He stated there was no impact from the swap maturity and that the remaining swaps would have a very minor impact going forward. Regarding mortgage, Villalon attributed the strong gain-on-sale results to disciplined pricing.

Brendan Nosal of Hovde Group requested more detail on the drivers for the Q3 expense guidance, which projects an increase from the current quarter's run rate. He also asked about the sustainability of the significant sequential step-up in earnings power and pre-provision net revenue (PPNR) observed in Q2.

Answer

EVP, CFO & Treasurer Thomas Bell clarified that the guided increase in Q3 expenses is primarily due to seasonal items like marketing spend, not ongoing issues from the First Security deal. President & Director Alberto Paracchini affirmed that the higher earnings power is sustainable, reflecting the successful integration and cost synergies from the First Security acquisition combined with continued organic growth in the core business.

Brendan Nosal questioned the sustainability of the bank's pre-provision net revenue (PPNR) ROA above 2% and requested a detailed overview of Byline's sponsor finance portfolio and strategy.

Answer

CFO Thomas J. Bell attributed the strong PPNR ROA to the securities portfolio, deposit repricing opportunities, and disciplined expense management. President Alberto Paracchini added that a PPNR ROA around the current level is achievable. Regarding sponsor finance, Paracchini detailed the ~$700M portfolio, highlighting a 10-year history with no losses, a focus on senior-only debt for lower-middle-market companies, and a conservative approach to leverage (under 3x).

Brendan Nosal asked about the origin of loss content in the fourth quarter's charge-offs, the timeline for crossing the $10 billion asset threshold, the bank's preparedness for this milestone, and whether the 2025 expense guidance included the pending First Security acquisition.

Answer

CFO and Treasurer Thomas J. Bell confirmed that loss content originated primarily from the SBA portfolio, consistent with prior quarters. President Alberto Paracchini stated the bank anticipates crossing the $10 billion mark in the latter half of 2025 or into 2026, with full regulatory effects in late 2026 or early 2027, and noted the bank is well-prepared. Tom Bell clarified the quarterly expense guidance of $55 million to $57 million is on a stand-alone basis and does not include First Security.

Brendan Nosal from Hovde Group asked about the sustainability of the bank's strong profitability, specifically whether the pre-tax pre-provision net revenue (PPNR) as a percentage of average assets (ROA) could remain above 2% in 2025. He also inquired about the level of stress in the SBA loan portfolio.

Answer

President Alberto Paracchini explained that while there might be a temporary adjustment period as liabilities reprice in a rate-easing cycle, the focus remains on growing net interest income, which can offset margin compression. He expects profitability to return to levels consistent with recent performance after this adjustment. Regarding the SBA portfolio, Paracchini acknowledged it's a higher-risk, higher-return business and that while they are seeing some normalization and stress, the bank has been well-prepared and has reserved accordingly.

Brendan Nosal of Hovde Group inquired about the drivers behind the strong C&I loan growth in the quarter, asking for details on new credits versus line draws, key industries, and contributing regions. He also asked for an updated outlook on the core net interest margin for the second half of 2025.

Answer

President & COO Len Devaisher explained that C&I growth was broad-based across Denver, the Twin Cities, and Iowa metro markets, with strength in manufacturing. CEO Charles Reeves added that he expects the net interest margin to continue to "grind higher," driven by new loan originations, back-book repricing, and potentially lower funding costs on time deposits.

Brendan Nosal of Hovde Group inquired about the drivers behind the strong C&I loan growth in the quarter and sought an updated outlook for the core net interest margin for the second half of 2025.

Answer

President & COO Len Devaisher explained that C&I growth was broad-based across all geographic footprints and various industries, representing a mix of new and existing clients. CEO Charles Reeves added that he expects the net interest margin to continue to 'grind higher,' driven by new loan originations at higher rates and back-book repricing.

Brendan Nosal of Piper Sandler inquired about the primary upside and downside risks to MidWestOne's outlook for the remainder of the year, the organic growth component within the wealth management guidance, and the expected level for the average earning asset base in the second quarter.

Answer

CEO Charles Reeves addressed the outlook, noting positive Q2 loan pipeline momentum but also customer caution for the second half of the year. President and COO Len Devaisher explained that wealth management growth is a mix of net new assets and fee initiatives, with market volatility being a headwind. Executive Barry Ray projected that the non-loan earning asset base, particularly securities, would likely trend down.

Brendan Nosal of Piper Sandler inquired about MidWestOne's capital deployment priorities following its balance sheet restructuring and asked about the future trajectory of the net interest margin (NIM).

Answer

CFO Barry Ray outlined the capital deployment waterfall, starting with supporting growth, followed by dividends, share repurchases, and M&A, noting the company is approaching its 11% CET1 target. Regarding the margin, Ray stated there is "more left in the tank," citing a higher core margin in December than the Q4 average. CEO Charles Reeves added that the repricing of the back-book loan portfolio will also contribute to future margin expansion.

Brendan Nosal asked about the pro forma balance sheet's positioning for potential Federal Reserve rate cuts, the outlook for net interest margin (NIM) improvement in 2025, and the reasons for the sequential decline in wealth management fees despite AUM growth. He also inquired about the relative opportunities in the Denver and Twin Cities growth markets.

Answer

EVP and CFO Barry Ray explained that the balance sheet is now slightly more asset-sensitive following the repositioning and that a steepening yield curve would be beneficial for margin expansion. President and COO Len Devaisher attributed the wealth management fee variance to episodic revenue from the trust business and lumpy income from annuity sales. Devaisher also stated that both the Denver and Twin Cities markets present robust opportunities, with recent growth being driven by C&I lending in both locations.

Brendan Nosal of Hovde Group asked for an overview of the economic conditions across the bank's key markets, recent changes in the competitive landscape, and the company's current perspective on M&A activity and its own appetite for inorganic growth.

Answer

EVP of Commercial Banking Joel Rahn described the West Michigan and Metro Detroit markets as strong, with manufacturing holding up well. He noted that market share gains continue to come from larger banks, particularly in commercial real estate, and that opportunities are emerging from CMBS maturities. President & CEO William Kessel affirmed that while organic growth is the primary focus, the bank is interested in 'intelligent acquired growth' that aligns with its culture, geography, and price considerations.

Brendan Nosal of Hovde Group asked for an overview of the economic conditions across the bank's key markets, an update on the competitive landscape, and the company's current perspective on M&A activity and its own appetite for inorganic growth.

Answer

EVP of Commercial Banking Joel Rahn described the economies in West Michigan and Metro Detroit as stable, with strong homebuilding and manufacturing sectors holding up well despite automotive industry concerns. He noted that competitive dynamics haven't changed much, with market share gains still coming from larger banks, particularly in commercial real estate. President & CEO William Kessel added that the bank finds opportunities with clients considered too small by larger institutions and stated that while organic growth is the priority, the bank is open to strategic acquisitions that align with its culture, geography, and price expectations.

Brendan Nosal of Hovde Group inquired about the economic conditions across the bank's key markets, the evolution of the competitive landscape, and the company's current appetite for M&A opportunities.

Answer

EVP of Commercial Banking Joel Rahn described the West Michigan and Metro Detroit markets as strong, with manufacturing holding up well and the tourism economy remaining robust. He noted that market share gains continue to come from larger banks, particularly in commercial real estate. President & CEO William Kessel affirmed that organic growth is the primary focus, but the bank remains open to intelligent acquired growth that aligns with culture, geography, and price.

Brendan Nosal from Hovde Group, LLC asked for an overview of the bank's local economies, the evolution of the competitive landscape, and the company's current perspective on M&A opportunities and its own appetite for inorganic growth.

Answer

EVP Joel Rahn described the West Michigan and Metro Detroit economies as stable, with strong homebuilding and manufacturing sectors holding up well despite automotive industry concerns. He noted that market share gains continue to come from larger banks, particularly in commercial real estate where larger competitors are less active. President & CEO William Kessel added that the bank finds opportunities with clients considered 'too small' by larger incumbents. Regarding M&A, Kessel stated that while organic growth is the primary driver, the bank is interested in 'intelligent acquired growth' that aligns with culture, geography, and price.

Brendan Nosal of Piper Sandler inquired about Independent Bank's potential to outperform its full-year guidance after a strong Q1 and asked for the outlook on mortgage banking gain on sale margins.

Answer

EVP and CFO Gavin Mohr indicated that the provision for credit losses offers the most potential for outperformance and noted the bank's income statement is well-insulated from interest rate changes. Regarding mortgages, Mohr stated the team is targeting a 2.50% gain on sale margin, but overall production remains constrained by housing supply. CEO William Kessel added that the balance sheet is positioned to perform consistently whether the Fed holds rates or cuts them multiple times.

Brendan Nosal of Hovde Group inquired about Independent Bank's 2025 lending outlook, focusing on the strategy for hiring commercial bankers, and the expected cadence of net interest margin expansion, including a scenario with no Fed rate cuts.

Answer

President and CEO William Kessel and EVP, Head of Commercial Banking Joel Rahn confirmed a continued focus on recruiting experienced bankers, leveraging market disruption to add a 'handful' of new talent in 2025. EVP and CFO Gavin Mohr stated that margin expansion is expected to be 'ratable' throughout the year, targeting a 20-25 basis point increase over 2024. He clarified that in a no-rate-cut scenario, the margin would be 3-5 basis points lower than the current forecast.

Brendan Nosal of Stephens Inc. inquired about the sustainability of the strong mortgage gain on sale performance and how the bank's balance sheet is positioned for potential Federal Reserve rate reductions, particularly regarding the net interest margin.

Answer

EVP and CFO Gavin Mohr stated that while mortgage margins are expected to remain stable, production volume may face headwinds from seasonality and limited housing supply. President and CEO William Kessel added context on customer rate expectations. Regarding the balance sheet, Mr. Mohr anticipates continued net interest margin expansion, driven by asset repricing and liability management, noting the bank's forward-looking model already projects a higher margin.

Brendan Nosal of Hovde Group inquired about capital deployment priorities, particularly the use of buybacks versus M&A, given the bank's excess capital generation. He also asked about the bank's comfort level with its volume of brokered funding and sought an update on the M&A environment.

Answer

CEO & Director Mark Hardwick reiterated the capital allocation strategy of dedicating one-third of earnings each to growth, dividends, and other activities like buybacks, noting buyback aggressiveness would wane as the stock price increases. EVP & CFO Michele Kawiecki stated the bank's internal threshold for brokered deposits is around 10%, leaving some room. Hardwick confirmed M&A conversations are more robust but the primary focus remains organic growth.

Brendan Nosal asked about the asset repricing dynamics for the fixed-rate portion of the loan book in 2025 and inquired about the outlook for investment spending and overall expenses following the major initiatives in 2024.

Answer

Chief Financial Officer Michele Kawiecki stated that approximately $250 million in fixed-rate loans with a yield of around 4.5% are set to reprice in the next 12 months, providing a tailwind. Executive Mark Hardwick and CFO Michele Kawiecki explained that the 2024 technology projects will not lead to increased run-rate expenses in 2025, as the major costs were one-time conversion charges. They project minimal overall expense growth of 1-3% for 2025 and expect to maintain a sub-55% efficiency ratio.

Brendan Nosal inquired about the current M&A environment, the pace of conversations, and the specific characteristics First Merchants seeks in a potential partner, such as geography, size, and financial profile.

Answer

CEO Mark Hardwick reiterated interest in banks within Indiana, Ohio, and Michigan that are less than 25% of First Merchants' asset size and typically face challenges with growth or efficiency. He noted that while the company is well-positioned for a deal now that its tech projects are complete, the current stock valuation makes M&A more challenging. He believes most potential sellers may wait until the Federal Reserve completes its rate reduction cycle.

Brendan Nosal of Hovde Group asked for clarification on the allowance for credit losses (ACL) calculation, where baseline macro factors increased the provision while macro uncertainty factors caused a decrease.

Answer

EVP & CFO David Stoehr confirmed this interpretation, explaining that the 'macro uncertainty' overlay, which includes factors like market volatility, decreased from approximately $36 million to the low $20 million range. This was largely offset by a slight worsening in the baseline macroeconomic forecast, resulting in a relatively stable provision.

Brendan Nosal asked about the strategy behind adding $1 billion in forward-starting swaps and inquired about the premium finance business, specifically the cause for an increase in P&C loss content and current new money yields.

Answer

Executive Timothy Crane and CFO David Dykstra explained the new swaps were to maintain a total hedge position of around $6 billion to stabilize the margin against a potential down-rate environment in 2026 and 2027. Executive Richard Murphy attributed the P&C loss increase to a timing issue with two problematic loans and expects a recovery. Management added that blended new loan yields for the business are in the high 6s.

Brendan Nosal inquired about the loan growth outlook for the remainder of the year, specifically asking about the balance of risks given recent tariff discussions and actual business activity.

Answer

Tyler Wilcox, President, responded that while Q1 is traditionally a softer quarter, the Q2 pipeline looks strong. He acknowledged the uncertainty from tariffs but highlighted continued optimism in their core small business market. Mr. Wilcox noted that despite low national consumer confidence, they saw record indirect lending production in March. He also mentioned that adding new talent is a tailwind for loan growth, leading them to reiterate their 4% to 6% guidance for the year.

Brendan Nosal inquired about the divergence between period-end and average loan growth, the timing for realizing higher deposit betas, and credit quality trends outside of the leasing portfolio.

Answer

Executive Tyler Wilcox attributed the loan growth variance to strong December production timing. CFO Kathryn Bailey stated the company is proactively managing deposit costs ahead of anticipated Fed rate cuts. Tyler Wilcox confirmed that asset quality outside of leasing remains strong, with low commercial charge-offs and improving trends in the consumer indirect portfolio.

Brendan Nosal asked for clarification on the drivers for achieving positive operating leverage in 2025 and inquired about the current M&A environment, including the pace of conversations and the bank's appetite for deals.

Answer

CFO Kathryn Bailey clarified that expense growth is anticipated to be in the 2-4% range, with revenue growth driven by loan balances and meaningful fee income growth from mortgage, wealth management, and insurance. Executive Tyler Wilcox added that M&A conversations have 'significantly increased' and the bank's strategy has sharpened its focus towards patiently seeking a single, larger deal to cross the $10 billion asset threshold.