Brett Rabatin • Hovde Group

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CFO Robert Wahlman explained that credit enhanced income is a direct offset to the provision for credit losses on that portfolio and detailed the short-term reliance on wholesale funding versus the long-term strategy of using lower-cost deposits from the payments business. Bank CEO James Noone clarified that recent net charge-off levels were in line with expectations and historical averages, attributing the quarterly variance to specific SBA charge-offs rather than a new trend.

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CFO Robert Wahlman clarified that the expense build for new initiatives is substantially complete, with recent increases driven by seasonal payroll taxes and accrual adjustments. He stated that NII growth is expected to resume, driven by a seasonal rebound in high-yield originations and volume growth from new programs, which will offset some margin pressure. Regarding buybacks, Wahlman explained the company would consider repurchases if the stock price fell below tangible book value, while also balancing the need for market liquidity.

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EVP & CFO Nicole Van Denabeele confirmed the expense guidance is inclusive of the projected $16-$17 million for 2Unify. Chairman & CEO Timothy Laney added that the expense cuts were a 'hard reduction' in personnel, achieved with minimal cost by leveraging natural attrition. Regarding competition, Mr. Laney noted their 'hit rate' on loan term sheets is currently lower than historical norms because the bank refuses to compromise on credit structure or pricing.

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CEO Tim Laney stated that while there is pressure on credit structure, the bank is holding firm on pricing, supported by its relationship-based model. President Aldis Birkans noted deposit growth was driven by both client liquidity and tax seasonality, and they expect to grow deposits alongside loans. CFO Nicole Van Denabeele detailed the purchase of $240 million in short-duration securities at a ~5% yield.

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EVP & CFO Martin Grunst and EVP Scott Grauer expressed confidence in fee income, citing strong performance in fiduciary services, transaction cards, and a robust pipeline for syndications and municipal investment banking. CEO Stacy Kymes reiterated that M&A is opportunistic, not a core strategy, and emphasized their focus on organic growth. He noted the company has added over 30 producers across its footprint in the past year.

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EVP Marc Maun explained that healthcare and CRE payoffs were driven by a favorable refinancing environment which he expects to taper off, allowing growth to resume. He highlighted that Q4 saw substantial C&I growth in Texas, demonstrating a return on investment there. CEO Stacy Kymes and CFO Martin Grunst declined to provide a specific dollar figure for the trading revenue shift but affirmed that total trading revenue is expected to grow, directing analysts to Slide 10 for historical context.

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CFO Marty Grunst and CEO Stacy Kymes expressed confidence in Q4 NIM expansion, citing successful deposit repricing, ongoing repricing of the fixed-rate securities and loan books, and the benefit of a large fixed-rate securities portfolio funded by floating-rate liabilities. On M&A, CEO Stacy Kymes reiterated their selective approach, stating that their strategy is focused on organic growth and that potential acquisitions must fit their strict criteria regarding CRE concentration and core deposit franchises, making such events low probability.

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Chairman & CEO John Allison clarified that his income targets are goals dependent on acquiring new assets. President & Chief Lending Officer Kevin Hester confirmed the loan pipeline remains strong despite some expected payoffs moving into Q3. CEO of Centennial Bank, Stephen Tipton, stated that an initial rate cut could be offset by lowering deposit costs, given the bank's slight asset sensitivity. Mr. Allison also noted that Q2 expenses were elevated by a one-time lawsuit settlement.

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Executive Kevin Hester clarified that a large portion of the recoveries will come from consistent monthly payments of $1.5 million from a large charge-off. Executive John Allison stated his preference for a 2% reserve, calling it a smart and conservative approach, and affirmed he would not let the reserve drop below its current level of 1.86%. On M&A, Allison expressed optimism following a recent peer's fast deal approval and confirmed Home Bancshares is open for a deal that makes sense for both parties.

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Chairman John Allison attributed the robust deposit inflows to the bank's marketing of its financial strength and its commitment to cover all uninsured deposits, rather than promoting special CD rates. Regarding M&A, he confirmed the company is actively looking for opportunities to deploy its high capital levels and acquire more assets, mentioning a recent deal was paused to maintain transparency about the quarter's charge-offs.

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Chief Lending Officer Kevin Hester noted some near-term softness but expects community bank loan growth to continue in 2025. CCFG President Chris Poulton added that while CCFG may shrink slightly before growing again, the focus remains on originating quality assets. On deposits, CEO Stephen Tipton attributed the quarterly decline to seasonal municipal outflows and stated the core strategy of relationship-based gathering remains unchanged.

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CEO José Fernández described the energy situation as a "long journey" that will remain noisy but is not derailing the underlying strength of the Puerto Rican economy. On credit, Chief Risk Officer César Ortiz-Marcano clarified that Q1 typically sees seasonally low delinquencies, so a Q2 uptick is normal. He emphasized that newer loan vintages from 2022 onwards are performing better, which should lead to stable and improving credit metrics compared to previous years, suggesting the positive trend is sustainable.

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Executive José Fernández described fixing the power grid as a fragile, decade-long process but noted businesses have adapted. He sees onshoring as a future opportunity but with no tangible evidence yet. Regarding Apple Pay, he highlighted it as a key innovation reinforcing OFG's tech leadership. Executive Maritza Arizmendi confirmed the fee income run rate is $29-$30 million per quarter and the expected full-year effective tax rate is 26%.

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CFO Michael Achary acknowledged that spread compression was due to a mix of competitive pressures and strategic pricing for growth. President and CEO John Hairston added that fee income growth is broad-based, driven by strong trust fees (boosted by the Sable acquisition), treasury services, and card revenue, with potential upside from secondary mortgage.

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CFO Michael Achary explained that while Sabal accounts for about two-thirds of the fee income guidance increase, the other third comes from strength in specialty lines like BOLI, syndication, SBIC, and SBA fees. CEO John Hairston added that wealth management, treasury services, and leading smaller syndications are also key contributors. Regarding loan growth, Mr. Hairston clarified that the Q1 headwind was from a few specific healthcare-related payoffs where HWC opted out, providing liquidity for future growth, rather than a broad, intentional runoff of its SNC portfolio.

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CFO Michael Achary clarified that the 4-5% expense growth guidance includes about 100 basis points from the organic growth plan. He noted that the market is behaving as expected with no surprises in betas, and that the bank's strategy is focused on repricing a large volume of maturing CDs lower and growing DDA balances, which are key to 2025 margin expansion.

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CFO Michael Achary detailed that the $5.6 million sequential increase in 'other income' was driven by specialty items like SBA fees, SBIC income, BOLI, and derivatives, which are not expected to repeat at the same level in Q4. Regarding capital, Achary reiterated that the bank has achieved its goal of top-quartile capital levels, which provides optionality. The top priority for capital deployment is supporting organic balance sheet growth, followed by share repurchases and dividends.

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CFO Michael Mettee explained the mortgage provision increase was driven by the new, more granular ACL model, which analyzed older, high-LTV loans against flatter home price forecasts and higher unemployment assumptions. CEO Chris Holmes stated the bank is well-positioned for M&A, targeting deals in the $3B to $7B asset range, and can also capitalize on organic opportunities from market disruption. Chief Banking Officer Travis Edmonson added that the bank hired four new revenue producers in Q2.

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CFO Michael Mettee explained that Q1 loan growth was weighted toward March, allowing the bank to shed about $50 million in higher-cost brokered deposits. Executive Christopher Holmes added that core customer deposit growth was strong, and they expect more total asset growth in Q2. Regarding construction, Holmes stated the bank's concentration ratio remains low at 64% and that they are watching the hospitality space, particularly in Nashville, very carefully, only proceeding on select deals with strong, well-known guarantors.

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Executive Christopher Holmes addressed the CRE concern, stating the distressed sales involved older, non-locally financed properties and are not indicative of a fundamental economic issue in Nashville; he noted FBK has limited exposure to center-city office financing. Executive Michael Mettee explained that the Q1 NIM expansion is expected to be driven by deploying excess liquidity, which would improve the loan-to-deposit ratio, and the benefit of a stabilizing interest rate environment.

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CFO Terry Earley explained that deposit growth was a mix of seasonality and new customer acquisition, and noted that maturing CDs are currently repricing lower, in the 4.15% to 4.25% range. CEO Malcolm Holland and CFO Terry Earley both addressed expenses, stating that while investments in new commercial bankers will cause expenses to rise from Q1 levels, they will not return to the highs of Q4 2024 due to continued cost discipline. On loan growth, Malcolm Holland confirmed an outlook for flat growth year-over-year for 2025, with an expected pickup in the second half leading to more significant growth in 2026.

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Chief Credit Officer Curtis Anderson explained that the bank is actively managing criticized loans through various strategies, including payoffs and note sales, and expects relative stability in the category. Regarding capital, CEO Malcolm Holland stated that while they are happy with current ratios, the plan is to continue building capital, viewing it as prudent "dry powder." CFO Terry Earley addressed fee income by emphasizing a focus on the totality of fees—including swaps, syndications, and treasury management—rather than just the 'other' bucket, as a key driver of profitability.

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CFO Terry Earley confirmed the NIM guidance, stating it factors in one Fed rate cut and their belief that they can reprice the $2.3 billion in maturing CDs lower than their current 5.18% average rate. CEO Malcolm Holland and CCO Curtis Anderson explained that while the criticized asset trend is downward, it involves a dynamic, name-by-name strategic approach. On capital, Terry Earley noted the buyback is opportunistic and will likely only be used when the stock is below tangible book value, which is not the current situation.

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Harold Carpenter (Executive) attributed BHG's strong credit trends to a stronger borrower base for new originations compared to prior years. M. Turner (Executive) explained that being "nimble" involves staying close to clients and using levers like hiring pace and incentive compensation to manage through downturns. Harold Carpenter added that the 100% incentive accrual reflects that the firm is currently on plan for its targets.

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Harold Carpenter, an executive, explained that while net interest income is expected to grow, the NIM will likely be flattish as the bank still has work to do managing deposit costs in the initial phases of rate cuts. He noted that balance sheet hedges will provide more benefit after about 100 basis points of cuts. Carpenter believes the bank can maintain its current margin, with only minor downside risk, by leveraging its relationship managers. Regarding DDA growth, M. Turner, an executive, added that while some seasonality exists, the primary driver is market share gains and securing full client relationships, which includes their main operating accounts.

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CFO Jorge Garcia acknowledged that while some deposit outflows to asset management continued, this was offset by seasonal commercial activity and a new product launch, with the at-risk deposit level remaining at $600M-$800M. He confirmed the NIM is expected to expand due to securities reinvestment and lower public deposit costs. CRO Lidio Soriano added that Puerto Rico's consumer credit normalization is in its late stages and that recent loan vintages show favorable performance.

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CFO Jorge Garcia explained that deposit outflows were driven by high-net-worth clients seeking higher yields and a surprising increase in spending across the broader retail base. He estimated a remaining risk of $600-$800 million in outflows. Regarding expenses, Garcia clarified the Q4 increase is closer to $25-$30 million on an adjusted basis, attributing it to transformation-related consulting fees and seasonal holiday spending, while deferring 2025 guidance.

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