Brian Martin

Brian Martin asked for more context on payoffs versus production in 2025, specifically the amount of higher-than-normal payoffs and how production compared year-to-year. He also inquired about the specialty businesses (C&I side), their contribution to growth in 2025, their current percentage of the total book, and the outlook for trending that percentage upwards over time. Finally, Martin asked about areas expected to drive the most lift in fee income, more details on SBIC revenues (2025 vs. 2026 growth), and an update on the other long-standing asset-based lending (ABL) credit issue from 2023.

Answer

President and COO Dave Seiler stated that payoffs in 2025 were about $70 million higher than average, with $60 million of that in the last two quarters, which, if normalized, would bring full-year loan growth to 10-11%. He noted production was at the expected rate. CEO Corey Chambas added that higher payoffs were partly due to multifamily properties going to the secondary market and balloon activity in CRE, but also noted opportunities from other banks' ballooning CRE loans. Corey Chambas mentioned that specialty niches (ABL, accounts receivable finance, floorplan financing) were flat in 2025 but are expected to pick up, with ABL already showing good activity. He stated specialty niches are currently about 23% of the total book, with a goal to return to 25% and ideally reach 30% over time, which helps margin. Dave Seiler identified Private Wealth (10%+ growth goal) and SBA gain on sale (expected to grow from ~$500k/quarter average in 2025) as key fee income drivers. Corey Chambas added that SBIC revenues are expected to grow more than 10% due to the J-curve effect of investments. Dave Seiler updated on the 2023 ABL credit, stating it's in the court system with a court date set for later in 2026, indicating it will likely remain an issue for a while.

Brian Martin asked for context on 2025 loan payoffs versus production, and expectations for payoffs subsiding in 2026. He also inquired about the growth contribution and outlook for specialty businesses (C&I, ABL, accounts receivable finance, Equipment Finance), their current percentage of the loan book, and long-term targets. Additionally, he asked about areas expected to drive fee income growth and an update on SBIC revenues, and the status of another long-standing problem ABL credit.

Answer

President and COO Dave Seiler stated that 2025 payoffs were $60-$70 million higher than normal, with most in the second half, and production remained consistent. CEO Corey Chambas added that secondary market activity and maturing CRE loans contributed to payoffs, but also create refinance opportunities. Corey Chambas noted specialty niches were flat in 2025 at 23% of the loan book, down from previous levels, but expects ABL and accounts receivable finance to pick up, aiming for 25% in the short term and potentially 30% over time. Dave Seiler expects Private Wealth and SBA gain on sale to drive fee income growth, with Corey Chambas anticipating greater than 10% growth in SBIC revenues due to the J-Curve effect. Dave Seiler confirmed the older ABL credit remains in the court system, with a court date set for late 2026.

Brian Martin from Janney Montgomery Scott inquired about the near-term margin impact of maturing wholesale funds being replaced by core deposits. He also asked about the growth mix between specialty and traditional lending and the long-term target for the specialty loan portfolio, as well as trends in criticized loans.

Answer

CFO Brian Spielmann explained that replacing short-term wholesale advances with core deposits had a neutral impact on the net interest margin, as the weighted average rates were consistent. CEO Corey Chambas stated the goal is to grow the specialty lending mix, which has been as high as 26%, toward 25% in the next year and potentially 30% over the long term. Spielmann confirmed there were no material changes in criticized loan trends.

Brian Martin questioned why the NIM target range wasn't increased following the fee reclassification and asked about the near-term directional outlook for the margin. He also inquired about credit risks in a weaker economy and whether the current expense level is a good run rate.

Answer

CFO Brian Spielmann explained the NIM range of 3.60%-3.65% was maintained due to the inherent volatility of 'fees in lieu of interest,' though he guided toward the higher end of that range. Chief Credit Officer Bradley Quade identified the transportation sector within equipment finance as the area most likely to feel pressure in a downturn but noted much of that softness is already factored in. CEO Corey Chambas confirmed the current expense level is a good run rate, emphasizing the goal of achieving annual positive operating leverage and the ability to adjust spending if revenue headwinds arise.

Brian Martin of Janney Montgomery Scott asked about the net interest margin (NIM), inquiring if the bank planned to shift to a more liability-sensitive balance sheet and what factors could push the NIM outside its target range. He also questioned the target mix for niche C&I lending, the compensation expense run-rate for Q4 and 2025, and the outlook for SBIC mezzanine fund income.

Answer

CFO Brian Spielmann affirmed the bank's strategy to remain interest rate neutral, valuing margin stability over betting on rate movements. He noted deposit competition could pressure the margin lower, while a higher mix of C&I lending, like Asset-Based Lending, could push it higher. He confirmed the niche lending portfolio is stable at its 25% target. For compensation, he guided to a Q4 run-rate by adding back the $700k in Q3 adjustments. Executive Corey Chambas projected mid-to-high single-digit comp growth for 2025. Both executives expressed optimism for SBIC income in 2025, expecting it to be similar to 2023's strong performance due to realization opportunities.

Brian Martin asked about the outlook for net interest margin (NIM), specifically regarding deposit pricing concerns and the tailwind from asset repricing. He also inquired about current pricing for new loan production, the expected growth in mortgage production volume for 2026, the outlook for annual expense growth and operating leverage, the health of the loan pipeline as a driver for Net Interest Income (NII) growth, and the general outlook for credit quality and reserve levels for 2026.

Answer

Tony Cosentino (CFO) indicated that deposit pricing faced higher competitive pressure, forecasting a gradual NIM decrease of 5-7 basis points in 2026 due to higher funding costs. He noted $125 million-$140 million in loans slated for repricing in the first nine months of 2026. Mark Klein (Chairman, President, and CEO) added that new loans are high quality and priced to be accretive to NIM, emphasizing a focus on lower-cost deposit funding. Steve Walz (Chief Lending Officer) confirmed successful loan retention during repricing and new production priced at 300 basis points over corresponding treasuries. For mortgage production, Tony Cosentino projected low to mid-double-digit growth for 2026, targeting $310 million-$330 million, while Mark Klein expressed ambitions for $350 million-$375 million with additional lenders. Tony Cosentino expects 2026 expense growth to be 3.5%-4% with 1.5-2x positive operating leverage, a goal Mark Klein challenged to improve. On loan pipeline, Steve Walz highlighted continued demand in Columbus, new Ag lending, and Fort Wayne expansion. Mark Klein mentioned a strategy to capitalize on market consolidation, aiming for $80 million in new business. Steve Walz expects continued credit quality improvement in 2026, despite slower-than-desired resolutions. Tony Cosentino anticipates a relatively flat provision for 2026, potentially trending the reserve ratio down slightly but maintaining a strong 1.30%.

Brian Martin with Janney Montgomery Scott inquired about SB Financial's net interest margin (NIM) outlook for 2026, specifically addressing deposit pricing pressures, the impact of asset repricing, and the current pricing of new loan production. He also asked about the projected mortgage production growth, expense management strategies, the health of the loan pipeline as a driver for Net Interest Income (NII) growth, and the expected trajectory of credit quality and reserve levels.

Answer

CFO Tony Cosentino projected a 5-7 basis point decline in NIM for 2026 due to higher funding costs, noting $125M-$140M in loans slated for repricing. Chairman, President, and CEO Mark Klein emphasized the high quality of new loans, pricing at or above margin, and the strategic focus on attracting lower-cost deposits. Chief Lending Officer Steve Walz confirmed a stable loan pipeline, successful retention of repriced loans, and new production typically priced at 300 basis points over treasury. For mortgage production, Tony Cosentino anticipated low to mid-double-digit growth, targeting $310M-$330M, while Mark Klein expressed ambition for $350M-$375M with additional lenders. On expenses, Tony Cosentino forecast 3.5%-4% growth with 1.5-2x positive operating leverage, a goal Mark Klein reinforced to drive net income to $15M. Regarding credit quality, Steve Walz acknowledged slower-than-desired resolution of existing credits but expected continued improvement, and Tony Cosentino projected a relatively flat provision, leading to a slight decline in the reserve ratio while remaining strong.

The analyst asked about the outlook for mortgage banking volume and gain-on-sale margins, the drivers and pipeline for loan growth, the trajectory of the net interest margin, expectations for credit quality and provisioning, capital allocation priorities between buybacks and M&A, and the expense run rate.

Answer

Management is optimistic about mortgage growth, potentially reaching $400M with favorable rates, and expects stable gain-on-sale margins around 2.15-2.25%. They anticipate continued loan growth driven by the Columbus market and market disruption, supported by a solid pipeline. The net interest margin is projected to expand by another 10 bps to around 3.70% before stabilizing. They foresee improvements in credit quality with resolutions of nonperforming loans, likely leading to a lower provision in the second half of the year. On capital, they plan to slow buybacks to preserve capital for organic growth and potential M&A opportunities. The expense base is considered stable, though variable compensation will rise with performance.

Brian Martin of Janney Montgomery Scott asked for an outlook on mortgage originations, gain on sale margins, loan growth momentum, the net interest margin (NIM) trajectory, potential credit quality improvements, and the company's capital allocation strategy between M&A, buybacks, and organic growth.

Answer

CEO Mark Klein expressed optimism for mortgage originations reaching $400 million annually with favorable rates and highlighted strong loan growth potential from market disruption, particularly in Columbus. CFO Anthony Cosentino projected the gain on sale margin would stabilize between 2.15% and 2.25%, and that the NIM could expand another 10 basis points before peaking around 3.70%. Cosentino also noted that resolving certain nonperforming credits in Q3 should benefit earnings and that the pace of share buybacks would likely slow to preserve capital for strategic opportunities. Chief Lending Officer Steven Walz affirmed the sustainability of the current loan growth run rate despite competitive pressures.

Brian Martin inquired about the 2025 outlook, seeking clarification on several key areas. He asked for a baseline mortgage origination forecast, considering new talent in Indiana and Cincinnati, and questioned where future hiring would be concentrated. Martin also probed for expectations on loan growth mix, particularly the balance between the shrinking residential portfolio and expanding commercial lending. He requested guidance on the net interest margin trajectory, the financial impact and liquidity provided by the Marblehead acquisition, the resolution timeline for nonperforming loans, the funding strategy for loan growth, and the expected expense run rate for 2025.

Answer

Executive Mark Klein projected 2025 mortgage originations could reach $400 million, a significant increase from 2024's $261 million, driven by new hires primarily in Cincinnati and Northwest Ohio. Klein and executive Steven Walz expressed optimism for returning to high single-digit loan growth, supported by a strong pipeline in Columbus with approximately $30 million in approved loans yet to be drawn. CFO Anthony Cosentino stated that the Q4 net interest margin of 3.35% is a baseline, anticipating it to expand to the 3.50-3.55% range by year-end 2025, boosted by the Marblehead acquisition which is expected to add $0.15-$0.20 in EPS. Cosentino also noted the deal provides about $30-32 million in fresh liquidity. Regarding credit, Steven Walz and Anthony Cosentino confirmed the current nonperforming loan level is a high watermark, with resolutions expected in H1 2025 with minimal financial impact. Finally, Cosentino outlined an expense growth forecast of 2.5% to 3.5% over the Q4 run rate, emphasizing a renewed focus on achieving positive operating leverage.

Brian Martin inquired about recent talent acquisitions, the outlook for loan growth and mortgage production in 2025, and the expected trajectory of the net interest margin, including the impact of the Marblehead acquisition and a potential rate easing cycle.

Answer

Chairman, President and CEO Mark Klein detailed recent hires, including two MLOs in Cincinnati and new leadership in Wealth Management. He expressed optimism for high single-digit loan growth and a 20-30% increase in 2025 mortgage volume. CFO Tony Cosentino added that the net interest margin, which bottomed in Q2, is expected to gradually improve to the 3.30-3.35% range by the end of 2025, driven by loan growth and the accretive Marblehead acquisition. Cosentino also noted that the Q3 expense level of $11 million is a solid baseline, with future expenses managed in line with revenue growth.

Brian Martin inquired about the full-year outlook for the effective tax rate, the difference between end-of-period and average earning assets, targets for non-interest-bearing (NIB) deposits and the loan-to-deposit ratio, the timeline for achieving lower operating leverage, the net impact of loan sales on loan growth, and the strategy behind share repurchases.

Answer

Nick W. Anderson, CFO, and Todd A. Gipple, President and CEO of QCR Holdings, indicated the effective tax rate is expected to remain static in the 8%-10% range. Anderson clarified that end-of-period earning assets were slightly below the average for Q4. Gipple outlined a long-term goal to increase NIB deposits to the high teens/20s and lower the loan-to-deposit ratio to the low 90s, with significant operating leverage improvements expected from 2028 onwards. He noted that while loan sales mute reported loan growth, they contribute to NII growth, and described share repurchases as opportunistic, based on current valuations and future EPS/TBV outlook.

Brian Martin from Janney asked for clarification on the effective tax rate outlook beyond Q1, the end-of-period earning asset number versus the average, and the company's targets for improving non-interest-bearing (NIB) deposits and lowering the loan-to-deposit ratio. He also sought details on the timeline for achieving a lower efficiency ratio and how the loan growth guidance accounts for anticipated sales and securitizations, as well as the strategy behind share repurchases.

Answer

CFO Nick W. Anderson stated the 8%-10% effective tax rate guidance for Q1 is a fair assumption for 2026 and that end-of-period earning assets were slightly below the Q4 average. President and CEO Todd A. Gipple outlined plans to improve NIB deposits to the high teens/20s over time and lower the loan-to-deposit ratio to the low 90s, emphasizing that efficiency ratio improvements to the low 50s are expected post-2028. He explained that while loan growth guidance is gross, the off-take activities will mute net loan growth but help achieve the 9% NII growth target. Gipple described share repurchases as opportunistic, driven by attractive valuations and confidence in future EPS and TBV per share.

Brian Martin asked about the volume and current/expected repricing rates of QCR Holdings' fixed-rate loans maturing in 2026. He also inquired about the general outlook for deposit growth and the anticipated level of borrowings, and whether there is a target capital level the company aims to maintain when considering share buybacks.

Answer

CFO Nick Anderson stated that approximately $560 million in fixed-rate loans are repricing in 2026, currently yielding about 5.90%, with new pricing expected in the 6.50%-6.75% range. He highlighted strong deposit growth driven by new account additions and relationship-driven strategies, noting seasonality with public deposits in Q4. President and CEO Todd Gipple emphasized an 'opportunistic' approach to buybacks, balancing them against other capital needs, and noted that with tangible common equity (TCE) at nearly 10%, the company has capacity for repurchases, viewing them as the highest and best use of excess capital at current valuations.

Brian Martin asked about the volume and average yield of fixed-rate loans scheduled to reprice in 2026. He also inquired about QCR Holdings' general outlook on deposit growth and the expected level of borrowings, and the company's target or minimum capital level for guiding future share repurchase activity.

Answer

CFO Nick Anderson stated that approximately $560 million of fixed-rate loans are repricing in 2026, currently yielding about 5.90%, with new pricing expected in the 6.50% to 6.75% range. He highlighted strong deposit growth driven by new account additions and relationship-driven strategies, with seasonality expected in Q4 from public deposits. President and CEO Todd Gipple indicated that while there's no specific guidance on share repurchase volume, the company views buybacks as the 'highest and best use' of capital at current attractive valuation levels, aiming to be opportunistic while balancing other capital needs, with TCE at approximately 10%.

Brian Martin of Janney Montgomery Scott questioned the net interest margin trajectory into 2026 if rate cuts do not occur, the timing and financial benefit of the upcoming subordinated debt call, the primary drivers of recent loan growth, and the company's current stance on M&A.

Answer

EVP & CFO Nick Anderson stated that further NIM expansion into 2026 would be challenging without Fed rate cuts. He also confirmed plans to call and replace $70 million of subordinated debt in September at an expected rate in the low 7s. President & CEO Todd Gipple attributed loan growth to CRE and LIHTC, noting that while M&A conversations are up industry-wide, QCRH has a very tight strike zone and remains focused on its strong organic growth opportunities.

Brian Martin questioned the net interest margin trajectory into 2026 with fewer rate cuts, the timing and economics of the upcoming subordinated debt replacement and securitization, the drivers of loan growth, and the company's current stance on M&A.

Answer

EVP & CFO Nick Anderson indicated that expanding NIM into 2026 would be challenging without Fed rate cuts. He also detailed plans to call and replace $70 million in subordinated debt in September at a favorable rate. President & CEO Todd Gipple added that loan growth will be driven by the LIHTC business and that while the company is open to M&A, its 'strike zone is very tight,' with a focus on strong organic growth.

Brian Martin questioned the net interest margin trajectory into 2026 without rate cuts, the timing and economics of the upcoming subordinated debt replacement, the drivers of loan growth, and the company's current stance on M&A.

Answer

EVP & CFO Nick Anderson indicated that further NIM expansion would be challenging without Fed rate cuts but that the team remains focused on funding costs. He also detailed plans to call and replace $70 million of subordinated debt in September at a favorable fixed rate. President & CEO Todd Gipple attributed loan growth to CRE and LITEK, with C&I seeing payoffs. He reiterated the 8-10% gross loan growth guidance, driven largely by LITEK. On M&A, Gipple stated that while conversations are happening, QCRH has a very tight strike zone and is focused on strong organic growth.

Brian Martin asked about specific portfolio risks related to potential tariffs, the margin benefit from interest rate cuts, the deposit beta outlook, the likelihood of a securitization this year, and momentum in deposit growth.

Answer

Executive Larry Helling stated that a detailed portfolio review identified only two high-risk companies ($6 million total credit) exposed to China tariffs, as most clients diversified their supply chains years ago. Executive Todd Gipple reaffirmed that a 25 bps rate cut would boost NIM by 2-3 bps and noted strong deposit beta performance. He guided Q2 NIM to be static to up 4 bps, driven by funding cost reductions. Gipple indicated a securitization is dependent on LIHTC production pace, making a Q4 2025 or Q1 2026 timeline most likely, and confirmed a continued focus on core deposit growth.

Brian Martin of Janney Montgomery Scott questioned the company's capital priorities regarding buybacks, M&A, and organic growth. He also asked for the current delta between rate-sensitive assets and liabilities, expected deposit betas, the legacy loan growth outlook, and the timeline for reaching the target loan-to-deposit ratio.

Answer

Executive Larry Helling stated that due to market uncertainty, the priority is to retain capital and focus on organic growth, making M&A and buybacks low priorities. Executive Todd Gipple quantified the balance sheet's liability sensitivity at approximately $600 million and noted strong deposit beta performance. Helling later projected modest 2-5% growth for the core commercial portfolio due to client caution and said the company aims to gradually lower its loan-to-deposit ratio to the low 90s over the next couple of years.

Brian Martin sought clarification on the base for non-interest income growth, specifically if it was around $75 million, and how the $2 million run rate from acquired branches would be incorporated. He also inquired about the strength of the loan pipeline, particularly for SBA loans, and other strong segments or markets that could drive growth in 2026, confirming if the projected loan growth would be consistent with 2025's mid-single-digit performance.

Answer

Keene Turner, CFO and COO, confirmed that the non-interest income base, excluding the Q4 OREO gain, is roughly $75 million, and the $2 million run rate from acquired branches would start contributing approximately $500,000 per quarter in 2026 due to initial fee holidays. Jim Lally, President and CEO, expressed confidence in the loan pipeline, highlighting strength in the life insurance premium finance portfolio and significant momentum in the Southwest market, driven by a good mix of C&I and CRE. He reiterated a projected mid-single-digit net loan growth for 2026, consistent with prior expectations.

Brian Martin sought clarification on the non-interest income base for 2026 growth, particularly how the $2 million run rate from acquired branches factors into the Q4 number and future projections. He also asked about the strength of the loan pipeline in other areas or segments beyond SBA, and if the projected growth is consistent with prior year performance.

Answer

Keene Turner (CFO and COO) confirmed that a base of roughly $75 million (stripping out the $6 million OREO gain) is appropriate for 5% growth, with the $2 million from acquired branches largely not in the Q4 number due to fee holidays, and expected to contribute about $500,000 per quarter in 2026. Jim Lally (President and CEO) expressed confidence in the loan pipeline, highlighting strength in the life insurance premium finance portfolio and the Southwest market, with a good mix of C&I and CRE. Doug Bauche (Chief Banking Officer) reiterated the projected mid-single-digit net loan growth for 2026.

Brian Martin sought clarification on the fourth-quarter expense run rate, specifically confirming the impact of the branch acquisition. He then asked for a broader perspective on fee income, inquiring how it might shake out as a percentage of revenue or on an annual growth basis for next year, given its variable components. Martin also asked Jim Lally to reiterate the prioritization of capital deployment among organic growth, M&A, and share buybacks. Finally, he questioned the drivers behind the strong growth in specialty deposits, their typical cost relative to total funds, and the expectation for this rapid growth to continue.

Answer

Keene Turner (CFO and COO) confirmed the Q4 expense run rate would be in the $111-$113 million range, including branch acquisition impacts and one-time integration costs. For fee income, Turner indicated it's a mid-single-digit grower, and while not necessarily a percentage of revenue, he expects net interest income growth to outstrip fee income growth. He projected 2026 fee income levels to be consistent with 2025, with potential upside from SBA loan sales if market conditions improve. Jim Lally (President and CEO) reiterated capital priorities: organic growth first, then buybacks, and M&A only if a compelling opportunity arises, emphasizing that M&A is less of a short-term priority. Lally attributed the strong specialty deposit growth to investments in people, systems, and expertise across the three verticals, describing it as a profitable, variable cost model that is gaining market share, and he expects this rapid growth to continue.

Brian Martin from Janney Montgomery Scott asked for details on the margin exit rate, the new team in Texas, the balance between loan growth and margin protection, the strategy for SBA loan sales, and the company's stance on whole-bank M&A.

Answer

CFO Keene Turner projected the margin would be down slightly in Q3 but has an upward bias long-term. President Scott Goodman described the new Texas team as a team of three with no non-competes, already building a pipeline. CEO James Lally noted that an expanding market should allow for both growth and pricing discipline. Turner characterized SBA sales as an opportunistic tool being tested this year. Lally confirmed the priority is the branch integration, though they benefit from M&A disruption in their markets.

Brian Martin asked for confirmation on the long-term margin outlook remaining above 4%, the pro forma tangible common equity (TCE) ratio post-deal, clarification on tax credit loan activity, and the rationale behind the reserve build in the quarter.

Answer

CFO and COO Keene Turner confirmed the long-term margin outlook is accurate and projected the pro forma TCE ratio would be around 8.5%. Executive James Lally clarified that the tax credit loan decline was a normal seasonal paydown, not a sale. Turner explained the reserve build was a conservative move to be prudent amid economic turbulence and take advantage of a strong earnings quarter.

Brian Martin asked for details on the timing of rate cut impacts on deposit expenses, the outlook for net interest income (NII) dollars, and whether recent hiring could accelerate loan growth beyond current expectations.

Answer

CFO & COO Keene Turner explained that the impact of the September rate cut on deposit expenses will begin in Q4. He projected that with five more cuts, NII dollars would see a slight near-term decline before recovering, but pretax income could remain neutral due to offsetting expense reductions. CEO James Lally confirmed that given the new talent being onboarded, the company expects to return to mid-single-digit loan growth in 2025.

Brian Martin inquired about First Merchants Corporation's core margin in Q4 2025 excluding one-time items, Q1 seasonality, and the impact of the FSFG acquisition on margin. He also asked about the expense outlook post-integration, efficiency ratio targets, fixed-rate loan repricing, the tax rate, and the current M&A strategy.

Answer

CFO Michele Kawiecki clarified that the Q4 2025 interest recovery added about 8 basis points to core margin, and Q1 seasonality typically causes a 5 basis point dip due to day count. She expects a couple of basis points of overall annualized margin compression in 2026, but the FSFG deal, particularly interest accretion, will provide a margin lift. Michele Kawiecki confirmed Q3 2026 should be a clean quarter for expenses post-May integration, with the efficiency ratio remaining below 55% and strong operating leverage in Q3/Q4. She noted approximately $350 million of fixed-rate loans maturing in 2026 at 4.40%, offering repricing upside. The tax rate is expected to be around 12% for 2026 on a combined basis due to transaction costs. CEO Mark Hardwick confirmed the focus is on the current acquisition, and buybacks are the best short-term capital allocation strategy.

Brian Martin asked about First Merchants Corporation's core margin in the fourth quarter, excluding one-time items, and the expected normal seasonality for the first quarter.

Answer

CFO Michele Kawiecki clarified that a $3.3 million interest recovery added approximately 8 basis points to the core margin in Q4. She noted that Q1 typically sees a dip of about 5 basis points in margin due to day count, and for the full year 2026, she anticipates a couple of basis points of compression, assuming one Fed rate cut.

Brian Martin asked about the fixed-rate loan repricing schedule and the strategy for the securities portfolio, including using cash flows for loan funding and potential optimization. He also inquired about the impact of the First Savings acquisition on asset sensitivity and the current competitive environment for loan yields. Finally, he asked about opportunities to recruit talent to sustain growth momentum, particularly in the Detroit MSA.

Answer

Michele Kawiecki, EVP and CFO, outlined fixed-rate loan maturities for Q4 2025 ($130 million at 5% yield) and 2026 ($350 million at 4.5% yield). She confirmed plans to use securities portfolio roll-off ($280 million cash flow over 12 months at 2.18% yield) to fund loans and noted that First Savings would reduce asset sensitivity. Mark Hardwick, CEO, emphasized prioritizing higher-yielding loan products despite competition and confirmed that recent salary upticks reflect talent additions, with further recruiting opportunities expected in the Detroit MSA.

Brian Martin asked about the fixed-rate loan repricing schedule for Q4 and 2026, and First Merchants' strategy for its legacy securities portfolio, including using cash flows for loan funding or potential optimization. He also inquired about the impact of the First Savings acquisition on the bank's asset sensitivity, the current competitive environment for loan yields, and opportunities to recruit additional talent, particularly in the Detroit MSA, to sustain growth momentum.

Answer

EVP and CFO Michele Kawiecki detailed fixed-rate loan maturities: $130 million at 5% in Q4, and $350 million at 4.50% in 2026. She confirmed plans to use securities portfolio roll-off ($280 million cash flow over 12 months at 2.18% yield) to fund loans, with further optimization considered post-First Savings merger. Michele Kawiecki stated that First Savings will reduce asset sensitivity, placing First Merchants in a 'nice place.' CEO Mark Hardwick emphasized prioritizing higher-yielding products despite loan competition. Mark Hardwick attributed recent non-interest expense increases to talent additions and sees future recruiting opportunities, especially in the Detroit MSA.

Brian Martin from Janney Montgomery Scott asked for more detail on the cost of deposits trend, the fixed-rate loan repricing schedule, and the outlook for the effective tax rate. He also questioned if new tax legislation was driving C&I loan growth optimism and when recent hires would begin to contribute.

Answer

EVP & CFO Michele Kawiecki confirmed deposit costs could drift higher depending on competition and projected the tax rate might approach 13%. She also stated about $200 million in fixed-rate loans at ~5% will reprice in H2 2025. President Michael Stewart attributed loan growth optimism to strong Midwest economic activity and market share gains, clarifying that recent strategic hires have yet to materially contribute to results.

Brian Martin of Janney asked about the net interest margin's sensitivity to potential Fed rate cuts, the specific areas of the loan portfolio most exposed to tariff risks, and the company's strategy for its share repurchase program. He also requested an update on the expected effective tax rate.

Answer

CFO Michele Kawiecki stated that while models suggest 2-3 bps of margin compression per 25 bps cut, the bank's ability to lower deposit costs could lead to a stable margin. On tariffs, Chief Credit Officer John Martin and Executive Mark Hardwick explained it's too early to quantify the impact but their teams are actively engaging with borrowers. Hardwick confirmed the company will be active with its share repurchase program. Kawiecki guided to an effective tax rate between 13% and 14%.

Brian Martin asked if the recent decline in interest rates has stimulated the real estate pipeline, sought confirmation on the 2025 net interest income growth outlook, and inquired about the trend in special mention loans. He also asked about the likelihood of an M&A transaction in the next 12-18 months.

Answer

President Mike Stewart noted that new construction real estate production has been strong all year and that rate reductions could help both new projects and existing assets. CFO Michele Kawiecki confirmed the expectation to grow net interest income in 2025. Chief Credit Officer John Martin stated that special mention loans moved up in tandem with classifieds but at a slower rate. Regarding M&A, CEO Mark Hardwick said that while First Merchants is ready, he believes most potential sellers will wait for the Fed's rate cycle to conclude.

Brian Martin inquired about Byline Bancorp's focus on fee income, specifically whether the current run rate of around $16 million is sustainable, and which areas are targeted for growth in 2026 to improve this run rate.

Answer

President Alberto Paracchini confirmed that the current fee income level is good and the goal is to increase the absolute number. He identified several growth areas: swaps and derivatives, commercial payments (generating treasury management fees), the growing wealth management business (nearing $1 billion in assets under management), and the SBA government-guaranteed lending business's gain on sale. CFO Tom Bell provided guidance on average earning assets for Q1, estimating an increase of $150 million-$200 million from Q4, while remaining below $10 billion in total assets. Mr. Paracchini clarified that year-end balance sheet management was solely to stay below the $10 billion threshold for the snapshot date. Regarding credit quality, Mr. Paracchini stated there were no material changes in criticized or classified levels, noting the bank's proactive approach to downgrading and managing credits. Mr. Bell concluded that the core net interest margin percentage is expected to remain stable throughout the year, given the outlook for rates.

Brian Martin asked about the sustainability and growth potential of Byline Bancorp's non-interest income, particularly swap income, and other areas targeted for improvement in 2026. He also requested guidance on average earning assets for Q1, considering year-end balance sheet management. Additionally, he inquired about any material changes in criticized or classified loan levels and the expected stability of the core net interest margin percentage throughout 2026.

Answer

Alberto Paracchini (President) confirmed the current non-interest income level is strong and aims for growth in areas such as swaps/derivatives, commercial payments (treasury management fees), wealth management (approaching $1 billion AUM), and SBA gain on sale. Tom Bell (CFO) estimated Q1 average earning assets to be approximately $150-$200 million higher than the Q4 period-end, while remaining below $10 billion in total assets. Alberto Paracchini clarified that year-end balance sheet management was solely to ensure the bank stayed under the $10 billion threshold. Alberto Paracchini reported no material changes in criticized/classified loan levels, describing them as 'ebbs and flows,' and reiterated the bank's proactive approach to credit management. Tom Bell anticipates the net interest margin percentage to remain stable throughout 2026.

Brian Martin from Janney Montgomery Scott asked about the sustainability of the improved deposit mix, specifically the increase in non-interest-bearing accounts, and the competitive landscape for both loans and deposits. He also sought clarification on the net interest income (NII) and margin outlook, considering the sub-debt refinancing impact and potential Fed cuts. Finally, he requested more details on the new commercial payments team, its business model, and expectations.

Answer

Tom Bell (CFO) confirmed that the strong DDA growth was seasonal and outflows are expected. He noted that the competitive environment remains strong but Byline benefits from its relationship banking model and short CD book. He reiterated NII guidance, expecting slight declines due to Fed cuts but offsetting benefits from earning asset growth and reduced sub-debt interest expense. Alberto Paracchini (President) described the commercial payments business as targeting high-volume commercial users for ACH, payroll processing, and sponsor bank services for debit/prepaid cards, emphasizing its focus on deposits and treasury management with little credit exposure. He expects impact in 2026 after infrastructure and onboarding.

Brian Martin asked for further details on Byline Bancorp's M&A criteria, specifically regarding target size, preferred geography, and the importance of deposits in potential transactions, as well as the possibility of multiple deals.

Answer

President Alberto Paracchini stated that M&A targets are typically institutions between $400 million and a couple of billion dollars in assets, within the greater Chicago metropolitan area (including suburbs, potentially Milwaukee or Northwest Indiana). He emphasized that transactions must be financially and strategically attractive, with a strong focus on acquiring deposits for redeployment into lending businesses, consistent with past deals. He highlighted the team's experience and established playbook for M&A.

Brian Martin of Janney Montgomery Scott sought clarification on whether all cost savings from the First Security transaction were already reflected in the Q2 results. He also asked about the sustainability of the current efficiency and cost-to-asset ratios, the company's appetite for share buybacks at current valuations, and for details on bond portfolio cash flows and fixed-rate loan repricing.

Answer

EVP, CFO & Treasurer Thomas Bell confirmed that the cost savings from the First Security deal are fully baked into the Q2 numbers. President & Director Alberto Paracchini noted that while the efficiency ratio can fluctuate with revenue, the focus is on driving the NIE to average asset ratio down over time. Regarding buybacks, Mr. Paracchini reiterated their opportunistic approach, pointing to the recent block purchase as an example. Mr. Bell provided specifics on portfolio cash flows and loan repricing, adding that deposit costs are expected to be flat to slightly down.

Brian Martin requested details on asset and liability repricing dynamics, the potential impact of different rate cut scenarios, and the expected timing for achieving a 'clean' expense run-rate post-acquisition.

Answer

CFO Thomas J. Bell highlighted the bank's reduced asset sensitivity and noted the short four-month duration of the CD book provides repricing opportunities. Regarding the acquisition, both Bell and President Alberto Paracchini agreed that while Q2 results would be relatively clean excluding one-time merger charges, the third quarter would represent the first fully clean quarter from an expense standpoint.

Brian Martin asked about the exit net interest margin for the quarter, the impact of the recent Fed rate cut on the SBA portfolio, and the outlook for M&A and talent acquisition opportunities. He also questioned the fee income forecast, particularly the conservative guidance for government-guaranteed loan sales.

Answer

CFO and Treasurer Thomas J. Bell stated the exit margin was around 4% and confirmed the 50 basis point rate cut would impact the SBA portfolio starting January 1. President Alberto Paracchini commented that market disruption from potential M&A is a welcome opportunity for Byline. Regarding fee income, management explained the $5 million quarterly gain-on-sale guidance is a conservative baseline, and there are opportunities for growth in other areas like customer swaps and treasury management to grow overall fee income.

Brian Martin of Janney Montgomery Scott LLC explored whether loan growth could accelerate beyond the mid-single-digit forecast given Byline's market position. He also asked about the expected size of future M&A deals, current loan pricing trends, and the quantitative impact of unwinding the BTFP facility on the net interest margin (NIM).

Answer

President Alberto Paracchini stated that while the bank won't change its credit philosophy, growth could accelerate by attracting new banking teams or if pay-off activity moderates. On M&A, he confirmed Byline's focus remains on deals ranging from ~$350 million to a couple of billion dollars. CFO Thomas J. Bell noted that asset pricing has remained stable, with new loans priced around SOFR+300 or Prime-50. Bell quantified the BTFP unwind, stating it should add approximately 6 to 7 basis points to the NIM in the coming quarter.

Brian Martin inquired about the volume of loan runoff from West Suburban, how much remains as a potential headwind, and how this impacts the mid-single-digit loan growth target given strong production. He also asked about the current size and remaining runoff of the syndication book, the specific headwinds affecting the Q1 margin, and the status of criticized and classified assets, including special mention trends. Additionally, he sought clarification on the 3% expense growth projection and the strategy behind the anticipated share buyback, as well as the optimal M&A target profile.

Answer

Jim Eccher, Chairman, President, and CEO, noted that Q4 saw exceptional loan production, but significant paydowns, including from the syndication portfolio and commercial real estate, resulted in flat balance sheet growth. He stated that the pipeline is the highest in 6-7 quarters, supporting the mid-single-digit growth target. For the West Suburban syndication book, commitments were $772 million at the end of 2021, with $285 million remaining, and about a third of that is expected to run off. Brad Adams, COO and CFO, clarified that the 3% expense growth is a year-over-year projection for 2026. He attributed potential Q1 margin headwinds to a conservative outlook and possible Treasury purchases. Mr. Adams expects buybacks to begin shortly, without being price-sensitive. Both executives emphasized that M&A would be opportunistic and focused on making the bank better, with the immediate priority being Evergreen integration and organic growth.

Brian Martin from Janney inquired about the dynamics of loan production versus payoffs, specifically the runoff from the West Suburban acquisition and its future impact, alongside the outlook for mid-single-digit loan growth. He also asked about the current size and future trajectory of the syndication book, potential Q1 2026 margin headwinds, trends in criticized and classified assets, and clarification on the 3% year-over-year expense growth. Additionally, Martin sought insight into Old Second Bancorp's share repurchase plans and its current M&A strategy.

Answer

Jim Eccher, Chairman, President, and CEO, noted Q4 2025 as the best production quarter, with a strong pipeline suggesting achievable mid-single-digit loan growth despite significant paydowns. He detailed that the syndication book, initially $772 million in commitments, now has $285 million remaining, with about one-third expected to run off. Brad Adams, COO and CFO, attributed potential Q1 margin headwinds to his own conservative outlook or strategic Treasury purchases, confirming a 3% year-over-year expense growth. Eccher reported an increase in classified assets due to C&I degradation but highlighted a material $15 million reduction in special mention loans. Adams stated that share repurchases are expected to begin shortly, without being price-sensitive, and emphasized that M&A decisions will prioritize making Old Second a better bank, with current focus on organic growth and Evergreen integration.

Brian Martin asked about the sustainable loan growth outlook for the next 12 months and longer term, now that the Evergreen acquisition is complete. He also inquired about the company's buyback strategy relative to M&A given current valuations, the expected maintenance or movement of reserve levels around $140 million, and the biggest drivers of the net interest margin (NIM) and its directional movement with potential rate cuts. Finally, he asked if the profitability outlook, specifically ROA, was higher than previously expected.

Answer

James Eccher, President and CEO, projected low to mid-single-digit loan growth into 2026, citing robust pipelines in sponsor finance, commercial real estate, C&I, leasing, and healthcare. Bradley Adams, COO and CFO, stated that buybacks are 'open and on the table' but few deals are priced as well as the stock. He also noted that reserve levels around $140 million are likely to be maintained, potentially decreasing over time as consumer loss rates normalize. Adams indicated that SOFR is the biggest NIM driver, and he guesses the margin will remain flat, expressing strong confidence in the company's profitability, agreeing that the ROA outlook is higher than previously expected.

Brian Martin asked about the sustainable loan growth outlook for the next 12 months and longer term, the company's thoughts on share buybacks versus M&A, and expectations for maintaining or adjusting the reserve level around $140 million. He also sought clarity on the biggest drivers of the net interest margin and the directional outlook, and whether the profitability (ROA) outlook was now higher than previously expected post-acquisition.

Answer

James Eccher, President and CEO, projected meaningful loan growth for Q4 and low to mid-single-digit growth into 2026, driven by sponsor finance, CRE, C&I, leasing, and healthcare. Bradley Adams, COO and CFO, stated that buybacks are open and on the table, noting that few deals are priced as well as their stock. Eccher and Adams confirmed a higher reserve level around $140 million for PowerSport, with Adams suggesting it could decrease over time with more loss history. Adams identified SOFR as the biggest margin driver, guessing a flat margin outlook. He also agreed that the profitability outlook, including ROA, is now higher than previously expected.

Brian Martin of Janney Montgomery Scott asked about the bigger-picture outlook for the net interest margin in a flat rate environment after the deal-related noise subsides. He also inquired about the long-term margin floor, the potential ROA in 2026, the appetite for buybacks, and the loan growth outlook.

Answer

COO & CFO Bradley Adams stated that in a flat rate environment, the margin would be stable, durable, and slightly higher due to Evergreen. He raised his estimate for the long-term margin floor to approximately 4.25%. Adams also expressed comfort with achieving a Return on Assets (ROA) above 1.50% and confirmed they are open to further share buybacks. He also noted optimism for loan growth, expecting a strong third quarter.

Brian Martin sought to clarify the new floor for the net interest margin under various interest rate scenarios, following up on earlier comments. He also asked about the potential for further improvement in credit quality metrics from their current levels.

Answer

Executive Bradley Adams stated that strong deposit flows and the pending Evergreen merger have raised the margin floor by approximately 10 basis points, making the bank structurally more profitable, especially in a high and flat yield curve environment. Executive James Eccher added that while the magnitude of credit improvement seen in Q1 may not be repeated, the goal is to continue making incremental improvements and work nonperforming asset levels even lower throughout the year.

Brian Martin from Janney Montgomery Scott LLC sought clarification on the company's M&A size preference, the potential net interest margin (NIM) range for 2025, and the outlook for credit quality improvement and future losses.

Answer

Executive Bradley Adams specified the M&A target size is between $500 million and $4 billion in assets and stated the NIM would be "substantially better" than the $4.40-$4.50 range if rates remain stable. Executive James Eccher highlighted significant progress in reducing nonaccrual and special mention loans, expecting further improvement from OREO sales and seeing no new major credit issues.

Brian Martin asked for clarification on criticized asset trends, the pricing level for potential buybacks, the margin outlook if rate cuts don't occur, details on balance sheet optimization, and guidance for the tax rate.

Answer

Executive James Eccher confirmed that total criticized loans were flat, as a drop in substandard loans was offset by a rise in special mention. Executive Bradley Adams stated the current valuation would not prevent a buyback, projected a 'modestly down' margin if rates hold steady, and humorously provided a highly specific tax rate forecast of 24.7635%. He also noted the goal for balance sheet optimization is to earn a spread over 4% on marginal growth.

Brian Martin inquired about the pricing environment for loans and deposits in Horizon Bancorp's markets, specifically if there's irrational pricing, the current status of the commercial loan pipeline heading into the first quarter, and details on loan repricing throughout the year.

Answer

EVP and Chief Commercial Banking Officer Lynn M. Kerber noted competitiveness in certain commercial segments but not irrational pricing, while CEO and President Thomas Prame emphasized Horizon's relationship-based banking model as insulation from extreme pricing. Lynn M. Kerber described the commercial pipeline as strong and steady, with typical seasonality affecting originations. EVP and CFO John Stewart detailed that new loan production yields exceed 6.5%, while cash flows rolling off the book are below 6%, with approximately $150 million repricing per quarter.

Brian Martin from Janney Montgomery inquired about loan and deposit pricing dynamics in Horizon Bancorp's markets, the current state of the commercial loan pipeline, the expected loan repricing throughout 2026, and the outlook for average earning asset levels.

Answer

Lynn M. Kerber, EVP and Chief Commercial Banking Officer, noted competitive pricing in certain commercial segments, particularly for attractive CRE deals, but generally not irrational. Thomas Prame, CEO and President, emphasized Horizon's relationship-based banking model, which provides some insulation from extreme pricing. Kerber described the commercial pipeline as strong and steady, despite typical Q1 seasonality. John Stewart, EVP and CFO, detailed that new loan production yields above 6.5% continue to exceed the 5.5%-5.75% cash flows rolling off the book, with approximately $150 million repricing quarterly. Stewart also confirmed that Q1 average earning assets are likely to be the low point for 2026, with the full-year average modestly exceeding $6 billion.

Brian Martin inquired about Horizon Bancorp Inc.'s loan growth outlook for 2026, the expected sources of growth, plans for additional staff, the timeline for achieving a 1.60% ROA target, and whether share buybacks are part of the capital deployment strategy.

Answer

CEO and President Thomas Prame projected mid-single-digit loan growth for 2026, primarily driven by the commercial segment, emphasizing disciplined and profitable growth without the need for significant additional headcount. EVP and CFO John Stewart indicated that the Q4 guidance approximates the 1.60% ROA target, with durability and sustainability expected into 2026. Mr. Prame stated that while share buybacks are always an option for shareholder value creation, they are not the immediate priority given the recent capital raise.

Brian Martin asked about Horizon Bancorp Inc.'s loan growth outlook for 2026, including expected sources of growth and plans for additional staffing to support organic growth. He also inquired about the timing for achieving the 1.60% ROA target and whether share buybacks are considered a capital deployment option.

Answer

CEO and President Thomas Prame stated that 2026 loan growth is anticipated to be in the mid-single-digit range, primarily from the core commercial franchise, with a disciplined approach to credit and margin management. He indicated no need for significant additional headcount, as existing teams are well-entrenched. EVP and CFO John Stewart confirmed that the Q4 guidance approximates the 1.60% ROA target, which is expected to be durable and sustainable into 2026. Thomas Prame clarified that while buybacks are always an option, they are not the first priority in the near term given the recent capital raise.

Brian Martin from Janney Montgomery Scott inquired about the expense outlook for 2026, targets for the asset and funding mix, the forward-looking provision expense, and the company's appetite for M&A in terms of geography and size.

Answer

CFO John Stewart indicated that while expenses would likely see a normal uplift in 2026, the approach would remain disciplined. Management noted the provision will be driven by loan growth and economic forecasts. CEO Thomas Prame stated that M&A remains a key part of the strategy, with a focus on contiguous markets in Indiana and Michigan, likely targeting banks in the $500 million to $1 billion+ asset range.

Brian Martin of Janney Montgomery sought an update on the commercial loan growth outlook and current pipeline strength. He also asked for clarification on the expected shift in deposit mix towards CDs and a recap of the early paydown of borrowings.

Answer

EVP & Chief Commercial Banking Officer Lynn Kerber stated the commercial loan growth forecast remains in the mid-to-high single digits, supported by a steady core pipeline and a lift from the equipment finance division. Executive Thomas Prame explained the deposit mix shift is due to clients locking in attractive CD rates, not a loss of relationships. EVP & CFO John Stewart recapped that the company paid down $330 million in borrowings, exceeding its $200 million plan and getting ahead of schedule.

Brian Martin asked a series of questions covering the 2025 tax rate cadence, M&A as a use of capital, potential M&A target parameters, further loan portfolio remixing opportunities, and an update on commercial loan pipelines and the equipment finance division's outlook.

Answer

John Stewart, EVP and CFO, confirmed the new mid-teens tax rate would be ratable after a step-up in Q1. Executive Thomas Prame stated M&A is 'definitely on the radar,' focusing on culturally aligned banks of an appropriate size in their core Michigan and Indiana markets. Lynn Kerber, EVP and Chief Commercial Banking Officer, noted the loan portfolio focus is on organic growth in core segments, not further remixing. She projected the equipment finance division would produce $150M-$175M in 2025 and said the overall commercial annualized run rate is the best predictor for future growth.

Brian Martin asked for an update on the commercial loan pipeline, the current size of the equipment finance division, the expected runoff rate for the indirect auto portfolio, and the near-term sustainability of mortgage banking income.

Answer

Lynn Kerber, EVP and Chief Commercial Banking Officer, described the commercial pipeline as steady and noted the equipment finance division had reached over $85 million in footings, meeting expectations. Executive Thomas Prame estimated the indirect auto portfolio would continue to run off by $30-$35 million per quarter. He also indicated that mortgage income would likely see a seasonal decline in Q4 and Q1 before recovering, following a strong Q3 driven by new leadership and improved productivity.

Brian Martin asked about the timeline for resolving current non-performing assets, specifically any large chunks expected to be resolved. He also inquired about the margin performance in the quarter, the outlook in a stable rate environment, and commentary on the buyback program.

Answer

George Gleason, Chairman and CEO, detailed resolution paths for specific non-accrual assets, including the Boston property, Santa Monica office, Chicago Life Science, and Baltimore land, noting that some resolutions are quick while others take longer. Tim Hicks, CFO, explained the margin benefited from RESG loan resets and favorable deposit costs, but Q1 will have fewer days impacting net interest income. On buybacks, he stated the bank was opportunistic, buying 2.25 million shares below tangible book value, with nearly $100 million remaining in authorization, and highlighted increased dividend and capital ratios.

Brian Martin, Director of Banks and Thrifts at Janney, inquired about the expected timeline for resolving Bank OZK's current non-performing assets, specifically asking about any large chunks anticipated to be resolved in the near future. He also asked about the net interest margin performance and outlook, and the prospective strategy for share buybacks.

Answer

George Gleason, Chairman and CEO, explained that resolution paths vary, citing examples like the Boston property where new equity partners are sought or the bank may acquire title. He mentioned ongoing efforts for sales or short sales on other non-accrual assets, emphasizing a constructive approach to maximize value, even for long-standing substandard assets. Tim Hicks, CFO, noted that the Q4 margin benefited from SOFR movements and strong deposit cost management, and discussed the opportunistic nature of the share buyback program, highlighting its accretive impact and the remaining authorization.

Brian Martin asked about the ongoing build-out of the Corporate and Institutional Banking (CIB) group, including plans for adding more staff, teams, or verticals, and the long-term potential for CIB's fee income as a percentage of total bank revenue.

Answer

George Gleason, Chairman and CEO, and Jake Munn, President of Corporate and Institutional Banking, detailed a disciplined, revenue-gated approach to CIB staff expansion, focusing on recruiting top-tier veteran talent. Jake Munn highlighted growth in specific CIB groups like Natural Resources, Corporate Banking and Sponsored Finance (CBSF), and Asset-Based Lending Group (ABLG), along with the optimization of Fund Finance. He emphasized CIB's inherent diversification across 40-45 unique industries and the commitment to high-quality hires that align with Bank OZK's credit culture. They reiterated that CIB is in its early stages but is expected to show continued growth and momentum, with careful management of expenses and efficiency.

Brian Martin sought clarification on whether management's comment about 'acceleration' in the CIB group referred to an acceleration in the dollar amount of growth from the strong Q2 level.

Answer

Chairman & CEO George Gleason clarified that he was referring to an accelerating trend over the next several quarters, rather than guaranteeing that Q3's dollar growth would exceed Q2's. President of CIB Jake Munn emphasized the group's selective, credit-first approach, noting a pull-through rate of only 12% on over $7 billion of opportunities reviewed in Q2.

Brian Martin from Janney Montgomery Scott asked how economic uncertainty and potential tariffs are influencing the allowance for credit losses (ACL). He also requested an update on the Los Angeles OREO property that was previously under contract.

Answer

Chairman and CEO George Gleason explained that the bank has consistently built its ACL to address a progression of risks, with provisions significantly exceeding net losses over the past 11 quarters. CFO Tim Hicks added that the bank increased its weighting to downside economic scenarios in Q1. Regarding the Los Angeles property, Gleason confirmed it is back under contract with the original sponsor, who paid additional fees and earnest money, with a new closing deadline of June 30 and a potential extension to September 30.

Brian Martin asked for commentary on the yield difference between RESG and CIB originations in the quarter, the potential for lumpiness in CIB's growth, and the outlook for fee income. He also requested an update on the status of the bank's OREO property.

Answer

Chairman and CEO George Gleason confirmed that CIB yields are generally lower than RESG but are augmented by fees and deposits. He expects CIB growth to be less lumpy than RESG due to greater diversification and smaller average deal sizes, and he anticipates fee income will ramp up steadily. Regarding the OREO property, Gleason explained the prospective buyer missed a deadline, the contract was canceled, and the bank is now considering either reinstating the contract on improved terms or remarketing the property.

Brian Martin inquired about the provisioning outlook as the loan mix shifts to CIB, the long-term (3-5 year) vision for CIB's contribution, clarification on NIM scenarios based on Fed actions, and the current M&A outlook.

Answer

CEO George Gleason stated that provisioning will remain a disciplined, loan-by-loan process and does not expect a material difference in required reserves for CIB given the conservative structuring. He reiterated the goal for RESG to be under 50% of the loan book in 2-3 years due to faster growth in other lines. CFO Tim Hicks clarified NIM scenarios, and also noted no change in the M&A outlook, with a continued focus on strong organic growth.

Brian Martin asked for clarification on F.N.B. Corporation's loan growth outlook, particularly the back-end loaded nature and current pipeline. He also inquired about big-picture loan concentration targets, specifically for the mortgage book and other categories, and the current size of the equipment finance portfolio. Additionally, he asked about loan pricing trends, their impact on the margin outlook, and the company's M&A strategy.

Answer

Chairman, President, and CEO Vincent Delie reiterated the goal to shrink the mortgage book over time and redeploy capital into higher-returning C&I and CRE lending. He highlighted the capacity to originate $1 billion in CRE loans without exceeding the 197% concentration level. He expects C&I business to accelerate, focusing on true middle-market transactions. Chief Credit Officer Gary Guerrieri noted the equipment finance business has been exceptionally strong, with a portfolio of about $1.5 billion. CFO Vincent Calabrese clarified that strong mortgage originations are still desired, but more will move off-balance sheet to manage concentration. Regarding loan pricing, Mr. Delie acknowledged C&I pricing is aggressive but competitive, emphasizing a holistic view of relationship returns. Mr. Calabrese added that new loans in Q4 came on at 592 basis points, 24 basis points above the portfolio rate. For NII and margin, Mr. Calabrese stated the guidance assumes two rate cuts (April and October), with the margin expected to increase modestly by a few basis points per quarter. Mr. Delie concluded that a large M&A transaction is unlikely, with the focus remaining on organic growth and capital deployment for shareholder returns.

Brian Martin asked for more details on F.N.B. Corporation's mid-single-digit, back-end loaded loan growth outlook, including current pipeline strength. He also inquired about the strategic positioning of loan concentration levels, specifically targets for reducing the mortgage book and redeploying capital into C&I and CRE, and the current size of the equipment finance business. Additionally, he questioned the impact of competitive loan pricing on the margin trajectory and the assumptions embedded in the NII growth outlook for 2026.

Answer

Chairman, President, and CEO Vincent Delie reiterated the goal to shrink the mortgage book over time and redeploy capital into higher-returning C&I and CRE lending, leveraging the company's 197% CRE concentration and strong internal capital generation. Chief Credit Officer Gary L. Guerrieri highlighted the exceptional performance and continued growth in the $1.5 billion equipment finance business. Vincent Delie acknowledged competitive C&I pricing but emphasized focusing on holistic relationship returns, while CFO Vincent Calabrese noted that new loans in Q4 2025 came on at 592 basis points, 24 basis points above the portfolio rate. Vincent Calabrese also stated that the NII guidance assumes two 25 basis point rate cuts (April and October) and projects the net interest margin to modestly increase a few basis points per quarter from 328 basis points by year-end.

Brian Martin from Janney Montgomery Scott sought to clarify FNB's M&A strategy, asking if the focus would be on smaller, fill-in deals, and inquired about the long-term trajectory for the net interest margin, especially in a more normalized yield curve environment.

Answer

Chairman, President & CEO Vincent J. Delie reiterated a strong focus on organic growth, downplaying the immediate focus on M&A of any size and highlighting the company's successful organic growth model. An unnamed executive addressed the long-term margin, stating there is a "great opportunity" for it to head higher, driven by loan and security repricing and the benefits of a better rate environment for deposit generation.

Brian Martin from Janney Montgomery asked about current trends in loan yields and competition, as well as F.N.B.'s capital deployment priorities, weighing share buybacks against potential M&A.

Answer

CFO Vincent J. Calabrese noted that new loans originated in Q4 had a blended rate of around 6.5%, which remains accretive to the overall portfolio yield. CEO Vincent J. Delie emphasized that the priority is optimal capital deployment, with a primary focus on strong internal growth. While M&A is a possibility under strict criteria (quick earn-back, no deposit franchise dilution), he also highlighted that share repurchases are a consideration given the bank's strong 10.6% CET1 ratio and attractive valuation.

Brian Martin asked about the outlook for DDA balances, whether rate cuts have spurred loan demand, loan repricing dynamics, details on recent strategic hiring, and the bank's current asset sensitivity.

Answer

CEO Vincent J. Delie and CCO Gary L. Guerrieri noted that while the DDA mix is down, the absolute balance has been stable around $10 billion and they expect to grow it over time. They are not yet seeing a pickup in loan demand, as clients are in a 'wait and see' mode. CFO Vincent J. Calabrese confirmed the bank is moving toward a neutral asset sensitivity position. Delie added that recent hiring has focused on uptiering talent and building out risk and operations efficiency teams.

Brian Martin asked about CCFG's projected net growth for 2026, the primary pressure points on the net interest margin, the M&A pipeline's geographic focus and deal size preferences, the 'clean' core fee income run rate, and the status of the DFW apartment and Texas C&I problem credits.

Answer

Christopher Poulton, President of Centennial Commercial Finance Group, projected mid-single-digit net growth for 2026, acknowledging potential for unexpected payoffs. Stephen Tipton, CEO of Centennial Bank, identified external loan pricing competition as the biggest margin pressure point, aiming to maintain the 4.5% range. Chairman John Allison indicated M&A interest in Florida, Texas, or Tennessee, prioritizing non-dilutive deals. Brian Davis, CFO, confirmed $45 million as a clean core fee income run rate, excluding a $4.9 million noisy item. Kevin Hester, President and Chief Lending Officer, updated that the DFW apartment credit (approx. $10M) is still being worked through after a sale fell through, and the Texas C&I credit (approx. $90-100M) may go to non-accrual before resolution, with no additional losses expected.

Brian Martin asked about CCFG's net growth expectations for 2026, the standalone expense run rate and acquisition impact, the biggest pressure point on the margin, the M&A pipeline and geographic focus, the core fee income level, and the status and size of the DFW apartment and Texas C&I problem credits.

Answer

Chris Poulton, President of Centennial Commercial Finance Group, estimated mid-single-digit net growth for CCFG in 2026. Stephen Tipton, CEO of Centennial Bank, confirmed a standalone expense run rate around $114 million, with the MCB acquisition adding to it, and identified external loan competition as the biggest margin pressure point. John Allison, Chairman, discussed M&A opportunities in Texas, Florida, and Tennessee, prioritizing non-dilutive deals. Brian Davis, CFO, confirmed that $4.9 million was the only 'noisy' item in non-interest income, implying a core of around $45 million. Kevin Hester, President and Chief Lending Officer, updated on the DFW apartment credit ($10 million, sale fell through, deposit applied) and Texas C&I credit ($90-100 million, may go non-accrual, no additional loss expected), noting ongoing resolution efforts.

Brian Martin asked about the stability of the net interest margin (NIM) in a declining rate environment, opportunities for fixed asset repricing, the outlook for expenses, the sustainability of fee income given the lawsuit gain, the full quarter benefit of sub debt payoffs, and the current status of loan pipelines and payoffs.

Answer

CEO Stephen Tipton reiterated expectations for margin stability due to proactive management, despite asset sensitivity. He detailed fixed-rate loan maturities for Q4 2025 ($478 million at 6.17%) and 2026 ($1.25 billion at 5.5%). President of Centennial Commercial Finance Group Christopher Poulton clarified event income, noting the lawsuit gain would largely conclude in Q4. Stephen Tipton confirmed a full quarter benefit from sub debt payoffs in Q4. Kevin Hester discussed Q3 payoffs ($750M-$800M) and healthy community bank pipelines, particularly in Florida and Texas. Chairman John Allison confirmed the M&A target is a good company with ALCI issues that Home BancShares can help resolve.

Brian Martin asked for more color on M&A target size and geography, the NIM impact from retiring sub-debt, a reconciliation of core expenses, details on loan originations and payoffs, an update on a large non-performing credit, and the outlook for the reserve level.

Answer

Chairman & CEO John Allison specified M&A targets are in the $2-6 billion asset range. CEO of Centennial Bank, Stephen Tipton, quantified the sub-debt payoff benefit to NIM at 5-6 bps and detailed approximately $4.5 million in non-recurring Q2 expenses. President & Chief Lending Officer Kevin Hester confirmed a ~$12 million non-accrual loan resolution is now expected in Q3. Mr. Allison added that while comfortable with the current reserve, he aims to build it toward 2% when possible.

Brian Martin asked for an update on the expected trend for nonperforming asset (NPA) resolution over the next few quarters. He also requested color on the current Community Bank loan pipeline and asked for the margin's exit rate for the quarter and the greatest perceived risk to the margin going forward.

Answer

Executive Kevin Hester projected another $12 million in NPA resolutions in Q2, with further significant reductions dependent on the performance of memory care credits, which could resolve in Q3 or Q4. He described the loan pipeline as 'pretty good' but noted elevated payoffs are a headwind. Executive John Tipton reported the core margin exited March at 4.38%, slightly below the quarterly average due to excess cash, and identified deposit competition as the biggest risk to maintaining the margin.

Brian Martin of Janney Montgomery Scott sought clarification on the M&A pipeline, asking if any deals were imminent and confirming target markets. He also asked about the near-term provisioning outlook and the expected timing for credit recoveries and NPA reductions.

Answer

Chairman John Allison confirmed that nothing is imminent on the M&A front after pausing a deal to be transparent, but the bank remains open to opportunities in Florida, Texas, and the Carolinas. He projected negligible provisioning in the short term, with a 12-18 month timeline to rebuild reserves to the 2% target. Chief Lending Officer Kevin Hester outlined expectations for $30-40M in NPA reductions over the next couple of quarters and noted that significant recoveries would occur monthly over several years.

Brian Martin asked about the amount of indexed liabilities, loan repricing expectations for 2025, M&A strategy regarding market focus, and the sustainable level for operating expenses.

Answer

CEO Stephen Tipton noted about $3 billion in liabilities are indexed to benchmarks like the T-Bill or Fed Funds. Chief Lending Officer Kevin Hester added that while loan renewals should be in the 8% range, competition is emerging with fixed rates in the high 6s. Chairman John Allison said M&A targets include one in-market and one out-of-market, and that a $111 million quarterly expense level is a realistic run rate.

Brian Martin asked whether the pro forma company's CRE concentration would remain below targeted guidelines (70-25) even with anticipated incremental growth post-combination. He also sought insight into current new loan origination yields and expectations for these yields over the next couple of quarters, given the forecast of two rate cuts in Q4.

Answer

CEO Terry Turner confirmed the general expectation to operate at peer median-like CRE numbers, acknowledging a potential temporary blip at the transaction's start due to tangible book value dilution, but with a quick earn-back. He advised looking at past quarters' trends for loan originations and applying consistent betas, while CFO Harold Carpenter added the intent to maintain or grow deposit betas through anticipated rate cuts.

Brian Martin from Janney Montgomery Scott LLC asked if the combined company expects to maintain CRE concentrations below targeted guidelines (70-25) despite anticipated growth, with any initial blip being temporary. He also inquired about current new loan origination yields and expectations for these yields over the next couple of quarters, given the forecast for Q4 rate cuts.

Answer

President and CEO Terry Turner confirmed the expectation to operate at "pure median-like numbers" for CRE concentrations, with any initial post-merger blip being temporary. CFO Harold Carpenter advised reviewing past quarterly trends for loan originations and applying consistent betas, while also stating the intention to maintain or grow deposit betas through anticipated rate cuts.

Brian Martin from Janney Montgomery Scott asked if BHG's strong Q2 performance represents a peak for the year, inquired about the strategy for hiring in new versus existing markets, and questioned what catalyst is needed for more rapid NIM expansion.

Answer

CFO Harold Carpenter suggested that BHG's quarterly contribution would likely remain flattish from the Q2 level through the rest of the year. President & CEO Terry Turner explained that hiring is a continuous process across their entire footprint, and new market entries are opportunistic, driven by finding the right team. For the NIM, Carpenter stated that the primary near-term catalyst for more meaningful expansion would be a rate decrease from the Federal Reserve.

Brian Martin from Janney Montgomery Scott asked if Q2 would represent the high point for BHG's quarterly contribution this year, inquired about the hiring outlook for new versus existing markets, and questioned what catalyst is needed for the net interest margin to expand more rapidly.

Answer

CFO Harold Carpenter suggested that BHG's contribution would likely remain 'flattish' from the Q2 level for the remainder of the year. President & CEO Terry Turner emphasized that hiring is continuous across the entire footprint, with new market entries being opportunistic. Carpenter identified a Federal Reserve rate decrease as the key near-term catalyst required for more significant NIM expansion.

Brian Martin from Janney Montgomery Scott asked if Q2's performance from BHG represents a peak for the year, about the hiring outlook in new versus existing markets, and what factors are needed for significant NIM expansion.

Answer

CFO Harold Carpenter indicated that BHG's quarterly contribution would likely remain 'flattish' compared to the Q2 level for the remainder of the year. CEO Terry Turner explained that hiring is continuous everywhere, but new market entries are catalyzed by finding the right team. Carpenter reiterated that a near-term catalyst for significant NIM expansion would be a Fed rate decrease, while a steeper yield curve is necessary for longer-term margin improvement.

Brian Martin from Janney Montgomery Scott LLC asked about the likelihood of entering a new market, growth expectations for CRE loan categories, and the outlook for the firm's tax rate.

Answer

M. Turner (Executive) clarified that while new market entry is always a possibility driven by talent availability, its mention was to reinforce the firm's ongoing hiring strategy, not to signal an imminent move. He and Harold Carpenter (Executive) explained that CRE concentrations are still being reduced and meaningful growth from that category is not expected until late in the year or early next year. Carpenter guided for the tax rate to remain similar to Q1's rate.

Brian Martin inquired about the net interest margin (NIM) trajectory with a steepening yield curve, the nature of lumpy items in fee income, the outlook for deposit growth, and the geographic focus for recruiting.

Answer

Harold Carpenter (executive) projected that a steeper curve could lead to a 10-20 basis point NIM improvement over the year and identified about $1.5-2.0 million in lumpy fee income items in Q4. M. Turner (executive) detailed that deposit growth is driven by specialized verticals and a treasury management focus on operating accounts. He also noted that while recruiting is successful across the franchise, newer markets like Jacksonville and Washington D.C. yield higher percentage growth rates.

Brian Martin asked for several points of clarification: the percentage of loans that reprice immediately with rate cuts, the expected loan growth mix in 2025, drivers of the strong deposit growth, and housekeeping items on the tax rate and non-recurring fees.

Answer

Executive Harold Carpenter specified that about 14% of total loans are tied to prime and reprice daily with rate changes. He expects the loan mix to remain focused away from construction and CRE until the latter half of 2025. He attributed strong deposit growth to the success of specialized deposit verticals. For housekeeping, Carpenter confirmed the two non-recurring fee items mentioned earlier and stated that the firm's effective tax rate (ETR) should be around 20%.

Brian Martin of Janney Montgomery Scott inquired about the volume of loans and bonds repricing in the next year, the target size for the securities portfolio, and the outlook for SBA gain-on-sale revenue. He also asked about the biggest opportunities in fee income and the company's priorities for M&A.

Answer

CEO Charles Reeves indicated that $418 million in fixed-rate loans and $180 million in securities cash flows are expected over the next 12 months, with a securities portfolio target of 15-20% of assets. He highlighted wealth management as a key fee income opportunity. For M&A, he outlined a focus on geography (IA, MN, CO), size ($0.5B-$2B), and strategic fit, stating the company is proving its earnings momentum before actively pursuing deals.

Brian Martin of Janney Montgomery Scott inquired about the volume of upcoming loan and bond repricing, the target size for the securities portfolio, the outlook for SBA and other fee income businesses, and the company's M&A strategy.

Answer

CEO Charles Reeves detailed that $418 million in loans and $180 million in securities are set to reprice in the next year, with a target securities portfolio size of 15-20% of assets. He highlighted wealth management as a key growth area and noted SBA gain-on-sale income has doubled year-over-year. Regarding M&A, he reiterated a focus on specific geographies and digestible targets that enhance the franchise, pending continued strong performance.

Brian Martin of Janney Montgomery Scott asked for the 2025 expense run rate, drivers of fee income beyond wealth and SBA, the overall fee income growth outlook, the margin's trajectory, and the company's long-term profitability (ROA) target.

Answer

CFO Barry Ray reiterated the full-year 2025 expense guidance of $145 million to $147 million. President and COO Len Devaisher highlighted treasury management and interest rate swaps as other key fee income drivers, projecting mid-to-high single-digit growth for total fee income. CEO Charles Reeves stated the company is targeting a Return on Average Assets (ROA) in the 1.10% to 1.15% range as an exit rate for 2025, driven by gradual margin expansion.

Brian Martin requested details on the industries of the two large C&I credits that were downgraded, the margin outlook in a flat versus steepening yield curve scenario, specifics on upcoming loan repricing opportunities, the sustainability of SBA fee income, and an updated ROA outlook for 2025.

Answer

Chief Credit Officer Gary Sims identified the downgraded credits as a $17 million relationship in higher education and a $21 million relationship in gasoline retail/wholesale. CEO Charles Reeves and EVP/CFO Barry Ray stated that they expect margin expansion even in a flat curve environment due to asset repricing. Ray noted ~$375 million in loans are repricing from an average rate of 4.38% over the next year. President and COO Len Devaisher expects SBA income to be a sustainable contributor. Barry Ray projected a 2025 ROA of above 1%, potentially ending the year near 1.10%.

The analyst asked for details on cash flows from the maturing loan and securities portfolios, including current and replacement yields. He also inquired about the loan growth outlook, the status of government portfolio originations, trends in funding costs, the future expense run rate after one-time costs, and the earnings outlook for 2024, including ROA and EPS targets.

Answer

The executive detailed a significant positive repricing opportunity with about $320 million in low-yielding assets maturing by the end of 2024, to be replaced with higher-yielding loans. Loan growth is expected to be modest after a Q4 decline. Federal government lending is paused. Funding cost pressures have eased but are being monitored. Expenses are expected to normalize around $40 million annually, and the bank is targeting a sustainable $1 EPS and a 9.5-10% ROE on required capital in 2024.