Brett Rabatin

Brett Rabatin from Hovde Group inquired about First Internet Bancorp's strategy for SBA loan retention on the balance sheet, including expected yields and impact on the 6.39% loan yield from Q4. He also sought an update on CD repricing opportunities for the first half of the year, specifically regarding the $2.4 billion in CDs costing 4.19% in Q4. Additionally, Rabatin asked for an updated figure for criticized loans, particularly within the SBA and franchise finance portfolios, and any commonalities observed in business acquisition-oriented SBA credits experiencing issues.

Answer

EVP and CFO Ken Lovik detailed expectations for continued decreases in deposit costs, especially in Q1, citing a drop in fintech deposit spot rates and significant CD maturities with lower renewal costs. He also explained that new loan production yields, including retained SBA loans (prime plus 1.5), are higher than the overall portfolio yield. Regarding credit, Lovik stated that total criticized loans increased by about $16 million, predominantly in SBA and franchise finance, mostly in the special mention category. Chairman and CEO David Becker added that SBA issues often arise in the 12-18 month window post-acquisition, and the bank is proactively engaging borrowers.

Brett Rabatin asked for clarification on the Net Interest Income (NII) guidance, specifically regarding the amount and yield of SBA loans to be held on the balance sheet throughout the year, and an update on CD repricing opportunities in the first half of the year. He also inquired about the updated criticized loans number, particularly within the SBA and franchise finance portfolios, and any commonalities observed in business acquisition-oriented SBA credits impacting the portfolio.

Answer

Executive Vice President and CFO Ken Lovik explained that deposit costs are expected to decrease, with a larger impact in Q1 due to prior rate cuts and CD repricing. He noted $850 million of CDs maturing in the next six months at 4.15% weighted average cost, compared to current new CD rates of 3.65%. On the lending side, new loan production rates are around 6.85%, above the portfolio average, with growth expected in construction, CRE, CNI, wealth advisory, and equipment finance. He added that retaining an additional $94 million of SBA guaranteed originations at prime plus 1.5% will positively impact yields. Regarding criticized loans, Ken Lovik stated they increased by about $16 million, predominantly in SBA, with most in the special mention category. Chairman and CEO David Becker added that commonality in SBA issues appears in the 12-18 month window post-origination, prompting proactive outreach to over 400 borrowers.

Asked about the conservative provision guidance for the rest of 2025 and 2026, trends and recent procedural changes in the SBA lending business, and the underwriting standards for the franchise finance portfolio.

Answer

The company explained that the provision guidance is intentionally conservative to avoid missing estimates again, despite improving credit trends. A Q2 slowdown in SBA loan sales was due to procedural changes but has since recovered. Franchise finance is cash-flow based lending, and the company has paused new originations in that segment due to market uncertainty.

Brett Rabatin sought details on the franchise finance credit issues that arose in Q1, asking about the specific drivers, whether any particular restaurant type was affected, the total criticized loan number, and the dynamics of the deposit mix shift.

Answer

Executive Kenneth Lovik explained that the charge-offs were related to specific borrower situations, such as guarantor bankruptcies or unit closures, that materialized late in the quarter. Executive Nicole Lorch added that the issues were borrower-specific and not concentrated in any particular franchise category. Executive David Becker noted an internal policy to charge off or reserve for loans at 90 days delinquent contributed to the Q1 numbers. Regarding deposits, Kenneth Lovik clarified that the shift toward interest-bearing demand deposits was driven by growth in fintech partnerships.

Asked for details on the Q1 franchise finance credit issues, whether there were any specific industry concentrations, the total criticized loan number, and the dynamics of the deposit mix shift.

Answer

The company explained that Q1 franchise finance issues were borrower-specific and driven by late-quarter developments and a 90-day charge-off policy, not a specific industry trend. Criticized loans in the franchise portfolio were $13.8 million with a 44% reserve. The deposit mix shift from CDs to lower-cost fintech-driven demand deposits is expected to continue.

Brett Rabatin asked about the recent asset quality cleanup, specifically the drivers behind the SBA charge-offs and the outlook for credit trends in that portfolio. He also questioned the 2025 provision guidance and the assumptions for SBA loan production and gain on sale margins.

Answer

Executive Kenneth Lovik explained the higher provision guidance for 2025 is a conservative measure reflecting the SBA portfolio's growth and higher ACL coverage. Executive David Becker added that the charge-offs were not due to systemic issues but were 'one-off' situations, and the bank took the opportunity to 'set a clean stage for 2025.' For 2025, Kenneth Lovik stated the bank targets $600 million in SBA originations and assumes a 1.08% net premium on sales, noting they might retain loans if premiums weaken.

Brett Rabatin asked for details on the increase in nonaccrual loans within franchise finance and small business, as well as the credit outlook for the RV and single-tenant lease portfolios, specifically mentioning CVS and Walgreens. He also questioned the timing of adding CD liquidity given the rate environment.

Answer

Executive Kenneth Lovik explained that franchise and small business nonaccruals were due to isolated issues, not systemic trends. CEO David Becker added that their internal policy drives the reclassification at 90 days, problem SBA loans peaked in July, and the consumer and single-tenant lease portfolios remain very strong. Regarding the surge in deposits, Becker clarified it was an unintentional, rapid inflow from customers reacting to a 50-basis-point Fed rate cut before the bank could adjust its own rates downward.

Brett Rabatin of Hovde inquired about the fee income outlook for 2026, specifically identifying key drivers and trends in brokerage services. He also asked if all anticipated actions regarding the securities portfolio had been completed or if future moves would be opportunistic, and about opportunities arising from M&A disruption in Texas for attracting new talent or clients.

Answer

CFO Julie Shamburger projected a $1.5 million increase in fee income for 2026, primarily from trust income (due to team expansion into North Texas), treasury fees, and brokerage services. President and CEO Keith Donoho stated that the company would remain opportunistic with the securities portfolio, currently in a holding pattern due to unfavorable rates. Keith Donoho also confirmed active pursuit of opportunities from M&A disruption in Texas, targeting both customer and employee displacement, particularly in C&I in the Metroplex and potential activity from a recent Houston transaction.

Brett Rabatin asked about the fee income outlook for 2026, specifically inquiring about drivers for fee revenues, given positive trends in brokerage services.

Answer

CFO Julie Shamburger stated an expectation for a $1.5 million increase in fee income, primarily driven by trust income due to additional talent and team expansion into North Texas, as well as increases in treasury fees and brokerage services. Brett Rabatin also asked if all anticipated actions regarding the securities portfolio had played out or if future moves would be opportunistic. President and CEO Keith Donahoe confirmed that the company would remain opportunistic, but current rates are not conducive for further moves, placing them in a holding pattern. Finally, Brett Rabatin inquired about opportunities arising from M&A disruption in Texas, specifically regarding people or clients in markets like Dallas and Fort Worth. Keith Donahoe confirmed they are actively seeing opportunities for both customer and employee displacement due to recent acquisitions, particularly in C&I, and are monitoring the situation closely.

Brett Rabatin from Hovde Group inquired about the loan pipeline, its pull-through rate, and the impact of interest rates on the CRE book. He also asked for details on new C&I lenders in Houston and the outlook for the net interest margin, particularly concerning the repricing CD portfolio.

Answer

CEO Lee Gibson confirmed the $1.9 billion pipeline is the largest in a while, with a historical pull-through of 25-30%. He noted that about $300 million in CDs are set to reprice lower, which, along with new swaps and expected loan growth, should positively impact the margin, suggesting the Q1 margin was the trough. An executive, likely CLO Keith Dongey, added that the new Houston lenders are business bankers focused on the small to middle market, and moving their existing books will take time.

Brett Rabatin asked for details on Southside Bancshares' recent securities portfolio actions, including the yields on securities sold versus purchased and the net impact on the net interest margin (NIM). He also inquired about loan payoff activity, the loan pipeline, and the forward outlook for the NIM.

Answer

CEO Lee Gibson explained that the securities repositioning involved selling lower-yielding municipal securities and buying higher-yielding, shorter-duration mortgage-backed securities, resulting in a minor positive impact of 1-2 basis points on the NIM. He noted that while loan payoffs are a sign of a healthy economy, they necessitated a reduction in the 2024 loan growth target to 3%. Gibson described the near-term NIM outlook as potentially 'bumpy' due to the seasonal outflow of a large, low-cost deposit account that benefited Q3.

Brett Rabatin, Director of Research at Hovde Group, inquired about the potential for credit card interchange and transaction volumes for the year, assuming effective fraud detection, and asked about anticipated growth in SBA volumes and continued improvement in gain on sale margins. He also questioned the negative provision for the fourth quarter, specifically if changes in the Q factor for the Allowance for Credit Losses (ACL) or other factors contributed to it, and if there were any anticipated changes to the criticized asset list.

Answer

Edward Nigro, Chairman and CEO, indicated that credit card transactions could potentially double from $400 million to $800 million for the year, emphasizing the capability to handle such growth with new fraud prevention. He stated that SBA growth patterns are expected to continue, with lower interest rates potentially leading to more hotel deals, and highlighted the incentivization program for higher gain on sale. Jeffery Whicker, EVP and CFO, added that the GAAP gain on sale increased to 3.98% in Q4 and is anticipated to trend above 4% in 2026. Whicker also confirmed that changes in the analysis of SBA loans led to adjustments in the Q factors for the ACL, as historical data no longer supported holding additional reserves for that portfolio, a point reinforced by Nigro.

Brett Rabatin inquired about the credit card program's potential for interchange and volume growth, the forecast for the SBA business including volume growth and gain on sale margins, and the drivers behind the fourth-quarter provisioning, specifically regarding non-guaranteed NPAs, charge-offs, and changes to the ACL's Q factor.

Answer

Edward Nigro, Chairman and CEO, highlighted the credit card program's 500% year-over-year growth to $400 million and projected a potential doubling to $800 million, emphasizing new fraud prevention and payment systems. He also discussed incentivizing the SBA team with stock options to improve GAAP gain on sale margins and anticipated continued growth in SBA volumes, especially with lower interest rates. Jeffery Whicker, EVP and CFO, clarified that a change in the SBA loan analysis led to adjustments in Q factors, reducing the need for additional reserves due to concentration risk.

Brett Rabatin asked about National Bank Holdings Corporation's (NBH) loan origination trends versus net growth, specifically addressing the impact of payoff activity in Q4 2025. He sought insight into the confidence level for achieving 10% loan growth in 2026, including assumptions on net versus gross growth and expectations for diminishing payoffs. Additionally, Rabatin inquired about John Steinmetz's post-merger recruiting strategy, asking if active hiring was underway or if it was too early given market disruption.

Answer

Tim Laney, Chairman and CEO, explained that payoffs were influenced by competition from insurance companies and the private debt market, and NBH was unwilling to take on deals outside its risk framework. He noted a risk-off mindset in 2025, but expressed high confidence in Aldis Berkans and John Steinmetz to meet 2026 growth plans. Aldis Berkans, President, added that exiting the trucking segment would no longer be a headwind, and NBH had $250-300 million less scheduled maturities in 2026 compared to 2025, reducing headwinds. John Steinmetz, Executive Vice Chair, expressed optimism for 2026, citing Vista's historical 23% CAGR in loan growth and significant opportunities in resort markets. He confirmed active recruiting and retention efforts, noting inbound calls from bankers interested in NBH's culture, and emphasized the strong cultural fit and credit quality discipline between the merged entities.

Brett Rabatin asked about the dynamics of loan originations versus net growth, specifically regarding payoff activity in Q4 and confidence in the 2026 10% loan growth target, including assumptions on diminishing payoffs. He also inquired about the company's recruiting and hiring efforts, particularly in light of market disruption and the integration of the Vista acquisition.

Answer

Tim Laney, Chairman and CEO, and Aldis Birkans, President, explained that Q4 payoffs were influenced by competition from insurance and private debt, and that the bank had a risk-off mindset in 2025. They expressed high confidence in meeting 2026 growth plans, noting that certain segments like trucking were exited, and there are fewer scheduled maturities in 2026. John Steinmetz, Executive Vice Chair, emphasized optimism for 2026, highlighting Vista's historical CAGR in loan growth and the opportunities in Texas and resort markets. He also confirmed active recruiting and retention efforts, noting significant inbound interest from bankers due to the company's culture and the disruption in the industry.

Brett Rabatin inquired about the opportunities for the pro forma franchise from the Vista Bankshares deal, specifically regarding treasury management, wealth, and trust services.

Answer

Tim Laney, Chairman and CEO, expressed excitement about Vista's leadership and team, anticipating leveraging their talent across the organization. He highlighted plans to deliver a broader suite of treasury management capabilities to Texas and significant opportunities in trust and wealth management, particularly with the Wyoming-based trust business, noting Vista had previously outsourced these services. Aldis Birkans, President, added that teams are already collaborating to capture these opportunities in Q4.

Brett Rabatin asked about the expected trends in loan payoffs for National Bank Holdings Corporation in Q4, specifically how the shape of the yield curve might impact the commercial real estate (CRE) portfolio and its retention. He also inquired about the opportunities for the pro forma franchise from the Vista deal, particularly regarding fee income generation from treasury management, wealth, and trust services.

Answer

Aldis Birkans, President, stated that the company has not yet observed paydowns or prepayments driven by refinancing opportunities and lower yields due to the yield curve shape. Tim Laney, Chairman and CEO, expressed excitement about Vista Bancshares' leadership and team, anticipating market share growth. He highlighted plans to introduce NBH's broader treasury management capabilities to Texas and leverage the Wyoming-based trust business for significant growth in wealth and trust management, which Vista had previously outsourced. Mr. Birkans added that efforts to integrate these partnerships are already underway in Q4 to capture early synergies.

Brett Rabatin from Hovde Group sought clarification on the expense guidance, asking if the H2 2025 forecast was inclusive of 2Unify costs. He also asked for details on the expense reductions and inquired about the competitive environment's impact on loan origination.

Answer

EVP & CFO Nicole Van Denabeele confirmed the $126M-$128M expense guidance for the second half of the year includes the projected $16M-$17M in 2Unify expenses. Chairman & CEO Timothy Laney clarified that the expense cuts were from a 'hard reduction in personnel count' managed through attrition, keeping restructuring costs low. He also noted that the bank's 'hit rate' on loan term sheets is currently lower than historical norms because they refuse to compromise on credit structure or pricing.

Brett Rabatin of Hovde Group sought clarification on the second-half expense guidance, asking if the projected $126-$128 million range was inclusive of the guided $16-$17 million in 2Unify expenses. He also asked for more detail on the expense reduction actions and whether aggressive competition on loan pricing or terms was a factor in the bank's second-quarter performance.

Answer

EVP & CFO, Nicole Van Denabeele, confirmed the H2 noninterest expense guidance of $126-$128 million is inclusive of the projected 2Unify expenses. Chairman & CEO, Timothy Laney, elaborated that the expense actions involved a hard reduction in personnel count, achieved largely through natural attrition and automation, which kept restructuring costs minimal. Regarding competition, Mr. Laney stated that the bank's 'hit rate' on loan term sheets is currently lower than historical averages because they refuse to compromise on credit structure or pricing.

Brett Rabatin from Hovde Group sought clarification on the expense guidance, asking if the projected $126-$128 million for the second half of the year was inclusive of 2Unify expenses. He also asked for more detail on the expense reduction actions and inquired about the competitive environment for loans.

Answer

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.

Brett Rabatin asked about the competitive landscape for loan pricing, whether recent deposit growth was from excess liquidity or core growth, and for details on the securities purchased during the quarter.

Answer

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.

Brett Rabatin inquired about Popular's 2026 Net Interest Income (NII) guidance, potential margin expansion, and the sustainability of the 14% Return on Tangible Common Equity (ROTCE) goal. He also asked about the anticipated slower loan growth for 2026 and any opportunities related to onshoring.

Answer

Jorge García, EVP and CFO, explained that NII growth in 2026 would be driven by margin expansion, reinvestment of fixed-rate assets, loan growth, and lower deposit costs, albeit at a smaller magnitude than 2025. He affirmed expectations for continued margin expansion and the focus on sustainable ROTCE. Regarding loan growth, Mr. García noted an anticipated softening in consumer loans, particularly auto, and a strategic focus on profitable loan growth in the U.S. Javier Ferrer, President and CEO, added that timing of larger loan transactions can impact year-over-year changes.

Brett Rabatin inquired about Popular's NII guidance for 2026, potential margin expansion, and the rationale behind the sustainable 14% Return on Tangible Common Equity (ROTCE) goal, as well as the anticipated slower loan growth for 2026 and opportunities related to onshoring.

Answer

Jorge García, EVP and CFO, Popular, explained that NII growth would be driven by margin expansion, reinvestment of fixed-rate assets, loan growth, and lower deposit costs, albeit at a smaller magnitude than 2025. He noted the 14% ROTCE goal aims for sustainability amidst market uncertainties. Regarding loan growth, Mr. García attributed the anticipated slowdown to softening consumer demand, particularly in auto loans, and a focus on profitable relationships in the U.S. market. Javier Ferrer, President and CEO, Popular, added that timing of loan transactions also impacts year-over-year changes.

Brett Rabatin asked about the drivers of funding costs, specifically whether the outflow of high-net-worth deposits had subsided, and questioned the net interest margin (NIM) outlook given strong NII guidance. He also inquired about weakening consumer credit trends in Puerto Rico, referencing the credit card portfolio.

Answer

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.

Brett Rabatin inquired about the drivers behind the recent retail deposit outflows and the specifics of the guided expense growth for the fourth quarter.

Answer

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.

Brett Rabatin asked about loan payoffs, noting Q4 was lighter than prior quarters, and inquired about expectations for net versus growth in 2026. He also sought clarification on the indirect auto portfolio, specifically the migration of a small piece to deep subprime credit, how it's monitored, and what drives this change if not past due. Lastly, he asked about South Plains Financial's strategy for mortgage banking, including hiring mortgage lenders, and other fee income drivers for 2026.

Answer

Brent Bates (Chief Credit Officer) confirmed Q4 was lighter on early payments, aiding net growth, and expects a few more payoffs in Q1 2026. Cory Newsom (President) added that they are past a period of intentional exits and current payoffs are normal lifecycle events. Brent Bates (Chief Credit Officer) explained that credit score declines in the indirect auto portfolio often result from missed payments or small medical collections. Steve Crockett (CFO and Treasurer) emphasized the portfolio's overall good condition and stability, highlighting the past due ratio as a key indicator. Steve Crockett (CFO and Treasurer) stated they are actively trying to hire mortgage producers to increase volume, maintaining infrastructure while treading water.

Brett Rabatin inquired about loan payoffs, noting that the fourth quarter of 2025 seemed lighter than previous quarters, and asked about expectations for Q1 2026. He sought clarity on how South Plains Financial views net versus gross loan growth for 2026, given their mid-single-digit growth expectations. Rabatin also asked for more detail on the indirect auto portfolio, specifically the migration of a small segment to deep subprime credit, and how this is monitored. Lastly, he questioned the company's strategy for mortgage banking, asking if they plan to hire more lenders and develop this segment further, and for insights into other fee income drivers for 2026.

Answer

Brent Bates, Chief Credit Officer, confirmed that Q4 2025 saw lighter early payments, aiding net growth, but anticipates some long-term fixed-rate financing seekers in Q1 2026, which is factored into growth estimates. Cory Newsom, President, added that the company is past a period of desired loan exits, and Q1 payoffs are part of a normal lifecycle. Regarding the indirect auto portfolio, Bates explained that deep subprime migration often stems from missed payments or small medical collections, not student lending, and emphasized the overall strong quality indicated by the low past-due ratio. Newsom reiterated that the indirect auto book remains in excellent condition and is a non-event for the portfolio. For mortgage banking, Newsom stated they are actively trying to hire producers to boost volume, maintaining their existing infrastructure.

Brett Rabatin from the Hovde Group revisited the topic of loan payoffs, asking if South Plains Financial's commercial real estate (CRE) book appears vulnerable to continued payoffs, especially given recent dips in interest rates and the current market environment.

Answer

Chief Credit Officer Brent Bates acknowledged that some scheduled payoffs of completed and stabilized projects are expected into the first and second quarters, which is a normal course of business. President Cory Newsom added that recent multifamily loan paydowns, totaling about $100 million over three quarters, included two large credits the bank chose to exit without loss due to strategic reasons, and another 25% went to non-traditional lenders offering interest-only terms, which South Plains Financial avoids. He emphasized that the bank is not lowering credit standards to retain loans, especially those at below-market rates (4-5%), and is comfortable replacing them with new business.

Brett Rabatin revisited the topic of loan payoffs, acknowledging the company's optimism and the role of new hires in driving originations. He specifically asked about the commercial real estate (CRE) book's vulnerability to the current interest rate environment and the permanent market, inquiring if the recent dip in rates raises concerns about continued CRE payoffs.

Answer

Chief Credit Officer Brent Bates stated that some scheduled payoffs for completed and stabilized projects are expected into Q1 or Q2, which is normal course. He also noted that past payoffs partly resulted from efforts to resolve potential credit issues. President Cory Newsom added that multifamily loans are down about $100 million over three quarters, with over half due to exiting two specific credits without loss, and another 25% going to non-traditional lenders offering P&L loans with interest-only terms, which South Plains Financial avoids. He emphasized that not all paydowns are negative, especially for below-market rate loans.

Brett Rabatin of Hovde Group asked for the outlook on net interest margin (NIM), the current M&A environment including potential impediments and target size, and the expected performance of the mortgage banking division.

Answer

CFO Steven Crockett noted that while CD rates are repricing lower, significant NIM moves are unlikely without Fed rate changes, though President Cory Newsom affirmed a continued focus on expansion. Chairman & CEO Curtis Griffith detailed that the primary M&A impediment is seller valuation expectations, particularly regarding AOCI marks, and stated their ideal target size is in the $600 million to over $1 billion asset range. Newsom added that the mortgage banking business is expected to remain flat but profitable as they maintain their infrastructure.

Brett Rabatin asked for the dollar amount of loan payoffs in the quarter, questioned the conservative loan growth guidance given the strong pipeline, and inquired about the M&A environment and potential use of capital.

Answer

Chief Credit Officer Brent Bates noted that Q4 payoffs were high due to clients experiencing positive liquidity events, which informs their conservative guidance, though they aim to over-deliver. CEO Curtis Griffith discussed the M&A landscape, stating that while deal flow is increasing, they remain disciplined and have not yet found an opportunity that meets their strict criteria regarding cultural fit and shareholder value. President Cory Newsom added that the bank is better positioned than ever for a strategic acquisition.

Brett Rabatin of Hovde Group inquired about the drivers behind the linked-quarter increase in DDA deposits, the outlook for the cost of funds amid declining rates, and the potential for loan growth to resume in 2025, including any specific initiatives and growth targets. He also asked for commentary on the net interest margin's (NIM) future trajectory.

Answer

President Cory Newsom and CEO Curtis Griffith attributed DDA growth to a strategic focus on requiring deposit relationships with lending clients. Executive Steven Crockett noted that while there's some seasonality, the growth is real. Regarding loan growth, Cory Newsom and Chief Credit Officer Brent Bates highlighted that the new business pipeline is the strongest in two years and that headwinds from the contracting indirect auto and homebuilder portfolios are stabilizing. Steven Crockett added that while the bank is asset-sensitive and expects NIM to improve as rates fall, excess liquidity could create some short-term pressure.

Brett Rabatin asked about the outlook for net interest margin (NIM) expansion and the volume of fixed-rate loans repricing in the coming year. He also inquired about the drivers behind the Q4 decrease in assets under management (AUM) in wealth management and mortgage banking, and the expected performance of these fee-income businesses in 2026. Additionally, he questioned if the strong loan and deposit growth from 2025 is projected to continue at similar levels in 2026.

Answer

Scott C. Wylie, Chairman and CEO, and David L. Weber, Chief Financial Officer, anticipate continued NIM expansion through 2026, with approximately $250 million in fixed-rate loans maturing at low-fives yields, and noted a shift to a more neutral balance sheet interest rate risk. Scott Wylie explained that AUM declines were in lower-yielding categories, while higher-yielding ones improved, reflecting a strategic shift towards fiduciary, trust, and planning services. Julie A. Courkamp, Chief Operating Officer, added that mortgage production is seasonally lower in Q4/Q1 but profitable, with 8 new MLOs hired in 2025 (a 45% increase) positioning them for future growth. Management expects similar strong loan and deposit growth in 2026, driven by small market share, strong economies, and opportunities from M&A disruption.

Brett Rabatin inquired about the magnitude of margin expansion opportunities for First Western Financial in the coming quarters, including the amount of fixed-rate loans repricing at lower rates. He also asked for clarity on AUM levels and the outlook for the wealth management and mortgage banking businesses, as well as the expected loan and deposit growth for 2026.

Answer

Scott Wylie, Chairman and CEO, and David Weber, CFO, indicated expectations for continued NIM expansion through 2026, though potentially not at the same rate as 2025, with approximately $250 million in fixed-rate loans maturing at low-fives yields. They noted a shift to a more neutral balance sheet interest rate risk. Julie Courkamp, COO, and Scott Wylie, Chairman and CEO, explained that AUM declines were in lower-yielding categories, while higher-yielding ones improved, reflecting a strategic shift to fiduciary and planning-driven wealth management. They also discussed mortgage seasonality, the addition of 8 MLOs in 2025, and anticipated 2026 loan and deposit growth similar to 2025, driven by market disruption and small market share.

Brett Rabatin of Hovde Group inquired about the drivers behind First Western Financial's strong MMDA deposit growth, asking if the new levels are sticky, and sought color on a new non-performing asset (NPA) and its related provision. He also asked for an estimated magnitude of net interest margin (NIM) expansion for Q4 2025.

Answer

CEO Scott Wylie confirmed the deposit growth was due to ongoing efforts and market disruption, expecting the new deposit base to be sticky. He explained the NPA was a C&I loan downgraded in Q3 with an adequate specific provision. CFO David Weber projected approximately five basis points of NIM expansion in Q4 2025, driven by deploying excess liquidity into the loan portfolio and improving earning asset yields.

Brett Rabatin inquired about the large OREO property sale, specifically seeking confirmation that the ranch is under contract and asking about the timing of the associated write-down. He also asked for the net interest margin (NIM) outlook for 2025, both with and without potential rate cuts, and its expected progression throughout the year.

Answer

Executive Scott Wylie confirmed the large ranch property is under contract at a strong price that will not require a write-down, with a closing expected in early February. He noted two smaller properties are still being marketed. Executive David Weber stated that the NIM is expected to continue expanding in 2025 even without rate cuts, driven by loan portfolio turnover and a focus on growing DDA deposits. He added that each 25 basis point rate cut would add approximately $1 million in annualized NII and reported the December NIM was 2.47%.

Brett Rabatin inquired about the specifics of a new credit moved to non-accrual, the mechanics behind the quarter's charge-offs, the status of OREO properties, and the latest figures for classified and criticized loans.

Answer

CEO Scott Wylie explained the new non-accrual is a $10 million loan to a wealthy individual facing a liquidity crunch, with full recovery expected. He clarified that the large charge-off was a mechanical accounting entry related to moving a previously discussed problem credit into OREO, where the specific reserve was written off. He also updated on the sale progress of the remaining OREO properties. COO Julie Courkamp provided the specific figures for classified loans, noting a significant decline. In a follow-up, Scott Wylie and Julie Courkamp further detailed that the charge-off process is tied to specific reserves and that the overall allowance also moves in line with the total loan portfolio balance.

Brett Rabatin of Hovde Group asked for clarification on the linked-quarter change in loan yields, specifically the 17 basis point decrease, inquiring about the impact of the non-accrual loan and other factors. He also questioned if the 2026 net interest margin (NIM) guidance reflected further leverage from lower funding costs, considering the competitive deposit landscape in Puerto Rico. Lastly, he sought to understand if the higher auto portfolio net charge-off rate and non-performing loans in Q4 were due to seasonality or a specific trend.

Answer

Maritza Arizmendi (CFO) explained that the loan yield decrease was primarily due to OFG Bancorp's asset sensitivity and the full effect of Fed rate cuts in late 2025. José Rafael Fernández (CEO) added that improved auto loan credit quality also contributed to slightly lower yields. Maritza Arizmendi (CFO) further detailed that the 2026 NIM guidance accounts for the $500 million government deposit exit, its replacement with higher-cost wholesale funding, and anticipated rate cuts, while José Rafael Fernández (CEO) noted that core deposit growth would help mitigate these costs. César Ortiz (Chief Risk Officer) clarified that the elevated auto portfolio net charge-offs and NPLs in Q4 were consistent with typical year-end seasonality, with improvements expected in Q1.

Brett Rabatin of Hovde Group sought clarification on the linked-quarter change in loan yields, specifically the 17 basis point decrease, inquiring about the impact of the large non-accrual loan and other factors. He also asked if the 2026 net interest margin (NIM) guidance reflects further leverage from lower funding costs, considering the competitive nature of Puerto Rico's deposit market. Lastly, he questioned whether the higher auto portfolio net charge-off rate and NPLs in Q4 were due to seasonality or a specific trend.

Answer

CFO Maritza Arizmendi explained that the loan yield decrease was primarily due to the Fed's 50 basis point rate cut in Q4 and the full effect of the September 25 basis point cut, reflecting the bank's asset-sensitive position. CEO José Rafael Fernández added that improved auto credit quality also contributed to slightly lower yields. For NIM guidance, CFO Maritza Arizmendi highlighted the impact of replacing $500 million in government deposits with higher-cost wholesale funding and the full effect of 2025 rate cuts. CEO José Rafael Fernández noted that core deposit growth would help mitigate these costs. CRO César Ortiz attributed the higher auto NCOs and NPLs in Q4 to typical year-end seasonality, expecting a positive effect in the next quarter.

Brett Rabatin asked for an update on the energy situation in Puerto Rico, specifically regarding the power grid and a recent contract controversy. He also inquired about credit quality, asking if the low Q2 charge-off level was an anomaly or a new benchmark to expect going forward.

Answer

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.

Brett Rabatin asked for an update on Puerto Rico's power grid situation, the potential for onshoring, the outlook for fee income, the significance of the Apple Pay rollout, and the expected full-year tax rate.

Answer

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%.

Brett Rabatin asked how negative market sentiment towards buyer stocks influences the company's M&A decisions versus organic growth. He also sought an update on the Texas franchise's performance, including whether past issues had subsided and expectations for net growth. Finally, he questioned the anticipated pace and aggressiveness of the share repurchase plan.

Answer

John Allison, Chairman, affirmed that M&A would continue, guided by opportunities in Tennessee, Texas, or Florida, emphasizing non-dilutive deals. He highlighted the company's strong ROA (2.10%) enables stock buybacks, dividend increases, and tangible common equity growth (16% in 2025). He stated that the Texas operations are now performing as expected three years ago, with significant cleanups leading to good loan origination. Allison indicated the buyback pace would likely continue, with a goal to repurchase all Mountain Commerce shares over time, a decision discussed weekly with Stephen Tipton.

Brett Rabatin questioned how negative investor sentiment towards buyer stocks influences Home Bancshares' M&A strategy, the current performance and outlook for the Texas franchise, and the anticipated pace of share repurchases.

Answer

Chairman John Allison affirmed that investor sentiment does not deter their M&A strategy, as they focus on non-dilutive, accretive deals, citing the Mountain Commerce Bank acquisition as an example. He stated the Texas operation is now performing as expected three years ago, with significant improvements in Dallas-Fort Worth and West Texas. Regarding repurchases, he indicated a likely continuation of the Q4 pace, with a goal to buy back shares equivalent to the Mountain Commerce acquisition over time.

Brett Rabatin asked about the impediments to M&A activity over the past quarter, the outlook for acquisitions given current stock valuations, and whether the company's profitability metrics (ROA, ROE, ROTE) have peaked, along with the potential for further expense reductions.

Answer

Chairman John Allison announced a signed Letter of Intent for a multi-billion dollar acquisition in the United States, emphasizing that previous M&A hesitancy was due to resolving issues from the HAPPI acquisition. He stated that profitability has not peaked, with opportunities to further reduce expenses. CEO Stephen Tipton and President of Centennial Commercial Finance Group Christopher Poulton highlighted one-time expenses and recent recoveries contributing to income.

Brett Rabatin sought clarification on net income targets for 2025 and 2026, inquired about loan pipeline strength relative to expected payoffs, and asked about the potential impact of a Fed rate cut on the net interest margin (NIM).

Answer

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.

Brett Rabatin asked for details on the timing of the expected $30 million in recoveries from the recent credit cleanup. He also questioned the bank's provisioning needs and whether management could substantiate a 2% loan loss reserve. Finally, he sought commentary on the current M&A environment.

Answer

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.

Brett Rabatin from Hovde Group asked about the drivers behind the strong Q4 deposit growth, the outlook for deposits going forward, and the company's plans for capital deployment, specifically regarding M&A.

Answer

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.

Brett Rabatin inquired about the loan growth outlook for 2025, specifically if the CCFG portfolio could outpace payoffs, and asked about deposit trends following quarterly outflows and any new initiatives to grow the funding base.

Answer

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.

Brett Rabatin with Hovde Group inquired about Commercial Bancgroup's Q4 loan growth expectations, specific growth areas, Q3 payoff activity, the impact of potential Fed rate cuts on the Q4 net interest margin, current loan and deposit pricing trends, and the company's outlook on the M&A climate for adding scale.

Answer

President and CEO Terry Lee confirmed minimal Q3 payoff activity, a robust Q4 loan pipeline, and anticipated positive year-end loan growth despite not meeting budget and the absence of a prior large annual line of credit draw. He stated the company is asset-neutral, reported a strong September net interest margin of $4.05, and noted balance sheet flexibility. Lee also expressed a positive M&A outlook, positioning the company as a buyer for $500M-$750M banks, actively pursuing opportunities.

Brett Rabatin inquired about the strength of the loan pipeline, the anticipated magnitude of loan growth for Q4, specific areas of growth, the overall outlook, and the level of payoff activity experienced during Q3. He also asked about the Q4 net interest margin outlook, given potential Fed rate cuts and the bank's asset sensitivity, and current trends in loan and deposit pricing. Finally, he sought insights into the M&A climate and Commercial Bancgroup's strategy for adding scale to its franchise.

Answer

President and CEO Terry Lee confirmed minimal Q3 payoff activity and a robust Q4 loan pipeline, projecting positive year-end loan growth despite not meeting budget and the absence of a recurring $30 million line of credit drawdown. He noted the bank's balance sheet is more neutral on asset sensitivity, with a September net interest margin of $4.05, and expects it to remain strong, around $3.75-$3.80, due to flexibility. He mentioned current highest CD rates are $3.85 for short terms. Regarding M&A, Mr. Lee expressed optimism about the climate, positioning Commercial Bancgroup as a key buyer for $500M-$750M banks, actively pursuing opportunities.

Brett Rabatin inquired about the one-time nature of the deferred tax asset reversal, the health of the consumer in Puerto Rico amidst auto lending normalization, and the assumptions for deposit funding costs in the fourth quarter's flat net interest margin guidance.

Answer

CFO Orlando Berges-González clarified that while the DTA reversal is one-time, there's a small ongoing benefit to the effective tax rate from holding company operating losses. CEO Aurelio Alemán noted auto sales normalization (down 7% YTD), stable consumer credit trends, and lower unsecured credit demand, with portfolio growth driven by residential mortgage and commercial loans. Regarding margin, Mr. Alemán and Mr. Berges-González anticipate some reduction in government index deposit costs and time deposits, but core retail products are not expected to decrease yet, with the overall margin depending on the balance sheet mix.

Brett Rabatin inquired about the one-time nature of the tax situation, the health of the consumer in Puerto Rico given auto lending trends and stable credit, and the assumptions behind the flat Q4 margin guidance, specifically regarding deposit funding costs and deposit beta.

Answer

Aurelio Alemán, CEO, and Orlando Berges-González, CFO, clarified that while the DTA reversal was one-time, there would be an ongoing, albeit smaller, tax benefit. They noted auto sales were normalizing, consumer credit demand was lower but stable, and portfolio growth would be driven by residential mortgage and commercial loans. For the margin, they expect some reduction in deposit costs from indexed government and time deposits, but with a typical lag compared to asset repricing.

Asked for clarification on the full-year tax rate guidance, sought more details on the recent deposit decline, and inquired about the sustainability of the current credit charge-off levels.

Answer

The 23% tax rate is for the full year, partly due to the tax benefits from redeeming the TruPS. The deposit decline was concentrated in a few large, non-recurring commercial accounts due to business purposes, tax payments, and some yield-seeking behavior, but retail deposits are stable. The current trend of sustainable to improving charge-offs for consumer portfolios is expected to continue.

Brett Rabatin from Hovde Group inquired about the full-year effective tax rate guidance, the drivers behind the quarterly deposit decline, and the sustainability of current credit charge-off levels.

Answer

EVP & CFO Orlando Berges-González confirmed the full-year effective tax rate is expected to be around 23%, partly due to the tax benefits of redeeming subordinated debentures. President & CEO Aurelio Alemán-Bermudez explained the deposit decline was concentrated in a few large commercial accounts due to non-recurring events like capital investments and tax payments, and that the improving trend in consumer credit charge-offs is considered sustainable.

Brett Rabatin asked for color on the expected sources of loan originations to meet the mid-single-digit growth guidance for the year. He also inquired about the status of the Apple Pay rollout and sought an updated view on the comparative credit risk between the Puerto Rico and Florida commercial loan portfolios.

Answer

CEO Aurelio Alemán-Bermúdez explained that he expects growth to be driven by the commercial and construction portfolios, with slower growth in consumer loans and a slight pickup in residential mortgages. He confirmed the Apple Pay project is in progress and should launch within the year. Regarding credit risk, he noted Florida's market is more competitive, but the bank's portfolio there is performing well, while Puerto Rico's CRE portfolio benefits from healthy loan-to-values.

Brett Rabatin asked for more detail on the trimmed expense guide, specifically the expectations for Q4 expenses and the potential for further build-out initiatives in 2026. He also sought clarification on CEO Rob Holmes' cautious macro environment outlook despite significant improvements in criticized assets, and what that might imply for future strategy.

Answer

CFO Matt Scurlock projected Q4 non-interest expense at approximately $195 million, with salaries and benefits in the low $120 million range and other non-interest expenses above $70 million due to increased occupancy, marketing, and legal/professional costs for new capabilities. He noted it's too early to provide 2026 expectations but affirmed a continued focus on aligning expenses with strategic objectives. CEO Rob Holmes explained his cautious stance as a 'highly paranoid' approach, emphasizing constant vigilance, downside scenario planning, and tabletop exercises to proactively manage risks, which is a fundamental aspect of how the business is run.

Brett Rabatin of Hovde Group questioned if TCBI gained market share in the competitive mortgage finance business and asked about the outlook for the investment banking pipeline given the change in revenue guidance.

Answer

CFO Matt Scurlock stated that market share in mortgage finance remains stable at around 5%, with the focus being on providing a holistic offering to clients to improve returns, not just growing warehouse balances. CEO Rob Holmes reinforced this, stating the strategy is to serve the best clients and that warehouse balances are a result of meeting their needs. Regarding the pipeline, Holmes said it is growing but has been pushed back due to uncertainty. Scurlock added that the fee outlook is now more heavily weighted to the second half of the year.

Brett Rabatin asked about SmartFinancial's recent hires, their geographic distribution, and the growth outlook for the Alabama franchise, specifically inquiring if the growth rate would slow down. He also sought clarification on the Q4 margin guidance, the impact of liquidity on the average balance sheet size, and the potential effects on Net Interest Income (NII). Additionally, he questioned the nature of SmartFinancial's tech-focused initiatives for 2026, including the use of AI and bots, and their potential impact on the expense base and productivity.

Answer

Billy Carroll, President and CEO, explained that hires were fairly evenly spread across Alabama, Tennessee, and Florida, with strong momentum in Alabama markets like Birmingham, Auburn, Dothan, Montgomery, and Mobile. He affirmed that the growth is not expected to slow down. Ron Gorczynski, CFO, clarified that Q4 liquidity would be deployed to pay down subordinated debt and brokered deposits, funding loan production without materially changing the overall balance sheet size. Billy Carroll added that tech initiatives, including AI and bots, are expected to increase efficiency and allow the company to scale without significantly increasing staff, with expense reductions from contract renegotiations offsetting new tech investments. Ron Gorczynski emphasized that the primary focus of these tech initiatives is to provide clients with a better and easier experience.

Brett Rabatin inquired about SmartFinancial's recent hiring trends, specifically focusing on the geographic distribution of new hires and the growth outlook for the Alabama franchise. He also asked for clarification on the Q4 margin guidance, anticipated liquidity changes, and the impact of tech-focused initiatives like AI and bots on expenses and productivity.

Answer

President and CEO Billy Carroll stated that new hires were fairly evenly spread across all zones, including Alabama and Tennessee, and expressed continued bullishness on Alabama's growth momentum. CFO Ron Gorczynski explained that Q4 liquidity would normalize with sub debt retirement and brokered deposit paydowns, with cash funding loan production without materially changing the balance sheet size. Billy Carroll added that tech initiatives aim for expense reduction and reinvestment, leveraging tools like AI and Copilot to increase efficiency and scale without significantly increasing staff, while also improving client experience, as Ron Gorczynski noted.

Brett Rabatin of Hovde Group asked for details on the fee income guidance, particularly for the insurance and investment lines, and inquired about the appetite for construction lending and the outlook for the C&I portfolio.

Answer

President and CEO William Carroll explained that Q1 fee income was bolstered by typical seasonality in insurance contingency revenue and that market volatility could affect investment services fees. CFO Ronald Gorczynski added that mortgage banking revenue is an area with potential for an uptick. Regarding loan growth, Carroll and executive Rhett Jordan stated their approach remains balanced, with the pipeline mix reflecting their current portfolio composition and continued good demand across all product types and geographies.

Brett Rabatin asked about the sustainability of strong Q3 fee income, particularly from customer swaps and investment services. He also inquired about the bank's initiatives to grow core deposits and the competitive landscape for deposit rates.

Answer

President and CEO William Carroll stated that the investment services income is becoming more consistent, while CFO Ronald Gorczynski clarified that the high level of Q3 swap income was opportunistic and not expected to repeat in Q4. Both executives affirmed a strong focus on growing core deposits through their sales teams, noting that the competitive rate environment is stabilizing.

Brett Rabatin asked about BOK Financial's loan growth in office commercial real estate (CRE) during the quarter, questioning if it represented an opportunity due to competitors reducing exposure in certain CRE segments. He also inquired about the drivers of strong growth in Assets Under Management and Administration (AUMA) over the past year, distinguishing between market appreciation, new clients, and fee changes.

Answer

President and CEO Stacy Kymes clarified that office CRE balances were consistent year-over-year, and BOK Financial is not 'afraid of office' for the right deals, though its primary focus remains multifamily and industrial. He noted that BOK Financial is well below internal concentration limits for CRE. Regarding AUMA, Kymes explained that the $4.8 billion increase in Q3 was split roughly equally between market valuation improvements and net new business growth, spanning safekeeping and fiduciary assets across all wealth business lines.

Brett Rabatin inquired about the drivers behind the strong growth in Assets Under Management and Administration (AUMA) over the past year, asking about the split between market appreciation and new client acquisition, and its impact on future revenue.

Answer

Stacy Kymes, President and CEO, explained that the $4.8 billion AUMA increase in Q3 2025 was roughly split equally between market valuation improvements and net new business growth. He noted that this growth was broad-based across safekeeping and fiduciary assets, spanning all wealth business lines from retail brokerage to institutional, indicating strong new asset attraction despite natural churn.

Brett Rabatin questioned the drivers of the full-year fee income guidance, the company's M&A strategy, and recent trends in organic growth through talent acquisition.

Answer

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.

Brett Rabatin of Hovde Group sought more detail on the non-core C&I loan book, including the healthcare and CRE outlooks, and asked about geographic growth drivers. He also requested a dollar estimate for the revenue shift from trading fees to NII.

Answer

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.

Brett Rabatin from Hovde Group asked for more detail on the expected drivers for net interest margin (NIM) in Q4, particularly around deposit beta assumptions after the recent Fed rate cut. He also inquired about BOKF's M&A strategy and view of the current environment.

Answer

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.

Brett Rabatin inquired about Cadence Bank's loan portfolio, specifically the one-to-three-year bucket on slide 10, noting its lower yield despite being largely variable, and asked if it's weighted more towards the one or three-year end. He also asked about credit quality, noting normal migration in non-accruals with a downdraft in CNI and an uptick in income-producing CRE.

Answer

CFO Valerie Toalson explained that the one-to-three-year bucket includes loans fixed for a period before switching to floating, which were originated at earlier dates, resulting in a 5.46% average rate. She noted a strong delta between this and new originations (6.85%), providing future benefit. CEO Dan Rollins and Chief Credit Officer Chris Bagley stated that credit migration is normal, with no significant concerns, and that non-performing CRE loans often have strong loan-to-values, with a large portion of the non-performing book being SBA guaranteed.

Brett Rabatin asked about the bank's credit performance, specifically addressing the movement in non-accruals, with a downdraft in CNI and an uptick in income-producing CRE, and management's overall thoughts on non-performers.

Answer

CEO Dan Rollins and Chief Credit Officer Chris Bagley characterized the movements as normal migration, with nothing overly concerning. They noted that identified CRE credits have strong loan-to-values, and no losses are anticipated. They also reminded that a significant portion of the non-performing book consists of SBA guaranteed loans, which should be considered when evaluating credit quality.

Brett Rabatin asked about the loan growth guidance, specifically how paydowns in the energy portfolio might affect it and whether a rebound is contemplated. He also asked for an updated perspective on the M&A environment.

Answer

CEO James Rollins stated that no single loan category will move the overall guidance and expressed confidence in growth opportunities across the footprint. President Edward Braddock added that while the energy portfolio saw paydowns, it also added new transactions and expects activity to create new opportunities. Regarding M&A, Rollins noted that market volatility causes hesitation, but consolidation will continue to happen as companies assess the environment.

Brett Rabatin from Hovde Group asked for details on the loan pipeline, including new commitment levels and gross versus net production in Q3. He also questioned why the full-year adjusted revenue guidance wasn't raised given the positive outlook for margin expansion.

Answer

Chairman and CEO James Rollins reported new loan originations of approximately $1.07 billion, which were offset by payoffs from M&A and capital markets activity. President Edward Braddock specified that the energy sector saw significant churn. Regarding guidance, EVP and CFO Valerie Toalson stated that while reaching the higher end of the revenue growth range is a 'reasonable assumption,' she maintains a conservative stance due to deposit competition.

Brett Rabatin from Hovde Group asked about the specific tailwinds expected to drive a stronger net interest margin (NIM) in Q4, particularly regarding deposit betas and other dynamics. He also inquired about the drivers of strong demand deposit account (DDA) growth, including the role of specialty deposits, and whether this growth pace is sustainable.

Answer

CFO Harold Carpenter identified key margin tailwinds as deposit betas, growth in non-interest-bearing deposits, and continued lift from fixed-rate loan repricing. He attributed strong DDA growth to a focused emphasis on operating accounts, especially in small business, and confirmed expectations for continued growth, including seasonal increases in Q4. President and CEO Terry Turner highlighted the robust 14.5% annualized Q3 growth rate for non-interest-bearing deposits.

Brett Rabatin from Hovde Group, LLC inquired about the drivers behind the positive 30-day past-due trends at BHG, what being "nimble" means for Pinnacle in a recession, and the rationale for starting the year with a 100% incentive payout accrual.

Answer

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.

Brett Rabatin asked for clarification on the flattish Q4 net interest margin (NIM) outlook, given positive factors like loan and deposit beta performance and fixed-rate loan repricing. He also inquired about the timing of asset versus liability sensitivity and any seasonality in DDA growth.

Answer

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.

Brett Rabatin asked about Hancock Whitney Corporation's expectations for Q4 deposit growth, considering seasonality and the competitive landscape, and inquired about the goals for the Dallas operation and potential similar expansion approaches in other MSAs.

Answer

CFO Mike Achary stated that Q4 is seasonally strong for deposit growth, expecting $200 million-$300 million from public funds and around $200 million from DDAs, leading to $400 million-$500 million total growth and low single-digit year-over-year growth. He noted no significant change in competitive pressures, describing the cycle as 'better behaved' due to the absence of 'irrational players' and less irrational behavior from credit unions. President and CEO John Hairston explained that the Dallas MSA office count will more than double, with staffing focused on financial advisors and business/commercial bankers to drive business-purpose client growth (already north of 40% CAGR). He anticipates increased growth due to expanded access and market disruption, and mentioned debating similar expansion plans in four other MSAs for mid-to-late 2026, awaiting further disruption announcements. He reiterated the aspirational goal of becoming the best bank in the Southeast for privately owned businesses, leveraging fee income growth from investments, annuities, and treasury advisors.

Brett Rabatin of Hovde Group inquired about the observed spread compression on new loan originations and sought clarity on the drivers behind the strong fee income guidance for the year.

Answer

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.

Brett Rabatin from Hovde Group asked for clarification on the drivers of the increased fee income guidance beyond the Sabal acquisition, focusing on repeatable revenue streams. He also inquired how the revised loan growth outlook accounts for the recent trend of payoffs in healthcare and national credits.

Answer

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.

Brett Rabatin of Hovde Group asked for a breakdown of the 2025 expense growth guidance, specifically the impact from incentive compensation versus organic growth initiatives. He also inquired about deposit and loan beta performance and expectations.

Answer

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.

Brett Rabatin requested more detail on Q3 fee income, specifically the components of the 'other' income bucket, and also asked about the bank's strategy for capital accumulation and deployment.

Answer

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.

Brett Rabatin from Hovde Group asked for clarification on the relationship between credit enhanced income and loan balances, future funding costs amid strong loan growth, and trends in net charge-offs outside of strategic programs.

Answer

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.

Brett Rabatin asked about FinWise's expense run rate, the potential for Net Interest Income (NII) growth despite margin compression from its risk reduction strategy, and the company's approach to stock buybacks.

Answer

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.

Brett Rabatin of Hovde Group asked about the economic conditions in Wichita, particularly regarding the aviation industry, and whether deposit costs could be lowered further. He also sought clarification on the target size for potential M&A deals.

Answer

Chairman & CEO Brad Elliott stated that Wichita represents less than 10% of the company's portfolio, with minimal direct exposure to aircraft suppliers. He noted the local job market remains strong and unaffected by issues at Boeing/Spirit. EVP & CFO Chris Navratil indicated that most deposit cost reductions have already occurred and the market for new deposits is competitive. On M&A, Brad Elliott reiterated that the company's focus remains on target institutions with assets between $250 million and $1.5 billion.

Brett Rabatin asked for color on deposit competition and the outlook for cost of funds. He also followed up on the NBC deal regarding potential product rollouts and asked if potential Fed rate cuts would push the bank's margin toward the high end of its guidance.

Answer

Bank CEO Rick Sems noted more rational deposit competition and said the bank would mirror any Fed moves. Chairman and CEO Brad Elliott and CFO Chris Navratil highlighted that Equity's treasury platform and retail strategy would be additive to NBC's strong existing franchise. Regarding the margin, Chris Navratil stated the bank is fairly neutral to rate changes and expects to sustain its current margin position, not necessarily see a significant boost from cuts.

Brett Rabatin of Hovde Group inquired about the drivers behind the mortgage banking provision, particularly concerning higher LTV loans, and the impact of the new ACL model. He also asked for an updated outlook on the M&A environment, the potential size of future targets, and recent trends in hiring new banking associates.

Answer

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.

Brett Rabatin inquired about the balance sheet strategy, asking if the flat growth seen in Q1 would persist into Q2 while managing deposit costs ahead of the Southern States deal. He also questioned the recent increase in construction loan commitments, specifically expressing concern about the Nashville hotel market.

Answer

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.

Brett Rabatin asked for commentary on the Nashville office commercial real estate market following recent distressed property sales and sought details on the drivers for the projected Q1 net interest margin (NIM) improvement.

Answer

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.

Brett Rabatin asked about the drivers and stickiness of core deposit growth, the repricing outlook for $1.9 billion in CDs maturing in the next two quarters, future expense trends, and the updated loan growth forecast for the year.

Answer

CFO Terry Earley explained that deposit growth was driven by both seasonality and new customer acquisition, and that maturing CDs at 4.57% are being replaced with new ones in the 4.15%-4.25% range. CEO Malcolm Holland and CFO Terry Earley noted that while expenses will rise from Q1 due to strategic hires, they will not return to Q4's higher levels. They projected flat loan growth for 2025, with a stronger outlook for 2026 based on a 130% year-over-year increase in loan production.

Brett Rabatin inquired about the sustainability of core deposit growth, the repricing outlook for $1.9 billion in CDs maturing soon, future expense trends following a strong quarter, and the updated loan growth forecast for the year.

Answer

CFO Terry Earley attributed deposit growth to seasonality and new customer acquisition, noting that maturing CDs with a 4.57% rate are being repriced in the 4.15%-4.25% range. CEO Malcolm Holland and CFO Terry Earley clarified that while expenses are being tightly managed, they will increase from Q1 levels due to strategic hiring of commercial bankers, though they will not return to Q4's higher levels. They confirmed a flat loan growth outlook for 2025, with a return to mid-to-high single-digit growth anticipated for 2026 based on strong production pipelines.

Brett Rabatin of Hovde Group asked for an update on classified and criticized loan trends, with a specific focus on the outlook for the criticized office portfolio. He also inquired about the bank's capital strategy and the future of the 'other' fee income category.

Answer

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.

Brett Rabatin sought confirmation of the 3.25% to 3.30% NIM guidance, questioned the ability to reprice maturing CDs lower, asked about the composition of criticized assets, and inquired about the bank's capital strategy regarding share buybacks.

Answer

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.

Inquired about the drivers of the strong $450 million in loan originations, the bank's M&A outlook, and sought clarification on the components of the flat net interest margin forecast for the second half of the year.

Answer

Loan originations were driven by a combination of taking market share from competitors, new projects from existing clients, and contributions from new lending teams. On M&A, management is always open to conversations and developing relationships. The flat margin forecast was clarified as a conservative view based on funding cost changes (brokered CDs, FHLB paydowns, public fund runoff) without factoring in potential upside from loan growth.

The analyst asked for more detail on the net interest margin outlook, the quarterly progression of loan repricings in 2024, the state of loan demand across different markets, and the expense outlook for 2024.

Answer

Executives confirmed margin pressure in Q4 due to public fund seasonality, followed by a rise in 2024 with about $100 million in loans maturing quarterly. Loan demand remains healthy despite higher equity requirements for borrowers. The expense strategy for 2024 is to maintain control, with the main new spending related to crossing the $10B asset threshold.

Asked about the intended use of the BTFP, the volume of loans expected to reprice in 2024, and the outlook for fee income drivers.

Answer

The bank plans to use the BTFP to replace higher-cost FHLB advances to lock in lower funding costs. Approximately $2 billion in fixed and adjustable-rate loans are expected to reprice higher during 2024. Fee income is expected to be relatively stable, with mortgage banking being the primary wildcard for potential upside.

Brett Rabatin of Piper Jaffray Companies asked for details on a large commercial credit that moved to non-performing status, the potential for charge-offs to decline following PROMESA, and the company's expansion plans for its Florida franchise.

Answer

CEO Aurelio Aleman and CFO Orlando Berges explained the large credit was a previously classified relationship that filed for bankruptcy. They expressed optimism that PROMESA provides a more orderly framework that should reduce macro uncertainty and noted the overall classified book is showing improvement. Regarding Florida, Mr. Aleman described the strategy as a wholesale play focused on rebuilding branches, hiring quality officers, and growing core business in the Miami-Dade and Broward County markets.