Casey Haire

Casey Haire asked about the expected trajectory of wholesale borrowings as a percentage of assets, currently at 13%, within the bank's budget. He also sought clarification on the expense rationalization efforts supporting the 2026 expense guidance of $1.75 billion to $1.8 billion, given the current run rate.

Answer

Lee Smith, Senior Executive Vice President and Chief Financial Officer, explained that Flagstar paid off $1.7 billion in brokered deposits in Q4, with only $2.3 billion remaining, and restructured FLUB advances to short-term, aiming for further paydowns to gain FDIC benefits. For expenses, Lee Smith noted Q4 included additional incentive compensation and $4 million in severance. He projected Q1 2026 core operating expenses (excluding amortization) to be in the $455 million to $465 million range, with further reductions expected from cost optimization, FDIC expenses, technology projects, and real estate optimization throughout the year.

Casey Haire asked about the projected trajectory of wholesale borrowings as a percentage of assets within Flagstar Bank's budget. He also sought clarification on the drivers behind the expected expense rationalization in 2026, given the current run rate.

Answer

Lee Smith, Senior Executive Vice President and CFO, explained that the bank has significantly reduced brokered deposits and is now mostly holding short-term FHLB advances, which present an opportunity for further paydown in 2026 to deleverage wholesale borrowings and gain FDIC benefits. Regarding expenses, he noted that Q4 included additional incentive compensation and severance costs. He anticipates further reductions in 2026 through cost optimization initiatives, lower FDIC expenses, new technology projects, and real estate optimization, expecting to remain within the guided range.

Casey Haire of Autonomous Research asked for an outlook on net charge-offs and inquired about behavioral changes from CRE building owners and which institutions are refinancing the loans that are paying off.

Answer

Senior Executive Vice President & CFO Lee Smith stated that net charge-offs are expected to decline in the second half of the year. Executive Chairman, President & CEO Joseph Otting detailed that of the CRE payoffs, approximately 20% go to government agencies and another 20% to JPMorgan, with the remainder spread among other institutions. He noted Flagstar's above-market rollover rates incentivize borrowers to refinance.

Casey Haire questioned the conservative Net Interest Income (NII) guidance, considering expected day count help in Q3 and seemingly flat growth in the latter half of 2025, and asked for an update on loan pipeline quantification.

Answer

Dan Geddes, Group Executive Vice President and CFO, explained that while Net Interest Margin (NIM) will improve, full-year NII guidance is influenced by the timing of rate cuts and a mix shift towards higher-cost CD balances. Phil Green, Chairman and CEO, added that the loan pipeline was only down 1% despite significant commitments, indicating strong replacement of opportunities. He noted that weaker draws on commitments are due to business uncertainty, which is expected to clear up in the second half of 2025.

Casey Haire of Autonomous Research questioned why the full-year Net Interest Income (NII) guidance appeared conservative and asked for an update on the size and momentum of the loan pipeline.

Answer

CFO Dan Geddes explained that the full-year NII guidance is influenced by the late-in-the-year timing of expected rate cuts and potential loan payoffs. He noted the loan pipeline was down only 1% sequentially, which he viewed as encouraging given the record loan commitments booked in Q2. CEO Phillip Green added that while loan utilization has been soft due to economic uncertainty, he anticipates activity will increase as clarity on trade policy and the economy improves.

Casey Haire of Autonomous Research asked for clarification on the net interest income (NII) guidance, which appeared conservative, and inquired about the current state of the loan pipeline.

Answer

CFO Dan Geddes explained that while the net interest margin is expected to improve, the full-year NII guidance is tempered by the timing of rate cuts and potential loan payoffs in the second half of the year. He noted the loan pipeline remains strong, down only 1% despite record new loan commitments in Q2. CEO Phillip Green added that as economic uncertainty diminishes, he expects business line utilization to increase.

Casey Haire asked for more color on Western Alliance's NIM outlook, specifically which C&I categories are growing faster and their associated yields, and whether growth in lower-cost deposit channels would meaningfully increase the deposit beta. He also questioned if there was wiggle room to flex core expenses lower if deposit cost relief did not materialize as expected.

Answer

Ken Vecchione, President and CEO, stated NIM is expected to slowly cascade up throughout the year, supported by CD funding reductions and more attractively priced deposits from Dale Gibbons' businesses. Tim Bruckner, Chief Banking Officer, noted strong volume from Lot Banking, hotel financing, Resort Financing, and private credit. Dale Gibbons, Vice Chairman and CFO, clarified that services like 24/7 interbank trading lead to lower, not higher, betas. Mr. Vecchione confirmed flexibility in expenses, particularly if LFI guidance thresholds change, but emphasized balancing short-term adjustments with long-term investments in new business lines for future revenue growth.

Casey Haire asked for more color on Western Alliance's net interest margin (NIM) outlook, specifically the expectation for NIM to expand throughout 2026, inquiring about the C&I categories driving faster growth and their yields, and if growth in lower-cost deposit channels would meaningfully increase the deposit beta. He also asked if there was wiggle room to flex core expenses lower if deposit cost relief did not materialize as expected, given the implied 9%-13% growth in core expenses (excluding ECR deposit costs).

Answer

President and CEO Ken Vecchione explained that NIM would slowly cascade upward throughout the year, supported by continued reduction in CD funding and attractive pricing from specialty businesses. He noted that the digital asset group's 24/7 interbank trading commands a premium, leading to a larger discount in funding costs. He highlighted strong yields and volume in business lines like lot banking, hotel financing, resort financing, and private credit. Vice Chairman and CFO Dale Gibbons added that providing unique services leads to lower funding costs and a lower beta for these deposits. Regarding expenses, Mr. Vecchione stated that the outlook embeds full expenses for the $100 billion asset threshold, with flexibility if LFI guidance changes. He emphasized balancing short-term flexibility with long-term investments in new businesses and products for future revenue growth, citing examples like IBT network, Juris Banking, and HOA.

Casey Haire questioned Western Alliance Bancorporation's collateral validation processes for its NDFI exposure beyond the $2 billion note finance book, specifically for the remaining $11 billion, and safeguards against future frauds.

Answer

CFO Dale Gibbons explained that the bank confirms first lien positions through direct sources and title insurance, with periodic checks. President and CEO Ken Vecchione clarified the note finance portfolio is $2 billion. Dale Gibbons added that the vast majority of the remaining NDFI exposure consists of short-term (two-week) residential mortgage lines that clear constantly. In a follow-up on loan and deposit guidance, Ken Vecchione attributed Q3 loan growth being below internal projections to several loans pushed to Q4, giving confidence for a stronger Q4. Dale Gibbons noted that the deposit guide anticipates higher runoff if the bank saves on pricing, and deposits could rise if mortgage banking activity picks up due to purchase/refinance business.

Casey Haire questioned Western Alliance Bancorporation's collateral validation processes for its $11 billion NDFI exposure beyond the $2 billion note finance book, given concerns about double-pledging. He also sought clarification on loan and deposit guidance, specifically the need for strong Q4 loan growth and the implication of $3 billion in deposit runoff.

Answer

CFO Dale Gibbons explained that for the note finance book, they confirm first lien position through direct sources and periodic checks, noting the Canter Group 5 issue was a failure to maintain first position. He clarified that the majority of other NDFI exposure is short-duration residential mortgage lines. President and CEO Ken Vecchione stated that Q4 loan growth confidence stems from loans pushed from Q3. Dale Gibbons added that the deposit guide anticipates higher runoff, potentially allowing for pricing savings, and noted that increased mortgage activity could boost deposits.

Casey Haire questioned the confidence in the credit outlook, asked why the office loan portfolio isn't shrinking, and inquired about the outlook for second-half loan growth and yields.

Answer

CFO Dale Gibbons stated this is the first time the bank has definitively called a peak in criticized assets, citing stabilizing market conditions. An unnamed executive clarified the portfolio consists of bridge assets that the bank is proactively repositioning. CEO Ken Vecchione reiterated the $5 billion annual loan growth guide and projected that loan yields would decline slightly in the second half, following the forecast for two rate cuts.

Casey Haire from Jefferies questioned Western Alliance's low Allowance for Credit Losses (ACL) and asked about the drivers behind the strong fee income guidance for 2025.

Answer

Chief Financial Officer Dale Gibbons defended the ACL methodology as rigorous and adequate, stating the bank does not see a need for a large qualitative build-up. President and CEO Kenneth Vecchione explained that the fee income guidance is supported by an expected second-half seasonal increase in mortgage income, which is projected to be flat year-over-year.

Casey Haire asked about the expected trend of East West Bancorp's deposit beta throughout 2026 and the rationale behind the increased charge-off guidance for 2026 despite strong credit metrics in 2025.

Answer

Christopher Del Moral-Niles, CFO, indicated that deposit betas are expected to exceed 0.5, but achieving higher levels becomes more challenging as rates decline. Adrienne Atkinson, Director of Investor Relations, clarified that the charge-off guidance reflects the potential for individual credits to turn, not systemic issues, as overall credit quality remains strong.

Casey Haire inquired about the expected trend of East West Bancorp's deposit beta throughout 2026, following a 60% beta achieved so far. He also asked Chief Risk Officer Irene Oh for clarification on the reasons behind the increased charge-off guidance for 2026, given the current low levels of non-performing assets and strong credit metrics.

Answer

CFO Christopher Del Moral-Niles stated that the bank's disciplined approach to reacting to market rates would continue, expecting betas to exceed 0.5, but acknowledged that incremental ability to achieve higher betas becomes challenging as rates decline. Chief Risk Officer Irene Oh explained that while credit metrics remain strong with no systemic issues, the charge-off guidance for 2026 reflects the potential for individual credits to turn, even from historically low levels.

Casey Haire of Autonomous Research inquired about the sustainability of East West Bancorp's net interest margin drivers and the rationale behind the C&I reserve build, given favorable credit migration and a reduced charge-off forecast.

Answer

EVP & CFO Christopher Del Moral-Niles stated that the bank continues to see opportunities for deposit cost optimization and positive repricing on fixed-rate assets, supporting the margin. EVP & Chief Risk Officer Irene Oh clarified that the reserve build was not driven by specific C&I portfolio issues but rather by changes in the macroeconomic outlook within the CECL model.

Casey Haire from Autonomous Research asked about the success rate of the 41 hires in Q4, the pipeline for achieving 250 hires in 2026, and the number of outstanding offers. He also inquired about other potential balance sheet restructuring considerations and updated views on a BHG liquidity event.

Answer

Terry Turner (Chairman, Synovus Financial) stated that the success rate for Q4 hires remained consistent with the year's average, and the methodology is expected to produce committed guidance. Kevin Blair (President and CEO, Synovus Financial) added that the legacy Synovus team is adopting Pinnacle's rigorous hiring process, building pipelines, and that people are eager to join the company. Jamie Gregory (CFO, Synovus Financial) mentioned ongoing work on various balance sheet options, none material to earnings, and noted BHG's strong performance ($30M fee revenue in Q4, ~25-35% growth outlook for 2026), positioning them well for future strategic decisions.

Casey Haire from Autonomous Research inquired about the success rate of the 41 hires made in Q4 2025, the current hiring pipeline for the 2026 target of 250 revenue producers, and the number of outstanding offers. He also asked about any other balance sheet restructuring considerations and updated perspectives on a potential BHG liquidity event.

Answer

Terry Turner, Chairman, Synovus Financial, stated that the success rate for Q4 hires remained consistent with the annual average, and the established recruitment methodology provides confidence in meeting the 2026 target. Kevin Blair, President and CEO, Synovus Financial, added that the Synovus team is adopting Pinnacle's rigorous hiring process, building pipelines, and that strong company culture and peer validation continue to attract talent. Regarding BHG, Kevin Blair noted their continued strong performance and growth (25-35% in 2026), positioning them well to choose their own destiny regarding a liquidity event.

Casey Haire from Autonomous Research inquired about the post-merger capital strategy, specifically if Pinnacle Financial Partners would maintain its historical practice of running with higher capital given the combined entity's over $100 billion in assets. He also asked if the terms for new hires have become more competitive, requiring sweetened economics, and for thoughts on potential expansion into Texas, considering its M&A activity and growth dynamics.

Answer

CFO Harold Carpenter stated that the combined entity plans no additional capital strategies beyond traditional deployment, emphasizing the need for capital to support loan growth and mentioning potential buybacks if growth targets are not met. President and CEO Terry Turner acknowledged a more competitive hiring landscape that can impact pricing but highlighted the strong profit leverage of experienced relationship managers. He reiterated a primary focus on the Southeast due to market share vulnerability but recognized Texas's growth dynamics and potential future opportunities.

Casey Haire from Autonomous Research questioned if loan yields have bottomed excluding the impact of Fed cuts, whether the expense guide accommodates the rapid hiring pace, and what the floor for the CET1 capital ratio is.

Answer

Harold Carpenter (Executive) stated that loan yields are not expected to move much in Q2 but would likely track down with projected rate cuts later in the year. M. Turner (Executive) confirmed the expense guide fully contemplates the firm's hiring plans. Regarding capital, Carpenter expressed a desire for stability in the CET1 ratio but did not provide a specific floor.

Casey Haire of Autonomous Research sought clarification on Wintrust's operating leverage guidance, specifically whether the mid-to-high single-digit revenue growth and 4%-5% expense growth were off the fourth-quarter 2025 run rate. He also asked about the expected trend for the interest-bearing deposit beta and if maturing hedges would impact the ability to maintain a stable Net Interest Margin (NIM).

Answer

Vice Chairman and Chief Lending Officer Richard Murphy confirmed that the growth rates for both revenue and expenses are projected off the fourth-quarter 2025 run rate. President and CEO Tim Crane reiterated the expectation for the total cycle deposit beta to be in the low 60s and that the company anticipates effectively managing interest-bearing deposit expense with rate cuts. Richard Murphy added that the NIM guidance fully contemplates maturing hedges, with plans to backfill them, and expects the margin to remain stable around 3.50%-3.56% regardless of minor rate changes.

Casey Haire sought clarification on Wintrust Financial Corporation's operating leverage guidance, specifically whether revenue and expense growth projections are based on 2025 full-year figures or the Q4 2025 run rate. He also asked about the expected trend for the interest-bearing deposit beta in 2026 and the impact of maturing hedges on NIM stability.

Answer

Vice Chairman and Chief Lending Officer Richard Murphy clarified that both revenue and expense growth guidance for 2026 are based on the Q4 2025 run rate. President and CEO Tim Crane reiterated the expectation for the total cycle deposit beta to be in the low 60s. Richard Murphy stated that NIM guidance fully contemplates maturing hedges, with plans to backfill them, expecting the margin to remain stable in the 3.50s, neutral to rate changes.

Casey Haire of Autonomous Research asked about the current stage of the hard insurance market cycle for premium finance and inquired about potential M&A targets and the drivers of increased market activity.

Answer

Vice Chairman & Chief Lending Officer Richard Murphy described the insurance market as 'firm,' with some moderation but still seeing upward momentum. President, CEO & Director Timothy Crane attributed the pickup in M&A talk to succession issues and the increasing difficulty of running smaller banks, stating Wintrust could execute on a wide range of opportunities.

Casey Haire asked about First Horizon's 2026 revenue outlook, seeking clarification on the base case and key wild cards influencing the 3-7% growth range. He also inquired about the sustainability of the flat expense outlook and the normalized expense growth rate post-heavy tech investments.

Answer

Hope Dmuchowski, CFO, explained that the base case for revenue aligns with the current forward curve, with rate drops, higher loan growth, and countercyclical business performance (like mortgage refinance) acting as wild cards. Regarding expenses, Ms. Dmuchowski noted that the normalized growth rate, after multi-year tech investments, would typically be in line with inflation, around 2.5-3%.

Casey Haire of Autonomous inquired about First Horizon's 2026 revenue outlook, specifically asking for details on the base case assumptions and the key wild cards that could influence the 3%-7% growth range. He also asked about the sustainability of the flat expense outlook and the normalized expense growth rate post-heavy tech investments.

Answer

Hope Dmuchowski, Chief Financial Officer, stated that the base case for the revenue outlook's mid-range aligns with the current forward curve. Upside factors include faster rate drops, exceeding mid-single-digit loan growth, and a pickup in countercyclical businesses like mortgage refinances, noting strong December home buying. Regarding expenses, Ms. Dmuchowski indicated that the company aims for positive PPNR, with a base expectation for expenses to grow in line with inflation (2.5%-3%) after multi-year tech investments wind down.

Casey Haire from Autonomous questioned the trends in First Horizon's core deposit franchise, noting an 8% decline over the last two quarters and asking about the drivers, stabilization efforts, and outlook. He also inquired about the company's M&A strategy, specifically regarding the size and geography of potential bank acquisitions in 2026.

Answer

CFO Hope Dmuchowski clarified that non-interest-bearing deposits (DDA) increased year-over-year, emphasizing high retention rates and efforts to attract new clients amidst industry-wide deposit shrinkage and competition. Chairman, President, and CEO Bryan Jordan reiterated that near-term priorities remain unchanged, but the company is increasingly confident in its ability to integrate fill-in opportunities within its existing footprint in 2026 or beyond, focusing on strong deposit franchises and cultural fit.

Casey Haire questioned the trends in First Horizon's core deposit franchise, noting an almost 8% decline over the last two quarters and asking about the drivers, stabilization efforts, and outlook. He also asked Bryan Jordan about the potential size and geography First Horizon would target for a bank acquisition in 2026, following his M&A comments.

Answer

CFO Hope Dmuchowski clarified deposit definitions, highlighting growth in non-interest-bearing deposits and high retention rates despite industry-wide shrinking deposits. Chairman, President, and CEO Bryan Jordan expressed confidence in the core deposit franchise and stated that any M&A would focus on fill-in opportunities within the existing southern U.S. footprint, emphasizing cultural fit and a 2026 or beyond timeline.

Casey Haire sought confirmation that management could pull expenses below the guided range to protect PPNR if revenue growth falters. He also asked how the bank would manage its high loan-to-deposit ratio and deposit costs if the Fed does not cut rates.

Answer

Chairman, President and CEO Bryan Jordan confirmed it was fair to assume they have flexibility to lower expenses if needed. CFO Hope Dmuchowski addressed the loan-to-deposit ratio by noting the bank runs a smaller securities portfolio than peers, making its liquidity position comparable when viewed as loans plus securities to deposits. She stated the focus remains on growing relationship-based deposits through targeted campaigns rather than chasing 'hot money,' which will help manage deposit costs in any rate environment.

Casey Haire inquired about the $1 billion difference between Cadence Bank's reported deposit increase and the Industry acquisition's deposit base, seeking clarification on deposit retention and pricing ability. He also asked about the assumptions for purchase accounting adjustments driving the anticipated net interest margin improvement.

Answer

CFO Valerie Toalson directed to slide 20, explaining that the difference was due to a $500 million paydown of brokered deposits and the intentional exit of higher-cost public funds associated with Industry. She confirmed that Industry and First Chatham deposits remained very stable. Regarding NIM, Ms. Toalson stated that purchase accounting accretion is projected to steadily decline, and NIM improvement is driven by new loans at higher rates, repricing of variable/fixed-rate loans, and declining deposit costs.

Casey Haire inquired about the expectations for Net Interest Margin (NIM) improvement going forward, specifically asking what assumptions are being made regarding purchase accounting adjustments.

Answer

CFO Valerie Toalson explained that purchase accounting accretion, which was $5.5 million this quarter, is projected to steadily decline to about $4 million next quarter and $12 million for all of 2026. She clarified that NIM improvement is primarily driven by new loans being originated at higher rates, the repricing of variable and fixed-rate loans, and a decline in overall funding costs, rather than accretion.

Casey Haire inquired about the net interest margin (NIM) outlook following the Industry Bankshares restructuring and whether further balance sheet repositioning was planned. He also asked for an update on the bank's perspective on the M&A environment.

Answer

CEO Dan Rollins confirmed that the planned restructuring related to the Industry acquisition is complete. CFO Valerie Toalson added that the bank is optimistic about NIM expansion through the rest of the year, driven by new loan yields north of 7% and favorable CD repricing. On M&A, Mr. Rollins stated that Cadence is seeing increased activity and is well-positioned to pursue future opportunities in its nine-state footprint.

Casey Haire of Autonomous Research inquired about the net interest margin (NIM) outlook following the Industry Bankshares balance sheet restructuring and asked if further actions were planned. He also sought an update on Cadence's M&A strategy amid increasing industry activity.

Answer

Chairman and CEO Dan Rollins confirmed the planned restructuring of the Industry portfolio is complete. Senior EVP & CFO Valerie Toalson expressed optimism for NIM expansion for the rest of the year, driven by new loan yields north of 7% and favorable CD repricing. Rollins added that Cadence is actively looking for M&A opportunities to grow within its existing nine-state footprint.

Casey Haire asked about Webster Financial's safeguards against double pledging collateral within its NBFI exposure and the outlook for credit quality improvement, specifically for non-performing assets (NPAs) and commercial classifieds.

Answer

John Ciulla (CEO) explained that safeguards against double pledging collateral include dealing with high-quality, established asset managers, conducting strong quarterly reviews, and maintaining low loan-to-value ratios, citing a 10-year history of perfect credit performance in the segment. On credit quality, Mr. Ciulla noted disappointment in the slower resolution of NPAs and classifieds but highlighted a 7% decline in criticized assets and overall positive risk rating migration, which suggests lower future problem inflows, with concentrations in healthcare services and office portfolios.

Casey Haire from Autonomous Research inquired about the current level of cash balances and the expected impact on the Net Interest Margin (NIM) from an upcoming long-term debt issuance.

Answer

Senior EVP & CFO Neal Holland stated that cash balances are nearing their target levels, with an additional one basis point impact to NIM expected over the rest of the year. He also confirmed a new debt issuance in the second half of the year would have a one basis point impact on NIM.

Casey Haire of Autonomous Research challenged management on their credit process, asking what prevents them from being more proactive and 'ripping off the Band-Aid' to identify problem assets now, given the 23% quarterly jump in NPAs. He also requested an updated outlook for the net interest margin (NIM).

Answer

CEO John Ciulla defended the bank's proactive risk-rating process, giving an example of a current loan moved to non-performer status due to a future tenant issue. He reiterated that credit costs are manageable and that the focus is on orderly resolutions. CFO William Holland updated the full-year NIM outlook to be around 3.40%, an improvement from the previous 3.35%-3.40% range, citing better-than-expected deposit performance offsetting pressure on loan yields. He noted the guidance now incorporates three Fed rate cuts.

Casey Haire asked if Synovus, after reviewing the pro forma balance sheet for several months, identified any loan portfolios or assets they might want to divest or tweak post-merger. He also questioned the amortization period for Synovus's rate marks (just under $900 million over 10 years), asking why it seemed conservative given the average loan term.

Answer

CEO Kevin Blair confirmed that Synovus has not identified any portfolios for divestiture or restraint, stating that the combined balance sheets fit well together. He noted the only anticipated balance sheet changes would be measured debt issuances for liquidity considerations as the company crosses $100 billion, and potential remixing of the securities portfolio for LCR. CFO Jamie Gregory explained that different amortization periods apply to various rate mark components (AOCI 8-year, HTM 15-year, loan portfolio 10-year sum-of-the-year's digits), asserting that these rate marks remain appropriate.

Casey Haire inquired about the outlook for deposit costs and betas after strong Q1 performance and asked about the flexibility to reduce expenses further if revenue growth disappoints.

Answer

CFO Andrew Gregory noted the deposit beta reached 48% in March and is forecasted around 45% going forward, with growth led by non-maturity deposits. He also stated that while the company is committed to its strategic investments, it could pause hiring and other initiatives to achieve flat expense growth for the year if the economic outlook were to deteriorate materially, highlighting the bank's expense flexibility.

Casey Haire asked for clarification on Hancock Whitney Corporation's Q4 2025 Net Interest Income (NII) guidance, which appeared to imply a significant quarter-over-quarter increase, and sought to quantify the pressure from private credit on loan paydowns.

Answer

CFO Mike Achary clarified that the NII increase would be more modest than implied, with a bias towards the lower end of the 3%-4% year-over-year guide, expecting a 'handful of basis points' NIM expansion. President and CEO John Hairston explained that private credit takedowns were consistent with prior experience and not the primary driver of higher paydowns. The main factors were a $50 million reduction in line utilization from industrial contractor project completions and over $100 million in reductions from core client sales to upstream organizations (industry consolidation). Hairston expects private credit activity to remain similar but anticipates industry consolidation paydowns to decline, while planning aggressive hiring to offset potential paydowns in 2026.

Casey Haire of Autonomous Research questioned the drivers behind the strong commercial real estate (CRE) loan growth and inquired about the current M&A environment and the company's appetite for acquisitions.

Answer

President and CEO John Hairston attributed the strong CRE growth to lower payoffs and successful campaigns for owner-occupied real estate and bridge financing. CFO Michael Achary reiterated that M&A is not a current focus, with capital priorities being organic growth and shareholder returns, describing any future M&A as 'opportunistic.'

Casey Haire of Autonomous Research asked about the expected CET1 capital impact from the Sabal transaction and whether another bond portfolio restructuring was being considered. He also inquired where cost savings were being found to maintain the expense guidance while absorbing Sabal's costs.

Answer

CFO Michael Achary stated that the impact of the Sabal acquisition on the CET1 ratio will be modest. He noted that while a bond restructuring is regularly evaluated, current market volatility makes such a move impractical at this time. Regarding expenses, Mr. Achary explained that the stable guidance is achievable due to anticipated lower incentive compensation costs and a disciplined, company-wide effort to control spending in the uncertain macroeconomic environment.

Casey Haire from Autonomous Research asked if the net interest income guidance was intentionally conservative, questioned the sustainability of loan and bond yield momentum, and probed FNB's M&A strategy and appetite for large, dilutive deals.

Answer

Chairman, President & CEO Vincent J. Delie defended the guidance as appropriate given economic uncertainty and geopolitical risks, though CFO Vincent J. Calabrese noted they are guiding to the upper half of the range. On M&A, Delie emphasized a strong focus on organic growth, driven by technology investments like the eStore common app, market share gains, and de novo expansion. He stated the company is well-positioned to grow without capital-dilutive acquisitions and that any potential deal would have to be a high-quality, opportunistic fit.

Jackson Singleton, on behalf of Casey Haire from Autonomous Research, questioned the drivers of the sequential decline in the Q2 expense guide while full-year guidance remained unchanged, and asked about the sustainability of residential mortgage growth.

Answer

CFO Vincent J. Calabrese clarified that the lower Q2 expense guide is due to approximately $16 million in seasonal first-quarter expenses (e.g., long-term compensation, payroll taxes) that do not recur in Q2. He also noted that incentive compensation provides some flex if revenues are lower. Calabrese stated that residential mortgage growth is expected to follow seasonal trends, picking up in Q2 and Q3, and should account for about 40% of the year's net loan growth.

Casey Haire of Autonomous Research questioned why the full-year loan growth guidance remains at 5% to 6% despite a strong Q1 performance and asked for the current rate spread between new and maturing CDs.

Answer

Executive Andrew Harmening explained the 5-6% guidance is maintained because it already factored in a strong start, potential economic uncertainty in the second half, and an expected increase in CRE payoffs. CFO Derek Meyer noted that while CDs maturing in Q1 had high rates (around 5%) and were repriced lower (around 4%), the gap between maturing and new rates is expected to narrow as the year progresses, though the market remains rational.

Casey Haire from Jefferies inquired about the rising loan-to-deposit ratio and the strategy to manage it, particularly regarding the performance of SVB depositors. He also asked if there were additional actions the bank could take to mitigate asset sensitivity beyond the recent $5 billion securities portfolio shift.

Answer

CFO Craig Nix acknowledged the ratio ticked up to 92% but expressed confidence in reaching the mid-80s target over the next 3.5 years, highlighting the General Bank and the Direct Bank as key levers for deposit growth. Executive Tom Eklund added that the focus for SVB is on the holistic client relationship, not just on-balance sheet deposits. Regarding asset sensitivity, Nix explained they have already reduced the impact of a 200 bps rate cut from ~20% to ~14% and are nearing their 10-12% target. Eklund supplemented this by revealing the bank also added $2.5 billion in cash flow hedges during the quarter.

Asked about the expected level of the Allowance for Credit Losses (ACL) after the portfolio review is complete and for details on the drivers and progression of the forecasted expense reductions.

Answer

The bank expects continued but lower levels of charge-offs, which may decrease the ACL percentage as reserves are utilized. They are 75% through the portfolio review and have taken a forward-looking approach. On expenses, a ~$750 million reduction is forecasted, with ~$400 million from the mortgage business sale and a net ~$350 million from a cost-reduction program, the benefits of which are expected to materialize starting in 2025.

Casey Haire of Jefferies asked about the outlook for operating leverage in 2024, questioning if deferred expenses from 2023 would create a headwind or if the efficiency ratio could improve. He also inquired about the health of the loan pipeline at year-end versus the prior quarter, the recent uptick in capital call line utilization, and the spot deposit and CD costs at quarter-end.

Answer

Executive Michael Ioanilli stated there is a "strong opportunity" for significant efficiency ratio improvement and strong operating leverage in 2024. Chief Banking Officer Mike Selfridge characterized the loan pipeline as "healthy," down from Q3 but up year-over-year, with strength in business banking. He noted the slight uptick in capital call utilization was driven by a small increase in private equity activity. CEO and President Michael Roffler indicated that spot deposit costs at 12/31 were about 30 basis points higher than the Q4 average of 99 bps, resulting in a spot rate of approximately 1.29%.

Casey Haire questioned the drivers behind the low efficiency ratio year-to-date and the potential for pressure in the second half of the year. He also asked for the spot deposit cost at quarter-end and the bank's capacity to increase borrowings without negatively impacting the net interest margin.

Answer

CEO Mike Roffler explained that the low efficiency ratio was due to exceptionally strong revenue growth outpacing investments, though it might increase slightly as deposit betas rise. Acting CFO Olga Tsokova noted that fading COVID-related expense benefits could also contribute to a rise. Tsokova provided the spot rate on total deposits as 21 basis points. Roffler confirmed the bank has significant capacity to increase FHLB borrowings from current low levels while remaining within its stable NIM guidance.