Christopher McGratty

Christopher Edward McGratty asked for the breakdown of the 5%-7% full-year deposit growth by mix (non-interest-bearing vs. other), the assumed deposit beta for 2026, and whether the company would entertain buying a bank this year given its strong organic story.

Answer

Ira Robbins, CEO, detailed the deposit growth mix: 6% total, with 5% non-interest-bearing, about 7% savings and money market, and modest CD growth. Travis Lan, Senior EVP and CFO, confirmed consistently assuming a 50% total deposit beta for 2026, despite the actual 2025 full-year beta being 60%. Ira Robbins, CEO, outlined the M&A philosophy: prioritizing shareholders, adhering to financial constraints (no dilution), and aligning with strategic objectives, emphasizing the strong organic story and a high bar for M&A consideration.

Christopher McGratty asked for a breakdown of the full-year 5%-7% deposit growth by mix, specifically the contribution from non-interest-bearing (NIB) deposits. He also inquired about the assumed total deposit beta for 2026 and whether the company might entertain buying a bank this year, given its strong organic story.

Answer

Ira Robbins, CEO, and Travis Lan, CFO, stated that for the 6% total deposit growth midpoint, they conservatively model 5% NIB growth, about 7% savings/money market growth, and modest CD growth. Travis Lan, CFO, confirmed a consistent modeling assumption of a 50% total deposit beta for 2026. Ira Robbins, CEO, outlined M&A considerations: prioritizing shareholders, financial constraints, and strategic alignment, emphasizing the strong organic story and the need for M&A to significantly accelerate objectives.

Christopher Edward McGratty asked about the potential impact of lower interest rates on the CRE book's growth trajectory, specifically if it would accelerate payoffs. He also posed a strategic question to Ira Robbins regarding considering inorganic growth (M&A) given the stock's current valuation at tangible book value.

Answer

Travis Lan, CFO, acknowledged that significantly lower rates could accelerate payoffs but noted Valley is somewhat insulated due to a pause in C&I originations in 2024 and a fixed-rate loan portfolio yielding mid-4s to 5%. Gino Martocci, President of Commercial Banking, added that lower rates would also drive transaction volume. Ira Robbins, CEO, reiterated a 'shareholder-first' approach, stating no change in M&A thinking, and expressed confidence in stock buybacks as a good use of capital at 1x tangible book. Travis Lan, CFO, emphasized the strong organic growth opportunities and how M&A disruption benefits Valley.

Christopher Mcgratty of Keefe, Bruyette & Woods (KBW) inquired about the sustainability of net interest margin (NIM) expansion, the ability to manage deposit pricing, and the cadence toward a potential 3.25% NIM. He also asked for commentary on the charge-off guidance, which implies a decline in the second half of the year, and visibility into credit trends.

Answer

SEVP & CFO Travis Lan confirmed expectations for continued NIM expansion through 2025 and into 2026, driven by asset repricing and the opportunity to replace high-cost brokered deposits. He noted new deposits were added at a blended rate of 2.77%. EVP & Chief Credit Officer Mark Saeger addressed credit, pointing to stabilization in non-accrual and criticized assets, driven by the real estate market. He affirmed the guidance for charge-offs and provisions to moderate through the rest of the year.

Christopher Mcgratty of Keefe, Bruyette & Woods inquired about Valley's ability to maintain deposit pricing and achieve its net interest margin (NIM) target of 3.25%. He also asked for details on the charge-off guidance, non-accrual loan formation, and overall credit visibility for the second half of the year.

Answer

SEVP & CFO Travis Lan confirmed that the NIM is expected to continue expanding through 2025 and into 2026, supported by asset repricing and the opportunity to replace $1.2 billion in high-cost brokered deposits. He noted new deposits were added at a favorable 2.77% blended rate. EVP & Chief Credit Officer Mark Saeger added that credit trends are stabilizing, with flat criticized assets and an expectation for charge-offs and provisions to decline through year-end, consistent with guidance.

Christopher Mcgratty of Keefe, Bruyette & Woods (KBW) inquired about the sustainability of deposit pricing and the outlook for net interest margin expansion, referencing a potential 3.25% target. He also asked for details on the charge-off guidance, new non-accrual loan formation, and overall credit visibility.

Answer

SEVP & CFO Travis Lan confirmed expectations for continued margin expansion into 2026, driven by asset repricing and the opportunity to reprice $6.5 billion in brokered deposits. He noted that over $1 billion in new deposits were added at a blended rate of 2.77%. EVP & Chief Credit Officer Mark Saeger added that the stabilization of non-accrual and criticized assets, particularly in real estate, supports the guidance for lower charge-offs and provisions in the second half of the year.

Christopher Mcgratty of Keefe, Bruyette & Woods inquired about Valley National's ability to maintain deposit pricing and the outlook for net interest margin (NIM) expansion. He also asked for commentary on the charge-off guidance, which implies a second-half improvement, and visibility into credit trends.

Answer

SEVP & CFO Travis Lan confirmed expectations for continued NIM expansion through 2025 and into 2026, driven by asset repricing and the opportunity to replace $1.2 billion in high-cost brokered deposits. He noted that over $1 billion in new deposits were added at a favorable blended rate of 2.77%. EVP & Chief Credit Officer Mark Saeger added that credit trends are stabilizing, with flat criticized assets after two years of migration, supporting the guidance for lower charge-offs and provisions in the second half of the year.

Christopher Mcgratty of Keefe, Bruyette & Woods (KBW) inquired about the outlook for net interest margin (NIM) expansion, the ability to maintain deposit pricing, and the cadence toward a potential 3.25% NIM. He also asked for commentary on the charge-off guidance, which implies a decrease in the second half of the year, and the visibility into credit trends.

Answer

SEVP & CFO Travis Lan confirmed expectations for continued NIM expansion through 2025 and into 2026, supported by asset repricing and the opportunity to reprice $6.5 billion in brokered deposits. He noted new deposits were added at a favorable 2.77% rate. EVP & Chief Credit Officer Mark Saeger stated that the credit outlook is supported by stabilization in non-accrual and criticized assets, consistent with guidance for higher charge-offs and provisions in the first half of the year, followed by a decline.

Christopher McGratty questioned the expense guidance, noting that the strong Q1 performance implies a significant ramp-up for the rest of the year and asked if the outlook was conservative. He also inquired about expectations for deposit growth and the strategy for the securities portfolio and cash levels.

Answer

Executive Travis Lan acknowledged the guidance is consistently conservative to allow for investment flexibility. He mentioned that normalizing payroll taxes would be offset by higher marketing and professional fees later in the year, but expects continued positive operating leverage. Regarding funding, he anticipates strong core deposit growth will continue, prioritizing the paydown of brokered deposits. The securities portfolio growth will be a toggle dependent on loan growth materializing.

Christopher McGratty questioned the company's medium-term Return on Equity (ROE) potential following its 2024 balance sheet actions and asked for more color on the strong C&I loan growth guidance for 2025.

Answer

CEO Ira Robbins outlined a long-term target for ROE to be north of 15% with an ROA above 1.20%, driven by improving margins, fee income growth from strategic initiatives, and disciplined expense management. Executive Travis Lan clarified the C&I growth guidance is for high single-digits to low teens, noting that underlying organic growth in 2024 was strong and that the C&I pipeline was up over $600 million year-over-year.

Christopher McGratty of Keefe, Bruyette & Woods, Inc. inquired if the updated 2025 strategic targets were final and asked about the market's appetite for bank assets, highlighting the excellent execution on the CRE loan sale.

Answer

CEO Ira Robbins affirmed the company's confidence in achieving the newly outlined intermediate targets for 2025. Executive Travis Lan added that while private equity demand for assets has been consistent, the bid-ask spread has narrowed over time, making the 1% discount on the recent loan sale an extremely attractive, rate-driven transaction.

Christopher McGratty asked for clarification on the net interest income outlook presented on Slide 5, particularly regarding alternative rate scenarios and the impact of loan growth, and also inquired about any incremental changes in credit quality or customer sentiment over the past 90 days, and the sustainability of the current tax rate.

Answer

CFO Jim Iroli explained that the modeling reflects a steepener scenario with two rate cuts expected later in the year, indicating neutral sensitivity to the front end of the curve and a benefit from rising intermediate curve rates, noting the base case does not include balance sheet growth. Jim Iroli highlighted pristine credit numbers and a decreasing net charge-off rate, with Chief Credit Officer Eric Halgren adding that while there's been a shift from criticized to classified categories on the watchlist, no significant loss content is anticipated. Jim Iroli clarified that the effective tax rate included 40 basis points of unusual items, with 30 bps being out-of-period and 10 bps native to the current period.

Christopher McGratty from KBW asked for specific dollar figures or growth rates for Huntington Bancshares' technology investment, following the discussion on tech wallet share and its contribution to revenues. He also inquired if any strategic tweaking or portfolio adjustments are anticipated for the acquired Veritex and Cadence portfolios in the coming quarters, given potential misalignments with Huntington's strategic fit.

Answer

Chief Financial Officer Zachary Wasserman indicated that more detailed guidance on technology investments would be provided at future conferences, but emphasized that investments are focused on customer-facing capabilities, value-added services, customer acquisition, and digital marketing (MarTech). Chairman, President, and CEO Stephen Steinour stated that the combined portfolios from Veritex and Cadence were strategically aligned, with no specific 'exit portfolio' planned. He acknowledged a slightly higher concentration of commercial real estate construction than preferred, which will be managed in due course, but highlighted strong growth areas that will offset any adjustments.

Christopher McGratty asked for specific dollar figures and growth rates for Huntington Bancshares' technology investments, noting the company's focus on this area. He also inquired whether any strategic portfolio tweaking, such as divesting non-fitting assets, is anticipated in the coming quarters following the evaluation of the Veritex and Cadence portfolios.

Answer

CFO Zachary Wasserman deferred providing specific dollar figures for technology investments to future conferences but emphasized that investments are focused on customer-facing capabilities, digital marketing, and MarTech. Chairman, President, and CEO Stephen Steinour stated that the acquired portfolios are generally well-aligned, with no major exit portfolios planned, though a slight preference for less commercial real estate construction will be managed.

Christopher McGratty asked for more details on M&T Bank's checking account growth, including traction, accounts opened in 2025, and the outlook for non-interest-bearing deposits. He also asked which piece of the P&L M&T Bank is most optimistic about within its provided guidance ranges.

Answer

Daryl Bible (VP, Senior Executive and CFO, M&T Bank Corporation) highlighted Business Banking's focus on checking accounts and investments in Treasury Management. He mentioned that specific account growth numbers would be shared in the Q1 investor deck. Mr. Bible expressed the most optimism for the fee income area, citing strong momentum, and conveyed confidence in NII and expense management due to the company's disciplined approach and strong management team.

Christopher McGratty asked about M&T Bank's checking account growth as a priority, including traction in accounts opened in 2025 and the outlook for non-interest bearing deposits, and which piece of the P&L within the provided ranges for 2026 the bank is most optimistic about.

Answer

Daryl Bible, Senior Executive Vice President and CFO, M&T Bank Corporation, explained that business banking prioritizes checking accounts, and the consumer bank monitors net account growth monthly. He noted significant investment in treasury management products and services. Bible stated that specific account growth numbers would be shared in the next investor deck. He expressed the most optimism for the fee income area due to strong momentum, also feeling positive about NII and confident in achieving operating leverage due to the company's disciplined approach and strong management team.

Christopher Mcgratty of Keefe, Bruyette & Woods (KBW) questioned if the completion of a major GL project contributed to the improved expense guidance and asked about the bank's readiness for tuck-in acquisitions. He also inquired if high CRE concentration at a potential target would be a prohibitive factor in a deal.

Answer

CFO Daryl Bible clarified that the improved expense guidance was not related to the GL project but was a leadership decision to ensure positive operating leverage amid softer loan growth. On M&A, he noted that while culture and credit fit are paramount, the bank now has options like post-close credit sales or risk transfers to manage CRE concentration from an acquisition, making it not a primary concern.

Christopher Mcgratty asked if the improved expense guidance was related to the completion of a major GL system project and whether that project was a prerequisite for M&A. He also questioned if high CRE concentration at potential acquisition targets would be a deal-stopper.

Answer

CFO Daryl Bible clarified that the lower expense guidance was a strategic decision by leadership to ensure positive operating leverage, not tied to any single project's completion. On M&A, he stated that a target's CRE concentration is not a deal-stopper, as the bank now has multiple tools like credit sales and risk transfers to manage portfolio risk post-acquisition, emphasizing that cultural and credit fit are the primary considerations.

Christopher McGratty asked if Goldman Sachs could quantify the potential pool of money that could be freed up and redeployed from the regulatory expense drag. He also asked about the desired business mix for Goldman Sachs over the next few years, particularly regarding trading, IB, and AWM revenues, and how the firm wants to be viewed by the market.

Answer

CFO Denis Coleman stated they wouldn't give an exact number but explained that past 'human capital, consulting, professional fee-type surge experiences' related to regulatory focus are shifting, freeing up capacity for redeployment into growth and strengthening firm resiliency. Chairman and CEO David Solomon added that quantification could come from analyzing changes in Stress Capital Buffers (SCBs) from CCAR, the neutral impact of Basel III, and recalibration of GSIB. Regarding business mix, Mr. Solomon stated they will continue to invest in AWM growth to evolve the mix, acknowledging that the shift has been slower than imagined due to faster-than-expected growth in Global Banking & Markets, despite good AWM growth. He aims to find inorganic ways to accelerate this shift while maintaining discipline.

Christopher McGratty asked for a quantification of the potential pool of money that could be freed up from reduced regulatory burdens and redeployed, and inquired about Goldman Sachs' desired business mix over the next few years, particularly the balance between trading, investment banking, and asset & wealth management.

Answer

CFO Denis Coleman stated that while an exact number for freed-up regulatory expenses cannot be quantified, it represents an opportunity to redeploy human capital and professional fees towards growth and strengthening firm resiliency, rather than a direct bottom-line unlock. Chairman and CEO David Solomon explained that the firm will continue to invest in AWM growth, expecting the mix to shift slowly due to the organic growth differential, and will seek inorganic opportunities to accelerate this shift while maintaining discipline.

Christopher Mcgratty asked if the firm's medium-term ROE target of 15-17% is still appropriate and what the primary driver would be to achieve it.

Answer

Chairman & CEO David Solomon affirmed the firm's confidence in its mid-teens ROE target, stating that recent regulatory developments have increased that confidence. He identified the drivers as continued growth in the Asset & Wealth Management business and the strong performance of Global Banking and Markets. CFO Denis Coleman added that having excess capital provides a 'dual sort of beneficial, source of tailwind' by enabling more client activity (numerator) and a potentially lower capital base (denominator).

Christopher McGratty asked about the growth opportunity in UMB Financial's trust and securities processing and asset servicing businesses, inquiring if it's a mid-to-high single-digit or double-digit annual growth opportunity. He also asked about the potential for operating leverage and efficiency ratio improvement post-acquisition, considering regulatory costs.

Answer

Mariner Kemper, Chairman and CEO, declined specific guidance but stated UMB is aiming much higher for its trust and securities processing and asset servicing businesses, noting the ability to win business from global household names due to strong technology, people, and momentum. Regarding operating leverage and efficiency, Kemper highlighted significant improvements in profitability metrics post-acquisition, enabling more efficient investments across business lines. Ram Shankar, CFO, added that UMB is researching the potential impact of the $100 billion regulatory environment but will be measured in spending until rules are clear, with positive overtones that requirements may ease.

Christopher Mcgratty from Keefe, Bruyette & Woods asked for an update on the realization of the $124 million in projected cost savings from the Heartland acquisition. He also questioned the pro forma deposit seasonality, particularly the expected Q3 trough in DDA balances, and the company's plans for its investment portfolio.

Answer

CFO Ram Shankar stated that $17 million in quarterly run-rate savings were achieved in Q1, with the next major portion expected in Q4 2025 and Q1 2026 following system conversion and vendor consolidation. He confirmed they expect to realize the full amount. For deposits, he noted a typical mid-single-digit DDA decline in Q3. He also mentioned that excess cash has been deployed, and the bond portfolio is expected to reach approximately $17 billion.

Christopher McGratty asked for a detailed reconciliation between the Q1 2025 earnings run rate and future consensus estimates, focusing on the net interest income (NII) trajectory given strong deposit growth and elevated cash balances.

Answer

CFO Ram Shankar provided a bridge, highlighting a one-time $0.08 tax benefit in Q1, an upcoming increase in share count, and the partial-quarter impact of the Heartland acquisition. He noted future quarters will include a full period of Heartland's earnings, additional cost saves, and scheduled accretion. CEO J. Kemper added that the loan production pipeline remains strong, supporting future growth.

Christopher McGratty asked about UMB's capital deployment priorities post-acquisition, including the potential for bond portfolio restructuring or share buybacks, and requested a summary of the combined company's interest rate sensitivity.

Answer

Chairman and CEO J. Kemper stated the primary focus for the next year is rebuilding capital to pre-deal levels, dismissing the idea of a bond portfolio restructuring as unnecessary. CFO Ram Shankar added that with standalone UMB being liability-sensitive and HTLF being asset-sensitive, the combined pro forma bank will be 'pretty neutral' to interest rate movements, making the current rate environment favorable.

Christopher McGratty asked about potential balance sheet restructuring or optimization ahead of the Heartland acquisition closing and sought to clarify the deposit beta assumptions for the non-indexed portion of the deposit book.

Answer

CFO Ram Shankar stated there are no plans for balance sheet restructuring beyond swapping out some of Heartland's bonds, as mentioned at the deal's announcement, and confirmed the pro forma earning asset base would be around $60 billion. For deposit betas, Shankar clarified that the 25% of the deposit book that is neither DDA nor indexed currently has a prevailing rate of about 2%, and the bank assumes a 30% beta on this portion. He emphasized that the overall downward beta trajectory will be most influenced by the hard and soft indexed deposits.

Christopher McGratty inquired about Wintrust's operating leverage trends for the upcoming year, considering the rate outlook and potential deregulation. He also asked about the company's capital position and whether it might lead to more acquisitions in a friendlier environment, given its history of small, profitable deals.

Answer

Timothy Crane, President and Chief Executive Officer, stated that Wintrust expects to continue achieving operating leverage in 2026 by growing the balance sheet in the mid to high single digits and keeping expense growth in the mid-single-digit range. Regarding acquisitions, he noted an uptick in conversations, particularly for small banks, and affirmed Wintrust's disciplined acquirer track record. He mentioned that while very small transactions are less impactful, the board is prepared to address any opportunities that arise, implying optionality.

Christopher McGratty of Keefe, Bruyette, & Woods (KBW) asked about the sustainability of net interest income (NII) growth, potential changes to the earning asset mix, and the company's strategic view on deregulation and M&A.

Answer

EVP & CFO David Stoehr stated that with a stable margin and continued asset growth, NII growth should remain robust. He also noted the company retained premium finance loans it might have sold in prior years. President, CEO & Director Timothy Crane added that Wintrust is hopeful for regulatory tailoring and remains disciplined but opportunistic regarding potential acquisitions.

Christopher McGratty sought clarification on whether the mid-single-digit expense growth guidance is based on the Q4 run rate, asked about any expense build for potentially crossing the $100 billion asset threshold, and inquired about the reason for the decline in office non-accrual loans.

Answer

CFO David Dykstra confirmed the mid-single-digit expense growth guidance is off the Q4 2024 run rate. Executive Timothy Crane noted that the company continually invests in its infrastructure to support a larger scale but does not break out specific costs for crossing asset thresholds. Executive Richard Murphy stated the decrease in office non-accruals was due to the successful exit of a specific loan.

Christopher McGratty of KBW asked about Wintrust's target CET1 ratio following the capital increase from the Macatawa deal and the firm's capital philosophy for 2025, including plans for its resetting preferred stock. He also had housekeeping questions on share count and the tax rate.

Answer

David Stoehr, CFO, stated that with current earnings, the CET1 ratio should build into the 10% range during 2025. He noted that the company will evaluate refinancing the preferred stock based on market conditions next year. He also confirmed the current quarter's tax rate is a clean run-rate and detailed the share count impact from the acquisition.

Christopher McGratty (KBW) asked about U.S. Bancorp's medium-term targets, noting that the bank is already operating within them. He inquired whether the bank plans to revise these targets in the near to intermediate term, given that several larger banks have done so or hinted at it. He also pressed on what specific conditions or changes would prompt a revisit of these targets.

Answer

John Stern, Vice Chair and CFO, stated that while the bank is pleased to be operating within its medium-term targets, there are no formal plans to change them, as they are considered appropriate. He emphasized that the bank expects to improve upon these results over time. When pressed, Stern indicated that staying consistently within the ranges, and then hitting the upper end of each range, coupled with an improving operating environment and execution exceeding expectations, would be triggers to revisit the targets. Gunjan Kedia, CEO, reiterated the need to consistently stay in and then hit the upper end of the ranges before considering changes.

Christopher Mcgratty asked if the improved regulatory environment might lead U.S. Bancorp to consider another bank acquisition to accelerate its goals. He also requested an update on the timing for crossing into the CAT II regulatory designation.

Answer

President & CEO Gunjan Kedia stated that the company's focus is firmly on organic growth and that its capital build is designed to support this growth as it transitions to CAT II status, not to pursue M&A. Vice Chair & CFO John Stern confirmed there is no change to the CAT II transition timeline, which is expected no earlier than 2027.

Christopher McGratty asked about the appropriate management buffer for Morgan Stanley's excess capital (300+ basis points) and how it is evolving given regulatory uncertainty from CCAR, Basel, GSIB, and SLR.

Answer

CFO Sharon Yeshaya noted excess capital on both RWA and SLR bases, awaiting final regulatory rules to inform the forward outlook. Chairman and CEO Ted Pick clarified the buffer, stating it moved from '200 plus' to '250 plus' (with an actual implied buffer of 340) due to capital accretion and an 80 basis point CCAR reconsideration. He expects regulatory simplification and transparency to prudently lower the required buffer over time.

Christopher McGratty of KBW asked about the confidence in the asset base forecast given accelerated loan payoffs and sought further details on the benefits of collapsing the holding company structure, including cost savings and avoiding CCAR.

Answer

Senior Executive Vice President & CFO Lee Smith acknowledged the higher payoffs led to revised, lower asset forecasts for 2025-2027 but noted this was offset by expense reductions. Executive Chairman, President & CEO Joseph Otting confirmed the holding company elimination would save approximately $15 million annually, streamline regulatory supervision, and confirmed the bank would no longer be subject to CCAR.

Chris McGratty from Keefe, Bruyette & Woods sought clarification on the pro-forma earning asset base size after the Pacific Premier merger and whether the combined company's structural net interest margin outlook has changed since the deal was announced.

Answer

EVP & CFO Ronald Farnsworth confirmed that a mid-$60 billion earning asset base is a reasonable pro-forma estimate, noting a planned $500 million net sale of Pacific Premier's bonds at close. Regarding the margin, he stated that Columbia's own margin has improved and directed investors to the deal materials in the appendix for combined projections, conveying an overall improved outlook.

Christopher McGratty from Keefe, Bruyette & Woods (KBW) sought to confirm the pro forma earning asset base for the combined company and asked if the structural combined net interest margin has changed since the deal announcement.

Answer

EVP & CFO Ronald Farnsworth confirmed that after selling approximately $500 million of Pacific Premier's bonds at close to pay down wholesale funding, a mid-$60 billion earning asset base is a reasonable estimate. Regarding the margin, Farnsworth indicated that Columbia's standalone margin has improved and directed analysts to the deal materials in the appendix, implying an improved outlook compared to the initial merger model.

Christopher McGratty of Keefe, Bruyette & Woods asked for an updated perspective on the balance sheet optimization strategy, specifically concerning the transactional loan portfolios.

Answer

President and CEO Clint Stein confirmed that the bank's strategy remains unchanged. The focus is on relationship banking, and a sale of the transactional portfolios is not currently viable due to the long earnback period required to offset the hard-coded loss. The preferred course of action is to let the portfolio amortize and reprice over time, particularly as significant repricing events are scheduled for 2027 through 2029.

Christopher McGratty requested an update on the credit normalization trend at the FinPac leasing portfolio and any other potential credit offsets the bank is monitoring.

Answer

EVP & Chief Credit Officer Frank Namdar reported that FinPac's annualized loss rate improved by 20% to 4.7% and is expected to normalize further into a 3.5% to 4% range over time. He noted that Q4 improvement might be tempered by seasonal collection challenges but confirmed that delinquencies are trending correctly and there are no other systemic credit issues within the broader portfolio.

Christopher McGratty of KBW sought clarification on the Q4 operating expense guidance, asking whether the midpoint of the annualized $965 million to $985 million range is the most appropriate target.

Answer

EVP and CFO Ron Farnsworth advised that targeting the midpoint of the Q4 operating expense range would be the most sensible approach for analysts at this time.

Christopher McGratty from Keefe, Bruyette & Woods (KBW) inquired about potential balance sheet optimization strategies, given the bank's high capital levels and low loan-to-deposit ratio, and asked about plans for capital deployment, including acquisitions.

Answer

EVP & CFO Christopher Del Moral-Niles responded that the bank is continuously working to optimize deposits, the investment portfolio, and grow the C&I book. He added that while the primary goal is delivering top-quartile returns, the bank is actively exploring hires and potential acquisitions to build out its fee income businesses.

Christopher McGratty asked for details on securities purchased during the quarter, including yield and duration, and sought clarification on the 1% tariff exposure statistic.

Answer

CFO Christopher Del Moral-Niles stated the bank primarily purchased Ginnie Mae floaters and some fixed-rate securities, maintaining a portfolio duration of around 3%. He clarified that customers with potential adverse impact from proposed tariffs account for approximately 1% of the total C&I outstanding loan balances.

Christopher McGratty sought clarification on the expense guide's starting point, the expected tax amortization for 2025, and whether the bank would consider M&A to deploy capital and diversify revenues.

Answer

CFO Christopher Del Moral-Niles clarified the expense guide starts from the operating noninterest expense line, excluding future special FDIC assessments, and that tax amortization should be similar to 2024. CEO Dominic Ng addressed M&A, stating the bar for a deal is very high because the bank's organic growth model is highly successful and acquisitions can be a distraction from their core focus.

Christopher McGratty from KBW sought to understand the specific conditions that would cause Net Interest Income (NII) to decline in the fourth quarter. He also asked about the bank's long-term planning for crossing the $100 billion asset threshold.

Answer

CFO Christopher Del Moral-Niles explained that NII performance depends on the number and size of Fed rate cuts, as the bank is asset sensitive. Chairman and CEO Dominic Ng addressed the $100 billion threshold, confirming the bank is actively and rationally building the necessary infrastructure to be ready well before crossing that mark.

Christopher McGratty questioned the potential impact of the current deregulatory environment on Old National and asked if the company's view on crossing the $100 billion asset threshold has evolved.

Answer

CEO & Chairman James Ryan described the current regulatory tone as more constructive but noted that the same rules broadly apply. He stated the company is not actively looking to test the $100 billion asset threshold and is focused on organic growth and executing the Bremer integration, though a 'home run' deal would be considered.

Chris McGratty of KBW asked management to reconcile their optimistic loan growth guidance, which anticipates a ramp-up during the year, with the challenging macroeconomic backdrop. He also inquired about the potential for restarting the stock buyback program after the Bremer transaction closes.

Answer

Executive Mark Sander cited a 30% year-over-year increase in the loan pipeline as the foundation for their confidence. Executive James Ryan added that the balance sheet flexibility from the Bremer deal, specifically the option to retain loans slated for sale, provides a unique offset to any potential weakness in organic growth. Regarding buybacks, James Ryan stated it was 'too early to tell,' prioritizing the right-sizing of the balance sheet and preferring a larger balance sheet over repurchases at present, though it remains an option for late 2025 or 2026.

Chris McGratty from KBW asked for clarification on the quarterly cadence of NII for 2025, particularly the drivers of the Q2 ramp. He also questioned if a broader balance sheet repositioning, such as a securities restructuring, was being considered alongside the Bremer acquisition.

Answer

An executive, likely John Moran, attributed the expected Q2 NII increase to having two more days than in Q1, combined with ongoing back-book repricing and modest loan growth. Regarding the balance sheet, he clarified that the focus is on repositioning Bremer's portfolio and the planned CRE sale, but no other major restructuring is planned. Executive James Ryan added that they 'don't need' a large-scale balance sheet transformation.

Christopher McGratty of KBW questioned the expected cadence of positive operating leverage and the efficiency ratio into 2025, and asked about the potential use of capital for fee income initiatives or M&A.

Answer

CEO James Ryan affirmed the strategy to continue managing expenses while investing for the long term, particularly in fee income areas like treasury and wealth management. He stated he does not see any material M&A on the horizon for fee businesses but will continue to build them organically, confident in managing the trade-offs between investment and near-term returns.

Christopher Mcgratty of Keefe, Bruyette & Woods asked about the potential impact of broader deregulatory reform on KeyCorp's capital allocation. He specifically questioned if it would enable a spending shift from regulatory compliance to more productive, revenue-generating activities.

Answer

Chairman & CEO Christopher M. Gorman responded that KeyCorp has already proactively invested to align with proposed regulations like Basel III endgame, meaning the major compliance-related spending is largely complete. He asserted that the company is already positioned to prioritize investments in frontline talent and technology, regardless of the pace of deregulation.

Christopher McGratty from KBW asked for an outlook on the capital markets business and its progress. He also inquired about the timing for a potential resumption of share buybacks.

Answer

President & COO Scott McLean reported that the capital markets business is growing nicely and is on pace to double in size as planned, highlighting strength in syndications, risk management, and new initiatives like M&A advisory. On buybacks, Chairman & CEO Harris Simmons and CFO Ryan Richards stated they will remain conservative for now, preferring to let AOCI accrete further and gain clarity on Basel III rules before resuming repurchases.

Christopher McGratty asked for Harris Simmons' view on whether the negative business sentiment could reverse this year and sought clarification on the bank's commitment to positive operating leverage.

Answer

Chairman and CEO Harris Simmons opined that sentiment could change, potentially driven by political pressures causing a pivot on trade policy. An executive then clarified that the bank's outlook for 1-2% positive operating leverage is on a Q1 2026 vs. Q1 2025 basis.

Christopher McGratty asked for clarification on total earning asset levels within the NII guidance, specifically if the bond portfolio will continue to be a source of funds. He also inquired about potential M&A or other inorganic growth opportunities.

Answer

CFO Ryan Richards indicated that the runoff in the securities portfolio might taper slightly as they begin reinvesting more cash flows, but with loan growth expected, they will have opportunities to deploy capital organically. Chairman and CEO Harris Simmons stated that while the bank is increasingly in a position to do strategic deals and is prepared for crossing the $100 billion threshold, M&A is not a front-and-center focus at the moment.

Christopher McGratty from Keefe, Bruyette & Woods asked for management's view on a normalized level for loan losses, given the current quarter's very low 2 basis points. He also questioned if the recent drop in interest rates has changed the bank's appetite for share buybacks.

Answer

Chairman and CEO Harris Simmons stated that 2 basis points is not sustainable and that a normalized level for a top-quartile performer might be closer to 15 basis points, though he stressed results can be lumpy. On capital returns, Simmons said there is no change in appetite for buybacks yet, as they are waiting for more clarity on final capital rules before managing capital more aggressively.

Christopher McGratty inquired about the details of the CFO transition, including the timing and focus of the new roles, and asked for color on the cadence of deposit growth needed to meet the full-year target.

Answer

CFO Dale Gibbons expressed his enthusiasm for his new role focusing on deposit initiatives, which he believes are at an inflection point. CEO Ken Vecchione affirmed the bank's strategic direction remains unchanged, focused on organic growth. Regarding deposits, Gibbons explained that reducing volatile mortgage warehouse funds will mute typical Q4 seasonality, keeping them on track for their $8 billion target. Vecchione added that growth in digital assets and technology banking supports this outlook.

Christopher McGratty of KBW asked if the midpoint of the PPNR guidance was appropriate and inquired about the potential to reduce expenses if revenue targets are not met.

Answer

Chief Financial Officer Dale Gibbons confirmed the midpoint of guidance is appropriate. President and CEO Kenneth Vecchione stated that the primary lever to increase PPNR would be accelerating loan growth, not cutting expenses, and that the current expense guidance is firm.

Christopher McGratty asked about the factors that would drive core expenses to the high or low end of the provided range. He also inquired about the net interest margin trajectory for Q1 and the expected mix of the $8 billion deposit growth forecast.

Answer

Interim CEO and CFO Dale Gibbons suggested that stronger-than-forecasted business performance, which would affect incentive compensation, could push expenses toward the high end of the range. He confirmed an expected rebound in the net interest margin in Q1. He also specified that less than one-third of the projected $8 billion in deposit growth is expected to come from ECR-related sources.

Christopher McGratty asked for a breakdown of the drivers behind the guided 8% to 12% growth in noninterest income for Q4 2024. He also later asked about the bank's longer-term potential for Return on Equity (ROE) in a declining interest rate environment.

Answer

CFO Dale Gibbons explained that Q4 noninterest income growth will be supported by continued revenue from a new BOLI transaction, consistent service charges, and some securities gains, though smaller than in Q3. He noted the Q3 MSR valuation was negatively impacted by a sharp increase in prepayment speeds, which is not expected to repeat. On the ROE question, Gibbons stated that potential is not highly rate-dependent and that by improving the adjusted efficiency ratio, the bank can achieve a Return on Common Equity (ROCE) in the upper teens.

Christopher Mcgratty from Keefe, Bruyette & Woods (KBW) asked about management's confidence in achieving operating leverage over the medium term, considering both the revenue and expense sides of the equation.

Answer

CFO Michael Santomassimo expressed strong confidence in their ability to continue driving efficiencies on the expense side, citing their track record of cost and headcount reductions. On the revenue side, he acknowledged that quarterly results can be fluid but emphasized that tremendous growth opportunities exist across all businesses, which should collectively drive long-term profitability and positive operating leverage.

Christopher Mcgratty of Keefe, Bruyette & Woods asked about management's degree of confidence in achieving operating leverage over the medium term, seeking perspective on both the revenue and expense sides of the equation.

Answer

CFO Michael Santomassimo expressed high confidence in the ability to continue driving expense efficiencies, citing the $12 billion in costs already removed and 20 consecutive quarters of headcount reduction. On the revenue side, he reiterated that while quarterly performance can be fluid, there is a tremendous amount of opportunity to grow across every single business, which combined with expense discipline, should drive long-term profitability and returns.

Christopher Mcgratty from KBW asked if achieving positive operating leverage becomes easier with deregulation and if any savings would be reinvested in technology to compete with larger banks.

Answer

CEO William Rogers noted that regulatory benefits are gradual rather than a 'stair step' change. He confirmed that efficiency gains, including from AI, provide opportunities to reinvest in revenue-driving initiatives to grow the top line. CFO Mike Maguire added that many technology investments are self-funding by creating efficiencies, which directly supports the positive operating leverage goal.

Christopher Mcgratty from KBW asked about capital allocation, specifically if there was a case to be made for increasing capital dedicated to the growing capital markets business. He also sought confirmation on the credit cycle peaks, asking about any notable trends in loan inflows or reversals that support the outlook.

Answer

Chairman & CEO Bruce Van Saun clarified that growing the capital markets business is more of an operating expense question (hiring talent) than a capital allocation one, stating the bank is not capital constrained and it would be a mistake to raise risk limits. On credit, CFO John Woods confirmed that trends are playing out as expected and that the bank's macro outlook remains conservative. Bruce Van Saun added that the bank's strategic focus on more affluent customers and larger middle-market companies provides resilience, with no credit hotspots emerging.

Christopher Mcgratty asked about trends in credit spreads and requested more detail on the credit resolution process that gives management confidence in its tightened charge-off guidance.

Answer

CFO Bryan Preston stated that credit spreads have been stable, with irrationality only seen occasionally when competitors defend existing accounts. Chief Credit Officer Greg Schroeck added that confidence in credit comes from making good progress on resolving existing non-performing assets (NPAs) and, importantly, a 77% sequential drop in new NPA inflows, indicating improved overall portfolio health.

Christopher Mcgratty of Keefe, Bruyette & Woods (KBW) asked for a high-level perspective on how the current political and potential deregulatory environment might impact PNC's strategy, considering past commentary on scale and the firm's organic growth outlook.

Answer

Chairman & CEO William Demchak responded that while a favorable regulatory environment provides a 'tailwind' by reducing compliance 'busy work,' PNC's success is fundamentally driven by its strong organic growth path. He emphasized that the company is succeeding in its new markets and growing its client base at a healthy clip, which is the core of its strategy regardless of the political climate.

Christopher Mcgratty of KBW asked for an assessment of the bank's progress on its growth journey, color on current loan growth conversations, and the appetite for non-bank acquisitions.

Answer

CEO Brian Moynihan stated the goal is always to grow faster than the economy and noted strong commercial loan growth, with further potential from increased line utilization. He said the focus remains on organic growth and resource deployment, such as expanding sales forces in new markets. While large deposit acquisitions are not possible, small technology tuck-ins could be considered.

Christopher Mcgratty of Keefe, Bruyette & Woods asked whether the increased Q3 buyback guidance of 'at least $4 billion' was driven more by Citi-specific momentum or by greater clarity on the regulatory front. He also questioned if the 10-11% ROTCE target for next year now carries greater confidence due to recent regulatory developments.

Answer

CFO Mark Mason attributed the confidence in the increased buyback to the firm's strong earnings momentum and capital generation, which allows them to act early while the stock trades below book value. He clarified that while regulatory tone is helpful, the buyback is primarily supported by performance. He also stated that the 10-11% ROTCE target has long been rooted in the franchise's underlying strength, not dependent on known changes in the capital regime.

Christopher Mcgratty of Keefe, Bruyette & Woods asked if the increased share buyback guidance was driven more by Citi's specific performance momentum or by greater regulatory clarity. He also questioned if the 10-11% ROTCE target for next year included an assumed benefit from deregulation.

Answer

CFO Mark Mason attributed the confidence in buybacks primarily to the firm's strong earnings momentum and the opportunity to repurchase shares below book value, though a positive regulatory tone is also a factor. He clarified that the 10-11% ROTCE target is rooted in the underlying strength of the franchise and does not depend on any specific known changes to the capital regime.

Asked about the optimism surrounding financial deregulation, the bank's strategy for capital deployment including inorganic growth, and how capital is allocated between different business lines.

Answer

Executives stated that while everything is on the table for capital use, including acquisitions, the bar is high. They believe a holistic review of regulations (G-SIB, SLR, CCAR) is needed to simplify the system and make it safer, rather than focusing on single rules. They emphasized that organic growth is a priority and that any good franchise business that makes sense from a risk and return perspective will be funded.

Christopher McGratty from Keefe, Bruyette & Woods asked CEO Jim Reuter for his perspective on any positive or negative surprises since taking his role, specifically if the credit situation was materially worse than anticipated. He also sought clarity on capital priorities, questioning whether dividend preservation is the top priority or if an adjustment could be made to provide more flexibility.

Answer

CEO James Reuter characterized the credit situation as a 'reset' and acknowledged there was 'a little more than I had anticipated' but expressed confidence after a thorough review. He highlighted positive surprises, stating the rest of the bank, particularly the low-cost granular deposit base and the banking team, is 'as good, if not better,' than he expected. On capital, Reuter reiterated that the dividend is a priority, followed by deploying capital for long-term organic growth, and the company remains focused on maintaining its dividend.

Christopher McGratty asked new CEO Jim Reuter about his philosophy on capital allocation, particularly regarding the dividend and other potential uses of capital like buybacks, given the bank's high CET1 ratio and muted growth outlook.

Answer

CEO Jim Reuter stated there will be no significant departure in capital philosophy and the bank will remain well-capitalized. He noted that management is currently evaluating the best use of capital to drive shareholder returns and will provide a more detailed update on the next earnings call. He reiterated that M&A is not a near-term priority.

Christopher McGratty from Keefe, Bruyette & Woods, Inc. (KBW) asked about the potential for Net Interest Income (NII) to reach the high end of the guidance range and questioned the company's flexibility on expenses in a potential economic downturn.

Answer

CFO Derek Meyer stated that while the core performance is strong, the company is not adjusting its guidance upward due to macro uncertainty. He noted that the firm has good line of sight on expenses, pointing to the Q4 to Q1 drop in personnel costs as evidence of control, and feels confident in the existing expense guidance.

Christopher McGratty asked about the assumptions for loan betas in a falling rate environment, Q4 deposit seasonality, and the fixed-versus-floating mix of the securities portfolio.

Answer

An executive explained that while loan betas depend on mix, about 60% of the loan book (net of swaps) reprices or matures within a year, providing an opportunity to expand margin late next year. The executive confirmed the securities portfolio is almost entirely fixed-rate. They also stated that deposit seasonality is typically strong in the second half of the year, a trend they expect to continue, supported by strategic initiatives.

Christopher McGratty asked for a more direct framing of the expected increase in dollar-based net interest income (NII) for the second quarter, given the impact of late-quarter loan growth from Q1.

Answer

CFO Joseph Kauder guided that after accounting for the $5 million negative day-count impact in Q1, NII growth in Q2 should be somewhat consistent with the bank's loan growth outlook. This implies a potential mid-single-digit percentage increase in dollar NII for the second quarter.

Christopher McGratty asked about the expected cadence of net interest income (NII) growth, the funding of loan growth from the balance sheet, and the sensitivity of ECR costs to potential rate cuts.

Answer

CEO Jared Wolff confirmed expectations for continued NII expansion, driven by loan repricing and growth. CFO Joseph Kauder added that earning assets could grow faster than total assets by reducing cash balances. Regarding rate cuts, Wolff noted that ECR-related expenses have a high beta to Fed funds and would decrease, pointing to the Q4 decline as evidence.

Christopher McGratty of Keefe, Bruyette & Woods pressed for details on capital deployment priorities as the CET1 ratio approaches 11%. He specifically asked about the ranking of share buybacks given the stock's valuation. He also requested guidance on a core run rate for noninterest income.

Answer

CEO Jared Wolff stated that capital deployment options include preferred buybacks, dividends, and common stock buybacks. He emphasized that if the stock remains at its current low price-to-tangible book value, share repurchases would be a 'very high priority.' CFO Joe Kauder reaffirmed that a core noninterest income run rate of approximately $11 million per quarter remains a solid assumption, despite recent quarterly noise from fair value adjustments.

Christopher McGratty of Keefe, Bruyette & Woods, Inc. asked how the forward interest rate curve might impact the timing of achieving long-term profitability targets, inquired about capital deployment priorities, including the CET1 ratio for buybacks, and sought guidance on the future tax rate.

Answer

CEO Jared Wolff stated that expected rate cuts would accelerate the bank's path to its profitability targets, which he believes are reasonably achievable by the end of 2025. He reiterated the goal of reaching a sustainable 11% CET1 ratio before considering capital returns like buybacks. CFO Joe Kauder added that capital from the CIVIC sale is being evaluated for uses like securities repositioning and confirmed the effective tax rate should normalize to the 27%-28% range going forward.

Christopher McGratty inquired about the net interest margin (NIM) outlook, particularly how it would perform if the forward curve's projected rate cuts materialize, and asked for an update on the runoff of the non-core purchase participation loan portfolio.

Answer

Executive Bradley Adams expressed skepticism about the likelihood of three rate cuts, citing sticky inflation and political factors. He revised his outlook, stating that each potential cut would now impact the margin by only 4 basis points, down from a previously estimated 7 basis points, due to strong deposit flows and the pending Evergreen merger. Executive James Eccher added that the bank plans to exit another $200 million from its purchase participation portfolio over the next 24 months to continue repositioning the loan book.

Christopher McGratty of Keefe, Bruyette & Woods inquired about the expected run rate for net interest income (NII), the types of assets the bank would consider purchasing, and the strategy for M&A, including target preferences and the use of cash.

Answer

Executive Bradley Adams confirmed the recent quarterly NII of $60-62 million is a reasonable run rate, absent any large asset purchases. He identified life equity loans and certain consumer assets as potential interests. Regarding M&A, Executive James Eccher noted discussions are active. Adams added that their criteria are rational, focusing on accretion and low credit risk, and confirmed they would "absolutely" use cash in a potential transaction.

Christopher McGratty asked for confirmation on the net interest margin's sensitivity to rate cuts and inquired about the bank's priorities and timing for capital deployment, including buybacks or M&A.

Answer

Executive Bradley Adams expressed confidence that the bank's terminal net interest margin could exceed 4%, even with rate cuts, and noted the forward curve has been wrong before. Executive James Eccher confirmed that capital deployment is a key initiative for 2025, with all options, including inorganic growth, share buybacks, and dividend increases, remaining on the table.

Christopher McGratty asked for clarification on the path to achieving the target CET1 ratio of 10.5% to 11% and questioned if the pace of share buybacks could be accelerated given the current stock valuation.

Answer

CFO Craig Nix explained that reaching the CET1 target assumes the completion of the current share repurchase plan and the implementation of a new plan in the latter half of 2025. He and Executive Tom Eklund affirmed their commitment to a methodical capital plan, noting that while the current valuation makes buybacks more effective, they are hesitant to deviate from their established pace.

Christopher McGratty asked about the biggest potential upside and downside risks to the 2025 guidance, independent of interest rate changes. He also questioned whether the current expense guidance for 2025 sufficiently covers the costs for Category 3 regulatory readiness.

Answer

CFO Craig Nix identified higher-for-longer rates as the primary upside risk and a potential economic slowdown negatively impacting loan and deposit growth as the main downside risk. Regarding expenses, Nix confirmed that the costs associated with preparing for Category 3 status are already reflected in the company's current expense run rate and forward guidance.

Christopher McGratty inquired about the drivers behind the quarterly decline in SVB loans, the outlook for near-term growth, and the key assumptions within the net interest income guidance, including the future of accretion income.

Answer

CFO Craig Nix stated the SVB loan decline was due to payoffs, not structural issues, and that average balances were up. Executive Marc Cadieux added that the capital call lending portfolio fluctuates with investment activity, making average balances a better indicator. Nix also detailed high and low rate scenarios for NII guidance, projecting accretion income would continue to decline from $101 million in Q3 to approximately $90 million in Q4.

Christopher McGratty questioned the rationale for delaying securities portfolio reinvestment until the second half of the year. He also asked which portfolios beyond the disclosed higher-risk ones are being monitored closely due to tariff risks.

Answer

CFO James Herzog explained they want the securities portfolio's size relative to the balance sheet to decrease slightly before reinvesting, likely in Q4, and prefer share repurchases as a use of capital. Chief Credit Officer Melinda Chausse identified manufacturing (steel/aluminum inputs), wholesale/retail trade, and consumer discretionary as other areas under close watch.

Christopher McGratty questioned why Comerica was not more aggressive with its securities portfolio restructuring given the quick earn-back period. He also sought confirmation that all forward-looking guidance was relative to GAAP reported numbers.

Answer

Chief Financial Officer Jim Herzog responded that the bank favors share repurchases over securities repositioning for capital return, viewing buybacks as providing a 'real return to shareholders.' He also confirmed that all 2025 guidance for NII, fees, and expenses is relative to 2024 GAAP reported results.

Christopher McGratty sought clarification on the calculation for the Q4 NII growth guidance and asked about the potential for Earnings Credit Rates (ECR) to benefit the expense line as rates fall.

Answer

CFO Jim Herzog confirmed the 6% Q4 NII growth guidance is based on the reported Q3 NII of $534 million, implying a target in the mid-$560 to $570 million range. On ECRs, Herzog acknowledged an opportunity for service charges to benefit as rates decline, but he characterized the potential impact as 'noticeable, but not huge,' and a fraction of the benefit from lower deposit pay rates.

Christopher McGratty asked for the specific baseline unemployment scenario used in the reserve model. He also inquired about the expected trajectory for earning assets and whether NII could grow from Q1 levels under the bank's base case of three rate cuts.

Answer

Chairman, President and CEO Bryan Jordan stated that their model, using Moody's Analytics, increased its weighting on downside scenarios, which assumes an increase in unemployment to around the 5% mark over the next couple of years. CFO Hope Dmuchowski explained that earning asset growth would be supported by seasonal strength in the match-funded mortgage warehouse business and reinvestment of securities runoff at higher yields. Both executives affirmed that these factors, combined with low single-digit loan growth, support the potential for NII growth and positive PPNR for the year.

Christopher McGratty asked for clarification on the scenario that would lead to the high end of the company's revenue guidance. He also inquired about the timing of the Q4 bond restructuring and the resulting spot yield on the portfolio.

Answer

CFO Hope Dmuchowski explained that reaching the high end of the revenue guide would require a combination of fewer rate cuts, a steepened yield curve, and increased economic certainty, which would benefit both net interest income and countercyclical fee businesses. She confirmed the securities restructuring was completed at the end of Q4 but did not provide a spot yield for the portfolio.

Christopher McGratty of KBW sought clarity on whether the expected 2025 PPNR growth is driven more by revenue or expense control, and asked about the bank's medium-term CET1 target and its investment strategy for crossing the $100 billion asset threshold.

Answer

CEO Bryan Jordan explained that PPNR growth will be driven by all levers: revenue growth, expense control, and leveraging catalysts from post-merger integration work. He stated the near-term CET1 target remains 11%. He also confirmed the bank is making investments to prepare for eventually crossing the $100 billion threshold, viewing it as a matter of "when, not if."

Christopher McGratty asked for clarification on the $15 million Territorial accretion guidance, questioning if it included securities accretion. He also inquired about potential balance sheet restructuring post-merger to accelerate ROA goals and the company's latest thoughts on share buybacks.

Answer

CFO Julianna Balicka clarified that the $15 million in accretion is specific to loans, with securities income included in the overall net interest income guidance. She noted that discussing broader balance sheet restructuring is premature while the transaction is pending. Chairman, President and CEO Kevin Kim reiterated that it is premature to comment on buybacks before the merger closes, but the board will continue to evaluate all capital deployment options.

Christopher McGratty of Keefe, Bruyette & Woods questioned Hope Bancorp's modeling assumptions for full-cycle deposit betas and sought details on a new nonaccrual loan relationship. He also asked about a potential bond portfolio restructuring, current spot yields, and plans for further repositioning.

Answer

CFO Julianna Balicka stated that the full-cycle interest-bearing deposit beta assumption is in the high 60% range. Regarding a new nonaccrual loan, COO Peter Koh explained it's a manageable situation involving well-secured properties with minimal expected loss. Balicka also addressed the investment portfolio, noting a spot yield of 2.96% and confirming that while the bank is incrementally repositioning securities, no major restructuring is currently planned.

Christopher McGratty asked if the 30 basis points of charge-offs represents a normalized level for the bank and inquired about the potential for inorganic growth through M&A in 2025, given the current regulatory environment.

Answer

President and CEO Archie Brown confirmed that a 25-30 basis point range for charge-offs is a fair long-term expectation. Regarding M&A, he expressed increased optimism for opportunities in 2025, noting more active discussions with banks in the $1 billion to $5 billion asset range, aided by a potentially more favorable deal approval climate.

Christopher McGratty asked for commentary on the drivers of increased business optimism post-election and how M&A conversations have evolved over the past 90 days.

Answer

CEO Steven Gardner attributed the increased business optimism to a combination of factors, including the Federal Reserve's rate cuts, resolution of election uncertainty, and expectations for a more business-friendly environment. On M&A, he confirmed that conversations have picked up, driven by optimism that regulators are becoming more open to transactions, and stated the bank is actively pursuing opportunities.

Christopher McGratty asked for commentary on the drivers of increased business optimism post-election and how M&A conversations have evolved in the last 90 days.

Answer

CEO Steven Gardner attributed the increased optimism among business owners to a combination of factors, including the Federal Reserve's rate cuts, the resolution of election uncertainty, and broad expectations for a more business-friendly environment. He also confirmed that M&A conversations have picked up, driven by optimism that regulatory approvals for transactions could proceed more smoothly.

Christopher McGratty inquired about the market for potential loan portfolio purchases, including the types of assets available and the profiles of potential sellers.

Answer

CEO Steven Gardner responded that a wide variety of portfolios are available from sellers including traditional banks, consumer banks, and fintechs. He noted asset classes range from consumer HELOCs to C&I and commercial real estate, but reiterated that the bank is not looking to expand its multifamily segment. Gardner emphasized that any potential purchase would undergo thorough diligence to meet the bank's risk-adjusted return criteria.

Chris McGratty from KBW inquired whether the net effect of swap income roll-offs and potential balance sheet repositioning could result in net interest income (NII) growth in the upcoming year. He also asked about any shifts in regulatory tone regarding the bank's CRE concentration and the technical constraints, such as dividend capacity, related to a potential securities restructuring.

Answer

CEO Steven Gardner and CFO Ronald Nicolas confirmed that achieving future NII growth would be the primary objective of any balance sheet repositioning. Gardner acknowledged a clear "tone shift" from regulators concerning CRE concentration risk across the industry, which the bank takes seriously. He also affirmed that any potential restructuring would involve a thorough analysis of all factors, including technical considerations like dividend capacity.

Christopher McGratty inquired about the outlook for earning assets and the overall balance sheet, the mechanics and future impact of the swap portfolio, and the expected tax rate for the year.

Answer

Executive Steven Gardner stated that while new loan opportunities are emerging, the bank will maintain its underwriting discipline, expecting to reverse the recent decline in the loan portfolio. CFO Ronald Nicolas detailed the swap portfolio's impact, projecting a stable contribution to net interest margin in Q2, followed by a decline in Q3 and Q4 due to modeled rate cuts and a reduction in notional principal. Nicolas also guided the full-year tax rate to be in the 26% to 27% range.

Christopher McGratty from Keefe, Bruyette & Woods asked for clarification on the drivers behind the projected 4.5% to 5.5% core expense growth and requested color on the $90 million increase in special mention loans.

Answer

EVP & CFO Heng Chen attributed the expense growth to the full-year impact of 2024 staff additions and higher bonus accruals. President & CEO Chang Liu added that headcount increases were concentrated in risk management to meet heightened regulatory expectations. Regarding the special mention loans, Mr. Chen explained the increase was primarily due to a single credit with lower profitability, which was downgraded out of an abundance of caution.

Christopher McGratty of Keefe, Bruyette & Woods asked for commentary on the 4-5% loan growth guidance for 2025, particularly regarding trends in the sponsored finance portfolio, and sought clarification on the bank's capital return priorities.

Answer

CEO John Ciulla acknowledged the conservative loan growth forecast but expressed cautious optimism for the sponsor finance business, citing a stronger pipeline. He reiterated that after funding loan growth and potential tuck-in acquisitions, Webster is in a strong position to materially return capital to shareholders in 2025 and will consider lowering its CET1 target to 10.5% as credit and the regulatory environment normalize.

Christopher McGratty of Keefe, Bruyette & Woods asked about the outlook for Net Interest Income (NII), questioning if Q4 2024 would represent the trough, and inquired about the bank's capital return priorities and the potential timing of increased shareholder distributions.

Answer

CFO William Holland stated that while the Q4 Net Interest Margin (NIM) is expected to be around 3.32%, he views it as a stable level heading into 2025, with potential fluctuations of only a few basis points. CEO John Ciulla reiterated that organic growth and acquisitions are priorities, but noted that given strong capital levels, share repurchases are "more likely" in the next one or two quarters.

Christopher McGratty asked about the role of M&A in the bank's capital strategy and the profile of an ideal acquisition target. He also requested the spot interest-bearing deposit cost for the quarter and clarification on brokered deposit runoff expectations.

Answer

Chairman and CEO Curt Myers confirmed that full bank M&A is a potential use of capital, with a primary focus on community banks from $1 billion to $5 billion, but noted no deals would occur before 2025. CFO Designee Rick Kraemer provided the September spot deposit cost of 2.20% and detailed the brokered deposit amounts maturing in the next two quarters.

Asked about the goodwill impairment test, its relationship to the dividend cut, and whether an impairment would trigger subsequent actions. He also inquired about the long-term outlook for the company's Return on Equity (ROE) now that it is a larger, more complex bank.

Answer

Management is currently evaluating goodwill for impairment, but confirmed that any impairment would not affect regulatory capital ratios and thus would not require other actions. Regarding ROE, they stated that 2024 is a transitional year with depressed returns due to balance sheet repositioning. The long-term goal is to achieve an ROE in line with the median of their Category IV peer group, but this will take time.

Asked about the balance sheet outlook, particularly earning assets and the loan-to-deposit ratio, and later clarified the components of the expense guide and spot deposit costs.

Answer

The bank expects earning assets to stabilize around current levels and is strategically aiming for a loan-to-deposit ratio below 100%. Management confirmed the FDIC special assessment is included in the expense guide and provided end-of-period deposit cost and beta figures.

Christopher McGratty of KBW asked for clarification on the sustainable run rate for Bank-Owned Life Insurance (BOLI) income, given the variability seen in the fourth quarter.

Answer

Chief Accounting Officer and Deputy CFO Olga Tsokova explained that the fourth-quarter BOLI income was elevated due to a one-time benefit from a life insurance policy and a positive mark-to-market adjustment on certain insurance contracts. She advised that after removing these two items, a quarterly run rate in the $20-22 million range would be a reasonable expectation.

Christopher McGratty of KBW followed up on deposit costs, asking for the bank's deposit beta assumption for the full rate cycle. He also inquired whether the asset beta would accelerate and about the potential migration risk for the bank's noninterest-bearing deposits given the forward curve.

Answer

Acting CFO Olga Tsokova stated that the full-cycle deposit beta is expected to be in the high 20s, higher than the previous cycle's 19-20%, due to the velocity of Fed rate hikes. CEO and President Mike Roffler clarified their beta calculation includes noninterest-bearing accounts, resulting in a current beta of 12%. Chief Banking Officer Mike Selfridge noted that while asset yields are rising, the market remains competitive. Roffler concluded that the checking balance mix might decline slightly but not significantly due to clients' working capital needs.

Christopher McGratty asked about the bank's comfort level with its loan-to-deposit ratio drifting higher from 90%. He also inquired about the reason for the increase in brokerage fee income and the expected run rate for BOLI income.

Answer

CEO Mike Roffler confirmed the bank is very comfortable with the loan-to-deposit ratio operating in the high 90s to 100% range, as it has in the past. President of Private Wealth Management Bob Thornton attributed the higher brokerage fees to increased client trading activity amid market volatility. Acting CFO Olga Tsokova explained the BOLI line was negatively impacted by a $12 million mark-to-market adjustment and the underlying run rate is consistent with 2021 levels.