Catherine Mealor

Catherine Mealor sought clarity on Renasant's expense trajectory into 2026, specifically whether the company expects expenses to remain flat or grow slightly after the projected savings in Q4 and Q1. She also asked about the outlook for deposit costs and betas given increased market competitiveness and recent rate cuts.

Answer

CFO Jim Mabry guided towards the consensus expense number for 2026, or slightly better, acknowledging the balance between merger efficiencies and growth opportunities, with merit increases expected mid-year. Regarding deposit costs, Mr. Mabry noted significant pressure on deposit pricing, with interest-bearing deposit and loan betas expected to be in the mid-30s for 2026. He mentioned that CD special pricing has remained unchanged for several quarters, indicating a tough environment for reducing funding costs.

Catherine Mealor sought clarification on the expense trajectory into 2026, specifically whether expenses would flatten after initial reductions, and inquired about the current competitive landscape for deposit costs and expected betas for future rate cuts.

Answer

Jim Mabry (CFO) guided towards a 2026 consensus expense number or slightly better, noting that Q1 2026 would likely be a clean run rate with some merit impact mid-year. He described deposit pricing as very competitive and tough, with betas on interest-bearing deposits and loans expected to be in the mid-30% range for 2026, assuming four rate cuts.

Catherine Mealor of KBW inquired about the amortization duration for time deposit accretion, the reasons for elevated charge-offs in the quarter, and the company's priorities for capital deployment, including potential share buybacks.

Answer

Executive VP & CFO James Mabry specified a five-month duration for the time deposit accretion amortization. Senior EVP & Chief Credit Officer David Meredith explained that the quarter's charge-offs were tied to two specific, non-systemic C&I credits and guided for a go-forward rate of 10-15 basis points. Mabry outlined capital priorities as organic growth, bolt-on acquisitions, and talent, placing buybacks lower on the list.

Catherine Mealor of KBW requested an updated outlook on the pro forma net interest margin (NIM) post-merger and inquired about the progress of repositioning the acquired bond portfolio from First Bancshares amid rate volatility.

Answer

Executive James Mabry projected that in Q2, the core NIM could expand by 10-15 basis points, with the all-in NIM benefiting by an additional 10-15 basis points. He also confirmed that the company has nearly completed the repositioning of the acquired bond portfolio, having sold a little over 50% of it and reinvested the proceeds. Mabry noted the execution went well despite market volatility.

Catherine Mealor inquired about the outlook for Renasant's net interest margin (NIM), both on a standalone basis and with the pending acquisition of The First (FBMS), particularly in a falling rate environment. She also asked for an update on deposit cost trends following recent rate cuts.

Answer

EVP and Chief Financial Officer James Mabry explained that near-term rate cuts are expected to have a 'modestly negative' impact on NIM. He noted that The First is less asset-sensitive, which should help moderate this negative impact post-merger in 2025. Regarding deposits, Mabry expressed satisfaction with their performance, highlighting that noninterest-bearing deposits have remained stable and the bank has successfully reduced rates on special deposit products since June.

Catherine Mealor asked about Trustmark's deposit cost trends, particularly in light of anticipated Fed rate cuts, and how the deposit beta might evolve in this environment, considering potential competition and the need for a more conservative beta model. She also inquired about the current pricing for incremental new loans.

Answer

Tom Owens, EVP and CFO, explained that the linked-quarter NIM increase was partly due to asset sensitivity and proactive deposit rate management, balancing rate cuts with customer retention. He noted a surprisingly competitive deposit environment in Q3, partly driven by a promotional campaign to manage the loan-to-deposit ratio. He projected deposit costs to decrease to about 1.25% by year-end 2026, implying a deposit beta of approximately 40%, consistent with prior cycles. Barry Harvey, Chief Credit and Operations Officer, stated that incremental new loan pricing remains consistent across most categories, but commercial real estate has become more competitive with thinner spreads and fees due to increased deal flow and market participants.

Catherine Mealor asked about Trustmark's deposit cost trends, particularly the expected deposit beta for the upcoming interest rate cuts, and whether a more conservative beta should be modeled due to increased competition and growth. She also questioned the current pricing environment for incremental new loans, specifically noting competitiveness in commercial real estate.

Answer

EVP and CFO Tom Owens attributed the linked-quarter increase in deposit costs to depositor pushback and a proactive promotional deposit campaign to manage the loan-to-deposit ratio. He projected deposit costs to drop in Q4 due to anticipated Fed cuts, aiming for a cycle beta of about 40% by year-end 2026, consistent with the prior hiking cycle. Chief Credit and Operations Officer Barry Harvey noted that while other loan categories remained consistent, commercial real estate pricing has become more competitive with thinner spreads and fees, despite increased deal flow.

Catherine Mealor of KBW inquired about the primary drivers for the upgraded loan growth guidance and the future outlook for Trustmark's profitability metrics, such as ROA and ROTCE.

Answer

EVP and Chief Credit & Operations Officer Robert Harvey attributed the stronger loan growth to a combination of robust production in non-CRE categories and significant delays in CRE loan payoffs. EVP & CFO Thomas Owens projected further profitability upside from operating leverage and potential NIM expansion, noting that ROTCE will be influenced by capital management strategies like the ongoing share repurchase program. President & CEO Duane Dewey also highlighted the positive impact of past expense control initiatives.

Catherine Mealor of Keefe, Bruyette & Woods (KBW) inquired about the drivers for the upgraded loan growth guidance and the outlook for future profitability, specifically asking if there is potential for further margin expansion.

Answer

Robert Harvey, EVP and Chief Credit & Operations Officer, attributed the loan growth to strong production in non-CRE categories and delayed payoffs in the CRE portfolio. EVP & CFO Thomas Owens confirmed there is upside to profitability from operating leverage and potential NIM expansion, while noting ROTCE will be a function of capital management. President & CEO Duane Dewey added that disciplined expense control from the 'Fit to Grow' initiatives has also been a significant contributor.

Catherine Mealor of KBW inquired about the drivers behind the upgraded loan growth guidance and sought a bigger-picture perspective on the sustainability of Trustmark's rising profitability metrics.

Answer

Robert Harvey, EVP and Chief Credit & Operations Officer, attributed the stronger loan growth to a mix of robust production in non-CRE categories and delayed CRE payoffs. Thomas Owens, EVP & CFO, stated that profitability has further upside from operating leverage and potential NIM expansion, while noting ROTCE will be influenced by capital management strategies like share repurchases. President & CEO Duane Dewey added that disciplined expense control from the 'Fit to Grow' initiative has also been a significant contributor.

Catherine Mealor of KBW inquired about the drivers for the upgraded loan growth guidance and the outlook for future profitability, particularly ROA and ROTCE.

Answer

Robert Harvey, EVP and Chief Credit & Operations Officer, attributed the loan growth to strong production in non-CRE categories and delayed CRE payoffs. EVP & CFO Thomas Owens added that profitability has upside from operating leverage and potential NIM expansion, with ROTCE being a function of capital management. President & CEO Duane Dewey also highlighted the positive impact of past expense control initiatives.

Catherine Mealor inquired about the drivers for the upgraded loan growth guidance to mid-single digits and sought insights on the future trajectory of profitability metrics like ROA and ROTCE, questioning if further margin expansion is anticipated.

Answer

Robert Harvey, EVP and Chief Credit & Operations Officer, attributed the stronger loan growth to robust production in non-CRE categories and significant delays in CRE loan payoffs. EVP & CFO Thomas Owens confirmed potential for further profitability upside through operating leverage and balance sheet growth, noting that ROTCE performance will be influenced by capital management strategies like the ongoing share repurchase program. President & CEO Duane Dewey added that disciplined expense control from the 'Fit to Grow' initiatives has also been a significant contributor to improved profitability.

Catherine Mealor of Keefe, Bruyette & Woods inquired about the drivers for the upgraded loan growth guidance and the outlook for future profitability, questioning if metrics like ROA and ROTCE could continue to improve.

Answer

Executive VP and Chief Credit & Operations Officer, Robert Harvey, attributed the stronger loan growth to robust production in non-CRE categories and significant delays in CRE payoffs. EVP & CFO, Thomas Owens, confirmed there is further upside to profitability, driven by operating leverage and potential margin expansion, while noting that ROTCE performance will be a function of capital management. President & CEO, Duane Dewey, added that disciplined expense control from the 'Fit to Grow' initiative has also been a significant contributor to improved profitability.

Catherine Mealor from Keefe, Bruyette & Woods inquired about the drivers for the upgraded loan growth guidance to mid-single digits and sought insights on the future trajectory of profitability metrics like ROA and ROTCE, questioning if further margin expansion is anticipated.

Answer

Robert Harvey, EVP and Chief Credit & Operations Officer, attributed the loan growth to strong production in non-CRE categories and delayed payoffs in the CRE portfolio. Thomas Owens, EVP & CFO, confirmed potential for further profitability upside through operating leverage and potential NIM expansion, noting that ROTCE will be a function of capital management. President & CEO Duane Dewey added that disciplined expense control from the 'Fit to Grow' initiatives has also been a significant contributor.

Catherine Mealor of Keefe, Bruyette & Woods asked for details on the full-year margin guidance, specifically regarding loan pricing, and questioned the drivers behind the low single-digit loan growth forecast.

Answer

CFO Thomas Owens explained that the primary driver for the net interest margin is the expected decline in deposit costs from the short-duration time deposit book, supplemented by a 1-2 basis point tailwind from fixed-rate loan repricing. Chief Credit and Operations Officer Robert Harvey added that loan spreads are stable. Regarding loan growth, Harvey noted that while production pipelines are strong, the guidance accounts for potential maturities from the high-production years of 2021-2022, though many customers are exercising extension options. CEO Duane Dewey also highlighted increasing C&I and equipment finance pipelines.

Catherine Mealor inquired about the expected expense growth rate for the upcoming year, particularly how mortgage expenses might trend with increasing mortgage revenue, and the relationship between mortgage compensation and revenue. She also asked about the net interest margin, anticipated deposit costs, and deposit betas in the context of future rate cuts.

Answer

CFO Nicole S. Stokes clarified that the improved efficiency ratio was revenue-driven, not due to unusually low expenses. She suggested a 5.5% non-interest expense growth rate for 2026 as reasonable, with mortgage expenses potentially increasing if mortgage production picks up, modeling a 55% efficiency ratio for mortgage growth. Regarding the margin, Nicole S. Stokes acknowledged impending compression due to deposits repricing faster than loans and increasing competition for deposits. She noted a headwind from maturing CDs but emphasized that overall growth remains accretive to the margin if non-interest-bearing deposits continue to grow, expecting net interest income to grow even with slight margin compression.

Catherine Mealor from KBW inquired about the anticipated expense growth rate for the upcoming year, the outlook for mortgage expenses relative to revenue, and the factors influencing future net interest margin compression, including deposit costs and the potential for continued non-interest-bearing deposit growth.

Answer

CFO Nicole Stokes outlined a reasonable 5%-5.5% expense growth for next year, with mortgage expenses modeled at a 55% efficiency ratio as volume picks up. Ms. Stokes explained expected margin compression due to the lag of loans catching up to deposit repricing and increased competition for deposits, noting that while overall growth is accretive to margin due to non-interest-bearing deposits, compression will occur if interest-bearing deposits dominate growth. She emphasized the focus on growing Net Interest Income (NII) even with slight margin compression.

Catherine Mealor inquired about the resilience of Ameris Bank's loan yields, seeking to understand the drivers and future outlook, and asked why the net interest margin outperformed guidance.

Answer

EVP & CFO Nicole Stokes attributed the strong loan yields to high-yielding new production, particularly from the core bank at 8%, and the short, 10-month maturity of the premium finance portfolio, which behaves like a variable-rate asset. Stokes clarified that the margin beat was due to stronger-than-expected core deposit growth, which reduced the need for higher-cost wholesale funding to replace seasonal public fund outflows. She anticipates future margin pressure will stem from the deposit side as loan growth accelerates.

Catherine Mealor of Keefe, Bruyette & Woods inquired about Ameris's net interest margin (NIM) outlook for 2025 following the strong Q4 expansion and asked for guidance on the run rate for SBA fee income.

Answer

CFO Nicole Stokes explained that approximately 10 basis points of the Q4 NIM expansion to 3.64% were temporary, stemming from a public funds influx and deposit repricing lags. She guided toward a more sustainable NIM in the 3.50% to 3.55% range. For noninterest income, Stokes projected a 5% to 7% growth rate, excluding mortgage, and confirmed the elevated Q4 SBA income level serves as a good starting run rate for 2025.

Catherine Mealor from KBW asked about the expense trajectory for WesBanco, specifically how the announced branch closures would offset new hires and support organic loan growth, and the implications for the efficiency ratio into 2026.

Answer

Jeff Jackson, President and Chief Executive Officer, reiterated confidence in mid-to-upper single-digit loan growth, driven by Premier markets, the new healthcare vertical, and successful LPOs. Daniel Weiss, Senior Executive Vice President and Chief Financial Officer, confirmed that the 27 branch closures would provide an expense tailwind into 2026, potentially allowing for reinvestment while also benefiting the bottom line. Both executives indicated that the efficiency ratio is expected to continue improving through 2026.

Catherine Mealor asked for insights into WesBanco's expense trajectory, specifically how the announced branch closures would offset new hires and organic loan growth initiatives, aiming to understand potential operating leverage and profitability improvements into 2026.

Answer

President and CEO Jeff Jackson reiterated expectations for mid to upper single-digit loan growth, driven by new Premier markets, the healthcare vertical, and successful Loan Production Offices (LPOs). Senior Executive Vice President and CFO Daniel Weiss stated that the 27 branch closures would provide a tailwind to expenses in 2026, creating opportunities for reinvestment in technology and personnel while also benefiting the bottom line. He confirmed that the efficiency ratio is modeled to continue improving through 2026.

Catherine Mealor from Keefe, Bruyette & Woods (KBW) asked for clarification on remaining CD amortization, the timing of cost savings realization, and the core margin's outlook in a potential rate-cut environment.

Answer

Senior EVP & CFO Daniel Weiss clarified that a small amount of CD purchase accounting amortization remains in Q3 and will decline thereafter. He explained that while most cost savings were achieved by the end of Q2, they are being offset by mid-year merit increases and growth investments, keeping the expense run-rate stable. He affirmed the outlook for 3-5 basis points of core margin improvement per quarter, inclusive of modeled rate cuts, driven by strong loan and securities repricing.

Catherine Mealor inquired about several components of the net interest margin, including the bond portfolio's yield at quarter-end, the trajectory of deposit costs post-merger, and plans for FHLB borrowings. She also sought to confirm the magnitude of the purchase accounting accretion benefit.

Answer

Daniel Weiss, Senior Executive Vice President and CFO, disclosed that the spot securities yield was approximately 3.07% at the end of March. He anticipates a potential 10 basis point reduction in overall funding costs from Q1 levels as Premier's deposit pricing is aligned. Weiss confirmed that the guided 15 to 20 basis points of accretion is an increase from the first quarter's level, suggesting the 3.50% NIM target for Q2 is a conservative floor.

Catherine Mealor asked about the impact of recent interest rate movements on the pro forma capital ratios for the Premier acquisition and inquired about the timing and potential upside for the deal's cost savings.

Answer

CFO Daniel Weiss explained that a year-end revaluation of the interest rate mark resulted in lower expected tangible book value dilution and improved pro forma capital ratios by about 50 basis points. CEO Jeffrey Jackson added this is net neutral to slightly positive for the overall margin. Weiss stated cost savings of 26% are expected to be realized after the mid-May core conversion.

Catherine Mealor questioned the driver behind the decline in other income, sought confirmation on the pro forma margin with Premier Financial, and explored the potential for further margin expansion post-close. She also asked how recent rate cut expectations could alter the deal's tangible book value dilution and accretion.

Answer

CFO Daniel Weiss attributed the other income decline to a negative valuation adjustment on swap fees. He confirmed the pro forma margin guidance of 3.45%-3.50% is driven by loan accretion. He also noted that a more aggressive down-rate environment would likely result in less tangible book value dilution and accretion for the Premier deal, with an offset from higher core yields.

Catherine Mealor asked for specifics on what the independent and internal loan reviews revealed that was not previously captured, leading to a significant increase in special mention and substandard multifamily loans. She also inquired about the expected ultimate losses or write-downs in the multifamily portfolio compared to the office book, given that the office segment appears further along in its credit cycle.

Answer

Kevin Geoghegan, Chief Credit Officer, explained that the comprehensive review consolidated all current information on every loan, revealing segments of deterioration and prompting appropriate reclassification. Ryan Riel, SEVP and Chief Lending Officer of Commercial Real Estate, emphasized that multifamily and office losses are not comparable due to fundamental structural differences in their respective markets. He noted continued investor interest in Washington, D.C. multifamily properties, despite some jurisdictional headwinds. For multifamily loans in special mention or substandard categories, he highlighted that challenges primarily stem from the interaction of net operating income and floating interest rates, not diminished collateral values, and that the bank is actively working on restructuring these loans with strong sponsorship.

Catherine Mealor of KBW asked for more direct insight into what the independent and internal loan reviews revealed that led to a significant increase in special mention and substandard multifamily loans. She also sought to understand the potential ultimate losses or write-downs in the multifamily portfolio compared to the office book.

Answer

Kevin Geoghegan, Chief Credit Officer, explained that the comprehensive loan review consolidated all current information, revealing segments of deterioration that necessitated re-categorization. Ryan Riel, SEVP and Chief Lending Officer of Commercial Real Estate, emphasized that office and multifamily issues are not comparable, citing significant structural problems in the D.C. office market versus none in multifamily. He highlighted continued investor interest in D.C. multifamily and attributed current challenges to interest rate structures and D.C. jurisdictional issues, not diminished collateral value, suggesting a different loss profile than the office portfolio.

Catherine Mealor of Keefe, Bruyette & Woods (KBW) asked if non-performing asset inflows have peaked, questioned the outlook for deposit costs, and explored whether the bank would consider a bulk loan sale to accelerate the resolution of problem credits.

Answer

EVP Kevin Geoghegan stated that the bank believes future non-performing asset inflows will not be to the same degree as in Q2. Senior EVP & CFO Eric Newell added that based on current information, they believe criticized and classified loans are near their peak. On deposits, Newell noted new digital deposits are being raised around 4.4%, but higher-cost funds are rolling off, which should benefit costs. Regarding a bulk sale, Geoghegan explained that loan exits are evaluated on a case-by-case basis to maximize shareholder value. Newell elaborated that strategic patience can sometimes reduce losses and that the bank is targeting a normalized provision level in 2026, which requires resolving challenged loans in the coming quarters.

Catherine Mealor asked for details on the office portfolio's exposure to government agency leases and whether recent appraisal changes were due to specific DOJ-related news or broader market stress. She also inquired about client sentiment in the D.C. market, potential employment shifts between the public and private sectors, the mechanics of the new BOLI transaction's impact on fee income, and the potential for further deposit cost reductions in a flat-rate environment.

Answer

Chief Lending Officer for Commercial Real Estate, Ryan Riel, stated that less than 5% of the office portfolio's leased space is exposed to government agencies and that appraisal trends reflect ongoing market conditions. CFO Eric Newell detailed that the new $200M BOLI transaction is expected to add $3-4 million in quarterly fee income and that strategic initiatives offer significant opportunity to lower deposit costs. CEO Susan Riel added that treasury management fees are also showing strong growth.

Catherine Mealor asked about the outlook for the loan loss reserve, questioning if further builds are expected in 2025 or if the allowance has peaked. She also inquired about the balance sheet outlook, specifically why average earning assets are guided to be flat despite significant deposit growth and liquidity. Finally, she asked for commentary on new C&I hires and the expected loan growth mix.

Answer

CFO Eric Newell stated that the bank does not anticipate further reserve builds in its budget, except for potential specific reserves on individually evaluated loans, and reiterated the expected credit cost range of 25 to 50 basis points for 2025. He explained that the flat average earning asset guidance is due to a strategy of reinvesting cash flows from the lower-yielding investment portfolio into higher-yielding loans, with a goal of reducing the bond portfolio's size relative to total assets. CEO Susan Riel added that recent C&I hires are already showing positive results. Newell also noted that payoffs in the multifamily CRE portfolio will provide capacity for C&I growth, helping to reduce the bank's overall CRE concentration.

Catherine Mealor from KBW inquired about the risk associated with two large, criticized loans maturing in December: an office property and a data center. She also asked about recent deposit cost trends, the expected deposit beta in a falling rate environment, and the rationale behind the recent dividend reduction and the bank's target for its CRE-to-capital ratio.

Answer

Retiring CCO Jan Williams expressed confidence in the maturing office loan due to strong occupancy and reserves but noted concern over the data center loan due to unpredictable negotiations with Amazon. CFO Eric Newell stated that nonmaturity deposit rates were cut by 65 basis points and expects a high beta on customer deposits going forward. He explained the dividend recalibration supports capital growth to lower the CRE concentration ratio over the next 24-36 months, aiming to get closer to FDIC guidelines.

Catherine Mealor sought clarification on loan accretion, asking for a quantification of how much of the Q3 accretion was accelerated versus a normal base level for future modeling. She also requested an outlook on non-interest income, particularly for Q4 and next year, focusing on correspondent banking services and service charges.

Answer

Chief Strategy Officer Steve Young explained that while expected prepayments were reasonable, the vintage of some early payoffs led to outsized accretion in July and early August, with late August and September showing a more normal run rate. He reiterated the Q4 accretion forecast of $40M-$50M and $125M for 2026. For non-interest income, Steve Young noted a strong Q3 at $99M, driven by capital markets and correspondent banking due to interest rate changes. He cautioned that while it was a good quarter, he doesn't expect the $99M level to repeat consistently, suggesting a 2026 run rate somewhere in the $370M-$380M range.

Catherine Mealor sought to quantify the amount of accelerated accretion versus a normal base level for future modeling. She also asked for an outlook on non-interest income, particularly correspondent banking services and service charges, for the fourth quarter and into the next year.

Answer

Steve Young, Chief Strategy Officer, explained that while expected prepayments were reasonable, the vintage of loans and partial prepayments led to outsized accretion in July and early August, with late August and September showing a more normal run rate. He guided Q4 accretion to $40-$50 million and 2026 accretion to $125 million (down from $150 million previously). For non-interest income, he noted a strong Q3 at $99 million, driven by capital markets and correspondent banking due to interest rate changes, but cautioned that this level might not repeat, suggesting a 2026 run rate of $370-$380 million.

Catherine Mealor of Keefe, Bruyette & Woods inquired about the future trajectory of South State's Net Interest Margin (NIM) following a strong quarter, and asked for an updated outlook on loan growth given the significant increase in origination volumes.

Answer

Chief Strategy Officer Stephen Young explained that while Q2 NIM was strong, the full-year guidance remains between 3.8% and 3.9%, attributing the quarterly beat to both core performance and higher-than-expected loan accretion. CEO John Corbett added that while the official loan growth forecast is mid-single digits, he is becoming more bullish due to a 31% sequential increase in loan pipelines, suggesting a potential move to mid-to-upper single-digit growth next year.

Catherine Mealor questioned the lower-than-expected expenses, asking about the timing of cost savings and the pro forma expense base. She also sought to confirm the final loan mark on the IBTX transaction and the expected run-rate for accretion income.

Answer

Executive William Matthews explained that Q1 expenses were lower due to typical first-quarter delays in hiring and projects, as well as realizing some merger cost savings ahead of schedule. He guided for expenses of $350-$360 million for Q2/Q3, dropping to $345-$350 million in Q4. Executive Stephen Young confirmed the total accretable mark was approximately $482 million, with about 80% being a rate mark. He advised focusing on the total loan yield rather than just the accretion component, as coupon income will replace accretion over time.

Catherine Mealor of Piper Sandler & Co. asked for an updated outlook on Net Interest Margin (NIM) following the Independent Financial (IBTX) deal closure, considering revised rate cut expectations and merger marks.

Answer

Executive Vice President and Chief Financial Officer Stephen Young provided detailed 2025 NIM guidance, projecting a Q1 range of 3.60%-3.70%, exiting the year between 3.75%-3.85% after a potential securities restructure. He noted this forecast assumes no rate cuts. CEO John Corbett and President William Matthews added that a stronger starting core margin helps offset the impact of fewer expected rate cuts. They also confirmed that each 25 bps rate cut would likely add 4-5 bps to the combined company's NIM.

Catherine Mealor of Keefe, Bruyette & Woods inquired about SouthState's updated outlook for its Net Interest Margin (NIM) for Q4 and 2025, particularly in a rate-cutting environment, and asked if the prior guidance of a 3-5 basis point improvement per cut still holds. She also asked about the near-term trajectory of deposit costs.

Answer

Executive Stephen Young confirmed the guidance of a 3-5 basis point NIM improvement for each Fed rate cut remains intact, with the full effect realized within 3-6 months. He reiterated the Q4 2025 exit NIM target of 3.75% to 3.85% post-merger with IBTX. Young explained that Q3's NIM was impacted by a shift from NII to noninterest income due to a drop in the 10-year Treasury, but the total revenue was in line with guidance. He also noted that deposit rates were cut on October 1, which should lead to lower deposit costs in Q4.

Catherine Mealor with Keefe Bruyette & Woods questioned the potential for lowering deposit costs with anticipated rate cuts and the trajectory of new loan yield rates, excluding purchase accounting noise. She also asked for a broader perception of credit health, particularly within the D.C. portfolio and the Sandy Spring portfolio, and whether D.C. market challenges are more of a growth issue than a credit issue.

Answer

EVP and CFO Rob Gorman stated significant room to lower deposit costs, with quick repricing following rate cuts, and anticipated core margin expansion driven by higher fixed-rate loan yields offsetting lower variable rates and deposit costs. President and CEO John Asbury and EVP and Chief Credit Officer Douglas Woolley III affirmed overall good credit trends, low non-performing assets, and improved criticized asset levels, noting the two C&I losses were isolated. John Asbury concluded that D.C. market noise primarily impacts confidence and growth, rather than credit quality, given the diversified portfolio and focus on national security contractors.

Catherine Mealor of KBW inquired about C&I growth opportunities in the Maryland market, potential CRE growth from the serviced loan portfolio sold to Blackstone, and the outlook for the net interest margin to trend toward the higher end of its guidance range.

Answer

CEO John C. Asbury and EVP David Ring confirmed the Maryland commercial team is fully staffed and that servicing the sold CRE loans reloads growth opportunities with those clients. CFO Robert Gorman expects the core margin to grind higher, supported by the deployment of excess cash from the loan sale, which should help the full-year margin trend higher in the second half.

Catherine Mealor inquired about the acquisition accounting for the Sandy Spring deal, specifically the updated interest rate and credit marks on the loan portfolio, the methodology for accretion, and the potential risk of a steeper discount on the planned $2 billion commercial real estate loan sale given market volatility.

Answer

EVP and CFO Rob Gorman detailed that the interest rate mark increased to about 7% (~$800 million) due to higher rates since the announcement, while the credit mark improved to 1.3%. He confirmed they use a sum-of-the-years-digits method for accretion, which accounts for accelerated paydowns. Regarding the CRE loan sale, which is primarily retail and multifamily, Gorman stated that while they are monitoring market turmoil, they don't currently see a major negative deviation from their projected discount. An unnamed executive added that the portfolio's short duration (3-4 years) makes it less sensitive to 10-year treasury rate changes.

Catherine Mealor of KBW inquired about the impact of interest rate movements on the Sandy Spring acquisition's core margin versus accretable yield, and questioned the drivers behind the quarter's credit reserve build.

Answer

EVP and CFO Rob Gorman stated that higher rates since the deal's announcement would likely increase the loan mark and accretion, pushing the combined NIM towards 4%. President and CEO John Asbury added that AUB and Sandy Spring are a natural hedge to each other regarding rate sensitivity. Both executives confirmed the credit reserve build was primarily driven by a single, specific $13.1 million reserve on a C&I loan, with the broader credit outlook remaining stable.

Catherine Mealor of Keefe, Bruyette & Woods asked about the logistics and assumed discount for the planned $2 billion commercial real estate (CRE) loan sale, its impact on book value, and the outlook for Atlantic Union's standalone net interest margin (NIM) for 2025.

Answer

CEO John Asbury explained that the CRE sale portfolio was identified and priced with Morgan Stanley during due diligence to ensure the deal's feasibility and to de-risk the pro forma balance sheet. CFO Rob Gorman added that the sale assumes a price in the "low 90s," with proceeds used to pay down high-cost funding. Gorman also stated that while Q4 NIM will be impacted by lower accretion and rate cuts, he expects margin expansion in 2025 due to aggressive deposit repricing.

Catherine Mealor inquired about SmartFinancial's anticipated deposit beta on future rate cuts, comparing it to past performance given improved growth rates. She also asked for an outlook on fee growth into 2026, considering the impact of the insurance platform sale and other potential drivers.

Answer

CFO Ron Gorczynski stated that SmartFinancial targets a 40% deposit beta for its 45% variable cost deposits, aiming to follow rate cuts closely, and confirmed this has been achievable with recent rate movements. President and CEO Billy Carroll outlined several drivers for fee income growth, including opportunities in interchange income, strong performance from the mortgage unit, growth in the investments arm, and the continued annuity from the treasury management platform, even with the removal of the insurance component. Ron Gorczynski added that they are also reviewing customer fees for market competitiveness.

Catherine Mealor asked about the expected deposit beta on the next 100 basis points of rate cuts, comparing it to past rate cut cycles, especially given the improved deposit growth rates. She also requested an outlook for fee income growth into 2026, considering the removal of the insurance component and potential drivers.

Answer

Ron Gorczynski, CFO, stated that SmartFinancial targets a 40% deposit beta for variable costs, aiming to follow rate cuts basis point for basis point, and confirmed this ability has been observed with recent cuts. Billy Carroll, President and CEO, explained that some deposits are directly tied to market rates, while others are correlated, allowing for faster adjustments. For fee income, Billy Carroll noted that while the insurance component is removed, opportunities exist in interchange income from payment rail renegotiations, strong performance from the mortgage unit, growth in the investments arm, and the building annuity from the treasury management platform. Ron Gorczynski added that the company is also reviewing customer fees to ensure market competitiveness.

Catherine Mealor of Keefe, Bruyette & Woods (KBW) asked for details on the net interest margin, including the cost of new deposits and yield on new loans, the rate cut assumptions in the NIM guidance, and the outlook for expense growth.

Answer

EVP & CFO Ron Gorczynski provided specifics, noting new loan production yields were 7.11% and new deposit costs are expected in the 3.5-3.6% range. He confirmed the NIM guidance of 2-3 bps expansion per quarter assumes two 25 bps rate cuts in late 2025, which could add 1-2 bps of lift. He also guided for Q3/Q4 non-interest expense to be in the $33.8M-$34.0M range. President & CEO William Carroll affirmed that maintaining positive operating leverage remains a key focus.

Catherine Mealor of Keefe, Bruyette & Woods asked about the sensitivity of the net interest margin (NIM) guidance to potential Fed rate cuts, current pricing trends for new loans, and the cost of new deposits.

Answer

CFO Ronald Gorczynski stated the bank is slightly liability-sensitive and would see a slight benefit from Fed cuts, with the current guidance assuming a September cut. He noted new loan originations yielded 7.29% in Q1. President and CEO William Carroll added that new loan production is around 7%, and while competition is increasing, they are holding firm on pricing. Gorczynski mentioned new CD and money market costs are around 3.50-3.60%, with overall new business remaining accretive to the current margin.

Catherine Mealor requested a follow-up on the net interest margin, asking for near-term commentary on deposit costs, including spot rates at the end of the quarter. She also sought to understand how quickly the projected 40% downward deposit beta would materialize given the bank's level of indexed deposits.

Answer

CFO Ronald Gorczynski explained that roughly 40% of the deposit base is indexed and reprices quickly with rate movements. He noted that new non-brokered deposit production in September was at 3.81%. Gorczynski confirmed that the 40% beta is expected to be realized promptly, without a significant lag.

Catherine Mealor inquired about the increase in C&I non-performing loans (NPLs) and trends within the Navitas book, and asked for an outlook on United Community Banks' profitability improvement and operating leverage for 2026.

Answer

CRO Rob Edwards clarified that the C&I NPL movement was normal ebb and flow, with successful exits balancing new additions, and noted that overall NPLs decreased from 64 to 51 basis points year-to-date. He stated that the Navitas book has been stable, with losses normalizing around 92 basis points this quarter, aligning with their long-term forecast of approximately 1% excluding long-haul trucking. EVP and CFO Jefferson Harralson expressed optimism for continued profitability improvement and positive operating leverage in 2026, driven by margin expansion from new loans at 7% replacing lower-yielding back book assets.

Catherine Mealor asked for color on the increase in C&I non-performing loans (NPLs) and an update on trends within the Navitas book, particularly regarding loss normalization. She also inquired about the outlook for profitability improvement and positive operating leverage in 2026, and any anticipated expense investments.

Answer

Robert Edwards, CRO, explained that the C&I NPL movement was part of a normal cycle, with successful exits and new additions, showing no specific trend. He noted that overall NPAs have decreased from 64 basis points to 51 basis points year-end to now. For Navitas, he stated the book has been stable, with losses around 92 basis points this quarter, which is within their normal longer-term range, and forecasting has been accurate. Jefferson Harralson, EVP and CFO, confirmed expectations for profitability improvement and positive operating leverage in 2026, driven by margin expansion from new loans at 7% compared to the current 6.21% yield and the repricing of the back book.

Catherine Mealor inquired about United Community Banks' appetite for share buybacks, given the recent improvement in the stock price. She also asked for the outlook on Navitas's growth and the strategy for balancing holding these loans on the balance sheet versus selling them into the secondary market.

Answer

Executive VP & CFO Jefferson Harralson explained that at current stock prices, the earn-back period for buybacks is longer than their target, so they are not currently active but remain opportunistic at lower prices. Regarding Navitas, President & Chief Banking Officer Richard Bradshaw noted strong performance is expected to continue in Q3. Mr. Harralson added that with Navitas loans approaching the bank's 10% of total loans limit, they will continue to sell these loans at the current or a higher level for the rest of the year.

Catherine Mealor inquired whether Cadence Bank expects to continue growing its bond book next year and how this strategy fits into overall average earning asset growth.

Answer

CFO Valerie Toalson stated that the bank is comfortable with the bond book's current size as a percentage of total assets (15-20%) but maintains flexibility to adjust it based on balance sheet dynamics. She noted that the portfolio generates significant cash flow, which can serve as a funding mechanism. CEO Dan Rollins emphasized the preference to fund loan growth with core deposit growth, which would then allow for further investment in the securities portfolio.

Catherine Mealor followed up on Cadence Bank's net interest margin, specifically asking for insight into the bond book's yield towards the end of the quarter after significant restructuring, to understand the full quarter's impact. She also asked about expectations for bond book growth through next year and its relation to average earning asset growth.

Answer

CFO Valerie Toalson explained that approximately $1.6 billion in new and repositioned securities were added this quarter at about a 5.2% yield, with the restructuring occurring later in September, suggesting an additional bump in the next quarter's yield. She stated that the bank aims to keep the securities portfolio between 15% and 20% of total assets, with flexibility to add more depending on loan growth and core deposit funding, which is the preferred method.

Catherine Mealor inquired about the drivers of the strong loan growth, specifically the balance between new originations and paydown activity, and its outlook for the second half of the year. She also asked if selling more bonds from the Industry portfolio than initially planned would alter accretion expectations.

Answer

Chief Banking Officer Edward Braddock explained that loan paydowns, particularly in commercial real estate and midstream energy, slowed from Q1 while originations remained robust across C&I and private banking. CFO Valerie Toalson stated that while accretion from the Industry deal would be slightly less, the upfront tangible book value impact is also smaller, resulting in a non-material net change. CEO Dan Rollins added that strong organic loan growth helps offset this.

Catherine Mealor from Keefe, Bruyette & Woods (KBW) asked about the dynamics of loan growth, specifically the balance between new originations and paydown activity. She also inquired if selling more bonds from the Industry acquisition than planned would alter accretion expectations.

Answer

Chief Banking Officer Edward Braddock noted that paydown activity, particularly in CRE and midstream energy, slowed from Q1 while origination pipelines remain robust. President & Chief Credit Officer Chris Bagley added that growth was broad-based. Regarding accretion, CFO Valerie Toalson stated that while it would be slightly less, the upfront impact on tangible book value would also be less, making the net effect not material.

Catherine Mealor followed up on the revenue outlook, asking how the bank plans to achieve its guidance with a stable margin, implying a need for balance sheet growth. She also questioned the stability of the variable-rate loan portfolio's yield and its potential to move higher.

Answer

CFO Valerie Toalson explained that the bank added nearly $800 million in FHLB borrowings to purchase short-term agency securities at a favorable spread, which will support net interest income. She confirmed the bank expects to meet its guidance with some balance sheet growth. Regarding variable-rate loans, she noted that yields are expected to be fairly stable in the near term, with more potential for improvement in the 1-to-3-year timeframe.

Catherine Mealor from Keefe, Bruyette & Woods asked about the key drivers that would result in performance at the low end versus the high end of the revenue growth guidance. She also inquired about the outlook for share buybacks now that the bank is back in acquisition mode.

Answer

CFO Valerie Toalson explained that the primary risk to the low end of the revenue range would be negative surprises to net interest income, such as unexpected rate cuts or slower loan growth. CEO James Rollins stated that while buybacks are not off the table, the current preference is to deploy capital for growth and acquisitions, making repurchases a more opportunistic tool.

Catherine Mealor of KBW requested more clarity on the term 'normalized' expense growth for 2025. She sought to understand if it was fair to assume that revenue growth would likely outpace expense growth next year.

Answer

Chairman and CEO James Rollins explained that 'normalized' growth would be influenced by inflation and ongoing investments in people, technology, and the franchise. EVP and CFO Valerie Toalson added that the significant expense declines of 2024 are not expected to repeat. Both executives agreed with the assessment that revenue growth should exceed expense growth in 2025.

Catherine Mealor followed up on margin, asking how the changing loan mix, with CIB's potentially lower yields compared to RESG, might impact overall loan yields over the next few years, considering the effect of loan floors. She also asked about the credit outlook, specifically what loans might still migrate to special mention, trends in past-due credits, and how lower rates could improve the health of the RESG book.

Answer

George Gleason, Chairman and CEO, explained that while CIB loans might have slightly lower spreads, they generate more fees (treasury management, capital markets, hedging, FX) and offer significantly better opportunities for low-cost deposits, ultimately improving Return on Equity (ROE) through more judicious capital allocation. Jake Munn, President of Corporate and Institutional Banking, elaborated on fee income from leading and administering deals. Regarding credit, George Gleason emphasized continuous portfolio monitoring and the crucial role of sponsor support, noting that lower rates would benefit variable-rate RESG loans and increase refinance opportunities. Brannon Hamblen, President, discussed life science loans, highlighting a positive trend of shifting demand towards traditional office use, which is feasible given the bank's conservative basis in these projects.

Catherine Mealor requested commentary on trends in the life science portfolio, given recent appraisal data, and asked for an explanation for the quarterly increase in special mention loans.

Answer

President Brannon Hamblen acknowledged that the life science sector is muted but noted some positive leasing activity and continued sponsor support. Chairman & CEO George Gleason added that the increase in special mention loans was part of the 'normal ebb and flow' related to ongoing sponsor negotiations and was not a cause for significant concern, a pattern seen in prior quarters.

Catherine Mealor inquired about the potential impact of a sustained higher interest rate environment on credit risk and new origination volumes for both the RESG and CIB divisions. She also asked for an outlook on loan paydown activity and whether extension trends might change.

Answer

President of CIB Jake Munn stated that CIB is well-positioned to grow in the current rate environment as it is actively acquiring new clients. President Paschall Hamblen noted that the real estate market is adjusting, with factors like lower land prices supporting new RESG deal flow. Chairman and CEO George Gleason added that while Q4 RESG originations were low, the pipeline of signed term sheets is strong. He confirmed that paydowns are expected to remain elevated as sponsors accept the current rate environment as the new normal.

Catherine Mealor questioned the significant shift of loans from construction to non-residential CRE, the associated paydown risk, the evolving risk analysis for these loans, and asked for color on a large special mention credit.

Answer

President Brannon Hamblen confirmed the loan shift is a natural result of projects reaching completion. CEO George Gleason agreed these completed loans are more likely to be refinanced but emphasized that risk analysis evolves to focus on leasing and sales, with sponsor support being the critical factor. Gleason declined to discuss specific special mention credits, citing customer privacy, but directed her to portfolio breakdown data in the management comments.

Catherine Mealor sought clarification on the percentage of the loan portfolio that is floating rate and reprices immediately, detailed data on CD repricing (maturities and rates), and the exact timing and full margin impact of the sub debt payoffs in Q3.

Answer

CEO Stephen Tipton stated that approximately $6.3 billion of loans are variable rate, tied to Prime or SOFR. He detailed that about $1.35 billion in CDs will mature over the next three quarters at an average rate of 3.67%. President of Centennial Commercial Finance Group Christopher Poulton and CEO Stephen Tipton confirmed the $140 million HAPPI sub debt was paid off at the end of July/early August, providing two-thirds of its benefit to the Q3 margin, and the $20 million sub debt was bought back in September.

Catherine Mealor asked for an update on the expected timing of the remaining $30 million in recoveries from prior charge-offs, questioned if M&A activity would pause the stock buyback, and sought clarification on the size and structure of potential acquisitions.

Answer

President & Chief Lending Officer Kevin Hester projected recoveries at roughly $1 million per quarter on a recurring basis, with potential for larger, irregular recoveries. Chairman & CEO John Allison stated that buybacks would likely continue unless capital is needed for a deal. He also clarified he is looking at acquisitions in the $4 billion to $6 billion asset range and that while stock is the preferred currency, a 10-20% cash component is possible.

Catherine Mealor asked about the future expense run rate, questioning if expenses would decline after the non-recurring $2 million in legal fees. She also inquired about new loan production yields amid intense competition and the margin's sensitivity to potential Federal Reserve rate cuts.

Answer

Executive John Allison indicated that the current expense level of around $111 million is a good run rate to expect going forward. Executive John Tipton added that new loan coupons were strong at 7.75% in Q1, and while competition is quoting lower, the bank remains disciplined. Regarding rate cuts, he noted that while their ALCO model shows some sensitivity, their internal budget projected margin expansion even with cuts, and they would be pleased to maintain the margin in the current 4.40% range.

Catherine Mealor of Keefe, Bruyette & Woods inquired about the loan growth outlook for 2025, particularly in a 'higher for longer' interest rate environment, and whether the strong 4.42% exit net interest margin (NIM) is expected to expand or remain stable.

Answer

Chairman John Allison stated that a 'higher for longer' rate environment benefits the company and that the current earnings run rate is strong, though loan growth may be slow in Q1 before picking up. CEO Stephen Tipton added that he would be pleased to maintain the NIM in its current range, noting the potential to reprice the CD book downward.

Catherine Mealor drilled down on the net interest margin, asking about loan and deposit beta assumptions in an easing cycle, the composition of floating-rate loans, and which deposit products have been most responsive to rate cuts.

Answer

CEO Stephen Tipton responded that while there are repricing opportunities on roughly $1 billion in loans, the goal is a flattish margin. He detailed that of the $5.5 billion in variable-rate loans, most are tied to SOFR or Wall Street Journal Prime. Rate reductions have been most successful on negotiated money market products, while CD pricing remains competitive.

Catherine Mealor inquired about Synovus's capital build, specifically the higher starting capital post-merger, and the timeline for potential stock buybacks. She also asked for more details on deposit trends, including the impact of public funds, and the factors supporting expectations for stronger core deposit growth in the fourth quarter.

Answer

CEO Kevin Blair stated that Synovus expects to close the merger with a strong CET1 ratio of 10.1% (9.9% including AOCI), which is among the highest for Category 4 banks. He emphasized the institution's strong earnings power, generating 35-40 basis points of CET1 each quarter before risk-weighted asset growth, prioritizing deployment to loan growth and client acquisition, with capital accretion expected in early quarters post-close before considering buybacks based on economic outlook. Regarding deposits, Mr. Blair highlighted $2.6 billion in new production, up 18% sequentially, and attributed declines primarily to public funds seasonality, expressing confidence in strong fourth-quarter growth due to expected public funds return, consistent production levels, and stable average DDA balances.

Catherine Mealor of KBW asked about the cost and duration of recent borrowings and inquired about the current yields on the bank's fixed-rate and floating-rate loan books.

Answer

EVP & CFO Jamie Gregory identified the borrowings as FHLB advances near SOFR rates and expects core deposit growth to fund loan growth in H2. He noted the floating-rate book is 64% of total loans with spreads around 250 bps over SOFR, while the mortgage portfolio yield is in the mid-4s.

Catherine Mealor inquired about trends in loan paydown activity and its potential risk to growth, and also asked about the competitiveness of loan pricing.

Answer

CEO Kevin Blair noted that commercial payoff activity, while still elevated, is abating and is not considered a major headwind to the loan growth guidance. He acknowledged the loan pricing market is competitive, but stated that new production yields, while lower than the prior quarter, still provide a healthy spread over new deposit costs and are in line with the bank's forecasts and return hurdles.

Catherine Mealor requested details on deposit cost trends throughout the fourth quarter, including the exit rate, and asked for more color on the growth in the commercial real estate (CRE) pipeline and its sensitivity to interest rates.

Answer

CFO Jamie Gregory noted that deposit production rates declined significantly in Q4, particularly in money markets. CEO Kevin Blair pointed to presentation slide 32, showing the December average deposit cost was 2.39%, below the quarterly average. Regarding CRE, Blair stated that as market activity picks up, their bankers are re-engaging in lending, resulting in the highest committed production level in two years.

Catherine Mealor of Keefe, Bruyette & Woods asked for a quantification of the expected benefit from fixed-rate loan repricing in 2025 and for details on the repricing cadence of the variable-rate loan portfolio.

Answer

CFO Jamie Gregory quantified the fixed-rate repricing impact at approximately 15 basis points of margin benefit for both 2025 and 2026. He broke down the variable-rate book, explaining that with 62% of loans being floating rate, the bank anticipates a loan beta in the low 50s and a total asset beta in the low-to-mid 40s during the easing cycle.

Catherine Mealor questioned Hancock Whitney Corporation's deposit betas for future rate cuts, comparing them to past declines, and asked about the impact of the most recent 25 basis point rate cut on deposit costs and the reasons behind the recent decline in variable-rate loan yields.

Answer

CFO Mike Achary stated that he expects deposit betas to be similar to past declines, with the company remaining proactive in reducing deposit costs. He confirmed that deposit costs were reduced following the most recent rate cut, citing current promotional rates and anticipated further reductions with expected rate cuts. Achary also mentioned $1.7 billion in CD maturities in Q4 at 3.89% repricing at 3.59% with an 86% renewal rate. Regarding variable-rate loan yields, he attributed the slight decline mostly to mix and competitive pricing, noting that new loan rates on the variable side were actually up one basis point.

Catherine Mealor from Keefe, Bruyette & Woods (KBW) asked for more detail on the net interest margin (NIM) outlook, its sensitivity to potential rate cuts, and the expense contribution from the recent Sable Trust acquisition.

Answer

CFO Michael Achary explained that the NIM outlook remains positive, with minimal impact from potential rate cuts in 2025. He anticipates modest NIM expansion driven by a stable DDA mix, lower deposit costs, and loan growth. He also specified that the Sable acquisition added approximately $2.5 million to expenses in Q2 for two months of operations.

Catherine Mealor from KBW asked for an update on the producer hiring plan and its impact on the loan growth outlook, which appears to be pushed to the second half of the year. She also questioned the company's current stance on M&A versus organic growth and buybacks, considering the stock's valuation.

Answer

CEO John Hairston stated that the company hired 4 producers in Q1 and is on track for its annual goal of 20-30, and that market volatility will not deter this offensive strategy. He noted that while Q1 loan growth was impacted by late-quarter payoffs, pipelines look strong for Q2. CFO Michael Achary followed up by confirming that depository M&A is not a current focus due to market conditions and valuation. He emphasized that the immediate capital priorities are dividends and share repurchases, coupled with executing the organic growth plan.

Catherine Mealor of Keefe, Bruyette & Woods asked for color on the increase in criticized commercial loans and sought clarification on the guidance for 'modest' charge-offs and provision in 2025.

Answer

Chief Credit Officer Chris Ziluca noted the increase in criticized loans was in line with peers and spread across sectors like consumer discretionary and healthcare, viewing the issues as transitory. CEO John Hairston emphasized there were no significant concentrations. CFO Michael Achary clarified that 'modest' charge-offs imply a range in the upper teens to low 20s basis points of average loans.

Catherine Mealor asked about the structural outlook for the net interest margin (NIM) into 2025 and whether M&A would become a more significant part of the growth strategy to supplement organic efforts.

Answer

CFO Michael Achary stated that significant repricing opportunities in the bond and CD portfolios provide a tailwind for the NIM into 2025. However, he emphasized that sustained NIM and NII expansion in a down-rate environment will require balance sheet growth. Regarding M&A, Achary confirmed that the bank's primary plan is built on organic growth and they do not plan for acquisitions, though they would evaluate opportunities that arise.

Catherine Mealor of KBW sought clarification on the service charge outlook and asked about the cost of new deposits. She also questioned how a 'higher for longer' interest rate environment might affect deposit costs.

Answer

CFO Dan Geddes affirmed that service charge growth is volume-based and should continue. He described new deposit inflows as broad-based and returning to seasonal norms. In a 'higher for longer' scenario, he does not anticipate a material increase in deposit costs, explaining that any rise would likely stem from a deposit mix shift toward products like CDs, rather than from raising rates to match competitors. CEO Phillip Green concurred that it would be a mix effect.

Catherine Mealor of KBW followed up on service charge income trends, asking if they should continue to grow. She also inquired about the cost of new deposits and the potential impact of a 'higher for longer' rate environment on deposit costs.

Answer

CFO Dan Geddes affirmed that service charge income growth is expected to continue, driven by customer volume rather than fee increases. He noted new deposits are coming in across a broad base, including DDA and CDs. In a 'higher for longer' scenario, CEO Phillip Green and CFO Dan Geddes clarified that any increase in deposit costs would likely be driven by a mix shift towards higher-cost products, not by a need to raise rates to catch up with the market.

Catherine Mealor from KBW asked for details on the investment portfolio, including its size, reinvestment plans amid rate cuts, and the pricing of new loan production.

Answer

CFO Dan Geddes detailed that about $2 billion in securities are maturing for the remainder of the year, with plans to reinvest a portion of that into higher-yielding assets, which is a key driver of the increased NII guidance. He noted Q1 purchases included MBS yielding 5.82% and municipals at a 5.55% taxable equivalent yield. The response on loan pricing highlighted that growth is being driven by strong performance in consumer and C&I lending.

Catherine Mealor of KBW asked for clarification on the typical fourth-quarter expense increase, details on securities maturities for the upcoming year, and the drivers behind the strong fee income performance.

Answer

Outgoing CFO Jerry Salinas advised looking at the prior year's Q3 to Q4 trend for insight into seasonal expense patterns. Incoming CFO Dan Geddes confirmed that approximately $2.1 billion in securities with a yield of around 3.2% are expected to mature in 2025. Geddes also stated that the strong fee income is primarily a function of volume driven by organic customer growth, though he cautioned that potential interchange regulation could be a headwind next year.

Catherine Mealor from Keefe, Bruyette & Woods followed up on the margin discussion, asking about expectations for the overall size of the balance sheet, particularly the bond book and cash levels. She also sought to confirm if further upward momentum in loan yields is anticipated, driven by mix shifts and new production.

Answer

David Zalman, Senior Chairman & CEO, stated that deposit levels have likely stabilized after seasonal outflows and that the bank remains disciplined on pricing, expecting growth to resume in the fourth quarter. Kevin Hanigan, President and COO, confirmed that loan yields are expected to see upward momentum. He attributed this to a positive mix shift from bonds into higher-yielding commercial loans and noted that the prior quarter's reported yield was slightly inflated by non-accrual income timing, making the current quarter's underlying performance stronger than it appears.

Catherine Mealor from Keefe, Bruyette & Woods (KBW) asked for an outlook on the balance sheet size, particularly the bond book and cash levels, and questioned if there was potential for more upward momentum in loan yields.

Answer

Senior Chairman & CEO David Zalman stated that deposit levels have likely stabilized after seasonal outflows and the bank remains disciplined on pricing. President and COO Kevin Hanigan added that loan yields are expected to rise, driven by a mix shift to commercial loans and bond portfolio repricing. He clarified that a reported 1 basis point dip in loan yields was an aberration due to lower non-accrual income pickup.

Catherine Mealor from Keefe, Bruyette & Woods (KBW) followed up on the margin discussion, asking about the expected size of the balance sheet, particularly the bond book and cash levels, in the coming quarters. She also sought to understand the potential for further upward momentum in loan yields.

Answer

Senior Chairman and CEO David Zalman stated that deposit levels, which saw seasonal declines, are expected to stabilize and grow going forward, though the bank remains disciplined on pricing. President and COO Kevin Hanigan confirmed that loan yields should see upward momentum driven by a mix shift toward commercial loans and away from mortgages, as well as the redeployment of cash flows from the bond portfolio into higher-yielding loans.

Catherine Mealor followed up on the margin discussion, asking about the expected size of the balance sheet, particularly the bond book and cash levels, in the coming quarters. She also sought confirmation on whether there is continued upward momentum in loan yields, given the mix shift within the portfolio.

Answer

Senior Chairman & CEO David Zalman explained that deposit levels, which drive balance sheet size, have likely stabilized after seasonal declines and that the bank remains disciplined on deposit pricing. CFO Asylbek Osmanov added that the fundamental model for NIM and NII expansion remains intact. President and COO Kevin Hanigan confirmed there is upward momentum in loan yields, driven by a mix shift from mortgage to commercial loans and from bonds into loans, noting that a one-time non-accrual income item slightly skewed the current quarter's reported yield.

Catherine Mealor from KBW asked about the company's appetite for share buybacks given the recent stock price and sought an update on the M&A environment, including any preference for deal size.

Answer

Senior Chairman and CEO David Zalman confirmed they would have been actively buying back shares at recent lower prices but were restricted by the earnings blackout period. He noted that while they will consider buybacks during future downturns, capital is primarily being preserved for M&A opportunities. On M&A, Zalman stated that after a brief pause, conversations are resuming, and he expects deals to materialize this year, potentially driven by a desire to act before a possible administration change. Chairman H.E. Tim Timanus Jr. added that they are watching the stock daily.

Catherine Mealor asked about the outlook for the loan loss provision, questioning if a zero provision is feasible for another year, and requested the spot rate for deposit costs at the end of the quarter.

Answer

Senior Chairman and CEO David Zalman indicated the bank is well-reserved for the foreseeable future, with a $389 million allowance against $81 million in nonperforming assets, making further zero-provision quarters possible absent a major economic shift. CFO Asylbek Osmonov reported that the spot rate for deposit costs at quarter-end was 1.40%, which was 4 basis points below the quarterly average of 1.44%.

Catherine Mealor of KBW asked for an update on deposit cost trends, questioning whether overall costs are expected to decline or if Net Interest Margin (NIM) improvement will primarily come from asset repricing. She also requested an outlook for the mortgage warehouse business.

Answer

CEO David Zalman and CFO Asylbek Osmonov indicated that deposit costs are expected to decrease, supported by the repricing of their short-duration CD portfolio, with 75% maturing within six months. An unnamed executive addressed the warehouse lending business, noting strong current balances but forecasting a seasonal decline to a quarterly average of $1.05 billion to $1.1 billion for Q4, while also highlighting the addition of a new customer.

Catherine Mealor from KBW asked about the key drivers behind the improved earnings outlook for Bankers Healthcare Group (BHG), the reason for the decline in the BHG equity investment on the balance sheet, and the current cost of incremental deposits.

Answer

CFO Harold Carpenter explained that the improved BHG outlook is driven by both strong production and, more significantly, better-than-expected credit performance. The decline in the equity investment was due to a sizable dividend payment from BHG. Regarding funding, Carpenter stated that new interest-bearing deposits are being added at a cost of approximately $3.50 to $3.60, about 50 basis points above the current book value.

Catherine Mealor from KBW asked about the key drivers for the improved earnings outlook at Bankers Healthcare Group (BHG), the reason for the decline in the BHG equity investment on the balance sheet, and the current cost of incremental deposits.

Answer

CFO Harold Carpenter attributed the stronger BHG outlook to both better-than-anticipated credit performance and robust production growth. He explained that the equity investment declined due to a sizable dividend payment from BHG. On funding, Carpenter noted that new interest-bearing deposits are being added at a rate approximately 50 basis points above the portfolio's book rate, in the $3.50 to $3.60 range.

Catherine Mealor from Keefe, Bruyette & Woods (KBW) asked about the primary drivers behind the improved earnings outlook for Bankers Healthcare Group (BHG), the reason for the decline in the BHG equity investment on the balance sheet, and the cost of incremental deposits.

Answer

CFO Harold Carpenter explained that the stronger BHG outlook is a result of both better-than-anticipated credit performance and robust production. He clarified that the equity investment declined due to a sizable dividend payment from BHG. Regarding funding, Carpenter noted that new interest-bearing deposits are being added at rates in the $3.50 to $3.60 range, approximately 50 basis points above the current book cost.

Catherine Mealor of Keefe, Bruyette & Woods inquired about the expected movement in lines of credit and how that factors into the growth outlook. She also asked for an update on the net interest margin (NIM) sensitivity to the changing rate environment.

Answer

Harold Carpenter (Executive) and M. Turner (Executive) explained that line utilization for C&I clients is stable and that growth is driven by adding new clients via their market share strategy, not a change in utilization. On the NIM, Carpenter noted that while there's more risk to the back-half expansion due to uncertainty, the bank is well-positioned to manage through 1-4 rate cuts, with the shape of the yield curve being the most critical factor.

Catherine Mealor questioned why the 2025 fee growth guidance of 8-10% is lower than the growth achieved in 2024 and asked if the net interest income (NII) growth target assumes NIM expansion throughout the year.

Answer

Harold Carpenter (executive) explained the fee guidance contains conservatism and that 2024 benefited from some lumpy, one-off items, particularly from other equity investments. M. Turner (executive) added that his personal goal is to exceed the targets. Harold Carpenter confirmed that the NII guide does assume NIM expansion during 2025, contingent on an improving yield curve.

Catherine Mealor questioned if double-digit NII growth is achievable in 2025 given the strong balance sheet growth potential. She also asked for commentary on the drivers of the strong fee income, particularly service charges, and whether any part of the Q3 fee run rate was elevated.

Answer

Executive Harold Carpenter noted a strong historical correlation between loan growth and NII growth, and while not providing a specific 2025 target, he expressed optimism for loan growth to be better than in 2024. On fees, he explained that the growth in service charges was driven by a detailed review of commercial analysis accounts to ensure proper pricing for services. He cautioned that the Q3 fee income included about $4.5 million from non-recurring items (gain on sale of fixed assets and fair value adjustments) that should not be expected to repeat in Q4.

Catherine Mealor from Keefe, Bruyette & Woods (KBW) asked for clarification on the Q3 net interest margin guidance of $3.70 to $3.80, specifically how to model the balance sheet after the securities portfolio restructurings at both FB Financial and Southern States. She also inquired about the loan growth pipeline, reasons for delayed closings, and confirmation of new loan yields.

Answer

CFO Michael Mettee confirmed that Southern States' investment portfolio was largely sold, with proceeds used to pay down brokered deposits, and that new loan yields were coming in north of 7%. CEO Chris Holmes and Chief Banking Officer Travis Edmonson added that the mid-to-high single-digit loan growth outlook remains intact, attributing the slower Q2 growth to timing on a few large deals and some unexpected payoffs, while noting that client activity and pipelines remain strong.

Catherine Mealor questioned the increase in the expense run rate, noting that the Q2 guide implies a full-year growth rate of around 9%, higher than the 4-5% previously discussed. She also asked about the potential risk from CRE paydowns in the latter half of the year and its sensitivity to interest rates.

Answer

CFO Michael Mettee clarified that Q1 expenses were elevated due to seasonal compensation items like payroll taxes and 401(k) match restarts, as well as performance-based awards. He stated that a 9% growth rate is not the target and that full-year growth should be in the 5-6% range as these lumpy items normalize. Regarding CRE, Mettee and Chief Bank Officer Travis Edmondson noted that while payoffs occurred when rates dipped, this is part of the normal business cycle with recurring customers, and they don't expect significant changes to this dynamic.

Catherine Mealor asked about the current competitive landscape for deposit costs, the outlook for net interest margin in a 'higher for longer' rate environment, and the primary sources of loan growth between C&I and CRE.

Answer

Executive Michael Mettee described the deposit market as competitive, with new deposits costing 80-90% of the Fed funds rate, but projected modest NIM expansion of 1-2 basis points per quarter in a stable rate environment. Executive Travis Edmondson added that while growth opportunities exist in both C&I and CRE, the bank has concentrated on C&I to manage CRE exposure, actively passing on some CRE opportunities.

Catherine Mealor of Keefe, Bruyette & Woods, Inc. requested the expected end-of-quarter yield for the bond portfolio following the recent restructuring. She also asked about the outlook for loan yields given repricing dynamics and new production, and sought commentary on the credit quality and performance of the bank's manufactured housing loan portfolio.

Answer

Executive Michael Mettee projected the bond portfolio yield would be slightly north of 4% by the end of Q4. He noted that while overall loan yields were flat due to construction loan payoffs, new originations were coming on around 7.80%. Regarding the manufactured housing book, Mettee stated that while past dues have normalized to pre-COVID levels, charge-offs remain low at around 30 basis points, and the portfolio is well-reserved. Executive Christopher Holmes added that the bank's charge-off history in this segment is strong and the rise in past dues was an expected normalization post-stimulus.

Catherine Mealor questioned the risk of the strong loan pipeline not funding through due to market volatility and asked for a breakdown of the pipeline's composition between CRE and C&I.

Answer

CEO Malcolm Holland expressed high confidence in the pipeline, citing stronger-than-ever underwriting with high equity requirements (40-50%) and top-tier sponsors. CFO Terry Earley estimated the pipeline is approximately two-thirds C&I and one-third CRE. He noted higher confidence in the CRE portion funding through, given Texas's growth, while acknowledging more risk on the C&I side due to factors like lower revolver utilization.

Catherine Mealor from KBW followed up on the loan growth outlook, asking about the potential risk of the strong loan pipeline not funding due to market volatility and requesting a breakdown of the pipeline between Commercial Real Estate (CRE) and Commercial & Industrial (C&I) loans.

Answer

Chairman and CEO Malcolm Holland conveyed high confidence in the loan pipeline's quality, citing strong underwriting standards, significant client equity (40-50%), and a focus on top-tier sponsors. CFO Terry Earley estimated the pipeline is approximately two-thirds C&I and one-third CRE. He added that he has greater confidence in the CRE portion funding due to strong in-migration trends in Texas, whereas the C&I side carries a higher risk of lower pull-through rates, as evidenced by recent declines in revolver utilization.

Catherine Mealor questioned the potential risk of the loan pipeline not funding due to market volatility and asked for a breakdown of the pipeline's composition between CRE and C&I.

Answer

CEO Malcolm Holland conveyed high confidence in the loan pipeline's quality, emphasizing strong underwriting standards, high sponsor equity levels of 40-50%, and relationships with top-tier clients. CFO Terry Earley estimated the pipeline is approximately two-thirds C&I and one-third CRE. He added that he has greater confidence in the CRE portion funding due to strong Texas in-migration, whereas the C&I portion carries a slightly higher risk of lower pull-through, as evidenced by recent declines in revolver utilization.

Catherine Mealor of KBW followed up on the net interest margin (NIM) outlook for 2025, asking if strong deposit repricing could offset asset sensitivity to maintain a stable margin. She also requested an outlook for the USDA loan business and how to model its performance.

Answer

CFO Terry Earley stated that he does not foresee NIM expanding in 2025, expecting it to stabilize in the 3.20s range as rate cuts occur. He acknowledged strong new loan spreads but emphasized the focus on execution and deploying excess cash. CEO Malcolm Holland described the USDA business as inherently lumpy and difficult to model, explaining the strategy is to shift toward smaller loans and create synergies with the SBA division. Earley added the goal is to return to 2023's total government-guaranteed fee income levels, with a heavier weighting toward SBA.

Catherine Mealor of KBW requested details on loan yield repricing dynamics, the average cost of new deposits added during the quarter, and a confirmation of the core net interest margin outlook amid potential Fed rate cuts.

Answer

CFO Paul Egge clarified the loan mix is approximately 55% fixed and 45% variable, with significant upward repricing opportunity. President and Bank CEO Ramon Vitulli added that new loans were originated at a weighted average rate of 7.58% and renewals at 8.47%. Vitulli also noted new deposits came on at a rate 40 basis points lower than the prior quarter. Egge concluded that they have strong confidence in their ability to defend the net interest margin, with potential for upside.

Asked about the loan yield outlook, fixed-rate repricing opportunities, the expected size of seasonal public fund outflows, and the expense forecast for the remainder of the year.

Answer

The Q2 loan yield dip was partly due to lower one-time fees, not just pricing pressure. New loans are still originating near 8%, and with about $250 million in fixed-rate loans repricing from the low 6% range, the overall portfolio yield is expected to continue rising. Public fund outflows are seasonal and could total another $100+ million this year. The expense run rate is expected to remain in line with the full-year guidance of $176-177 million.

The analyst inquired about the potential activity level for the new share buyback authorization, the net interest margin outlook in a 'higher for longer' rate environment, and the expected trend for loan yields.

Answer

The company views the buyback as a price-sensitive tool, more attractive in the low $20s rather than the current $25 price. Regarding the margin, they believe it could still see an increase even without Fed rate cuts, driven by loan repricing and redeploying cash flows from the securities portfolio. They confirmed that the pace of loan yield increases is expected to moderate.

Inquired about the drivers of Q4 margin compression, the 2024 margin outlook with and without rate cuts, the impact of the bond restructure, the repricing dynamics of the fixed-rate loan portfolio, and the company's M&A outlook.

Answer

Executives attributed Q4 margin pressure to higher-than-expected repricing of the existing deposit book. They project about 8 bps of margin expansion in 2024 from a lower base, plus another 8 bps from the bond restructure, and expect to benefit from rate cuts due to their liability-sensitive position. They confirmed about $100 million in fixed-rate loans reprice quarterly with a ~250 bps yield pickup. On M&A, they are internally focused for H1 2024 but may consider deals in H2.

Sought to quantify the expected pace of loan yield expansion, the potential stabilization point for deposit costs in a static rate environment, and the cost of new incoming deposits.

Answer

Executives stated that a 10 basis point quarterly increase in loan yields is a floor and should accelerate. They are confident in their ability to control deposit costs by replacing higher-cost wholesale funds with new core deposits, which are coming in at a blended rate lower than brokered funds (with popular products priced up to ~5%).

Catherine Mealor of Keefe, Bruyette & Woods, Inc. inquired about the performance of loan yields, competitive pricing pressures, the impact of a flatter yield curve, and the portion of the loan book that would reprice with recent rate hikes.

Answer

CFO Bruce Thomas explained that while competitive pressures exist, the bank is being defensive on pricing and expects loan yields to rise with future rate increases. CEO Rex Smith added that the loan portfolio is approximately 50% variable rate, with most loans having reached their interest rate floors, allowing for immediate positive impact from subsequent rate hikes.

Catherine Mealor from KBW inquired about the company's strategy for deploying excess liquidity from Q4 and its outlook for the net interest margin. She also asked how the recent increase in the company's stock price might influence its M&A strategy and appetite for acquisitions.

Answer

President and CEO Rex Smith explained that the company preemptively raised funds with a CD promotion before the December rate hike, temporarily placing the liquidity in short-term treasuries to benefit capital ratios and lower franchise tax. He stated these funds would be rolled into the loan portfolio during 2017. Regarding M&A, Smith confirmed that the stronger stock currency makes acquisitions more attractive and that the company is actively exploring opportunities within its Mid-Atlantic footprint.

Catherine Mealor asked about the expected OREO cost run rate for 2016 following recent write-downs, the projected quarterly expense run rate by mid-2016 considering branch consolidation savings, and the outlook for the mortgage business, including TRID impacts and the timeline for returning to profitability.

Answer

CFO Rob Gorman projected OREO costs would decline to the $500,000 to $700,000 quarterly range and estimated the overall expense run rate would be around $53 million by mid-2016. EVP Jeff Farrar stated that while the national mortgage market is expected to contract, Union projects growth through new LO hires and operational efficiencies, anticipating a return to profitability in 2016. CEO Bill Beale and CFO Rob Gorman added that the impact from TRID has normalized, though closing times remain elongated at around 45 days.