Christopher O'Connell

Christopher O'Connell asked about unusual movements on the liability side of the balance sheet, specifically borrowings and sub debt, and the drivers for fee income growth in 2026, including factors that could push it to the lower or higher end of the guidance range.

Answer

CFO Neal Holland attributed liability movements to seasonal public fund outflows and sub debt redemption, with no other unusual factors. Neal Holland and President and COO Luis Massiani explained that fee income growth is driven by steady client activity in healthcare, loan, and deposit businesses, with variability from BOLI, CVA, and direct investments. Strong momentum in loan-related fees from commercial asset classes could push it to the higher end of the range.

Christopher O'Connell asked about the drivers behind the movement in borrowings on the liability side of the balance sheet and the factors influencing the wide range of the fee income guide for the upcoming year.

Answer

CFO Neal Holland explained that borrowing movements were due to sub-debt redemption and seasonal public fund outflows, which are expected to reverse in Q1. He attributed the wide fee guide range to volatility in unusual categories like BOLI, CVA, and direct investments. President and COO Luis Massiani added that strong momentum in loan-related fees from commercial asset classes could push fees towards the higher end of the range.

Christopher O'Connell of Keefe, Bruyette & Woods (KBW) asked about the sustainability of positive operating leverage into 2026. He also inquired about the hiring pipeline for relationship managers, plans for future strategic investments, and the expected glide path toward the company's mid-teen Return on Tangible Common Equity (ROTCE) target.

Answer

President and CEO Andrew Harmening affirmed that continuing positive operating leverage is the goal for 2026, driven by momentum in RM hiring, commercial loan growth, and disciplined expense management. He noted that talent acquisition has improved, with significant potential from recently hired RMs whose non-competes are expiring. While not feeling pressure to add new initiatives, the team will evaluate them in H2 2025. He expressed confidence that the current strategy will position the bank to reach its mid-teen ROTCE target over the next 12 to 24 months.

Christopher O'Connell asked for clarification on the accounting for credit reserves on purchased consumer loans and their specific reserve levels. He also inquired about current CD offering rates, the rates and duration of recent brokered deposits, the drivers for the expense outlook, long-term margin potential, and the strategy and potential triggers for altering the pace of the share buyback program.

Answer

CFO Kelly Pecoraro explained that purchased loans are included in the CECL calculation and come with a 3% reserve level. She stated current promotional CD rates are 4.20% for 3 months and brokered deposits were secured around 3.75% for a 2-3 year duration. Both Pecoraro and CEO James Nesci attributed future expense growth to potential banker hires and variable compensation tied to performance. They identified early 2026 as a key period for margin expansion from loan repricing. Regarding buybacks, Nesci confirmed the program will continue due to its positive impact on tangible book value, but noted that significant loan growth opportunities or market volatility could change its pace.

Christopher O'Connell asked for details on the December spot margin, the potential for margin expansion in 2025, the expense outlook, variable compensation metrics, construction loan yields, and the pace of share repurchases.

Answer

CFO Kelly Pecoraro stated the December spot margin was around 1.90% to 1.92% and expects a similar pace of margin expansion to continue, contingent on loan growth and deposit repricing. She guided for quarterly operating expenses in the mid-to-high $13 million range for 2025 and noted that variable compensation is tied to loan growth, low-cost deposit growth, and net interest margin. CEO James Nesci and CFO Kelly Pecoraro added that the construction portfolio recycles constantly. Pecoraro also affirmed the company would remain active with share repurchases at current price levels.

Christopher O'Connell asked about the current loan pipeline strength and yields, the strategy for managing the high concentration of CDs in the deposit mix, and the outlook for the net interest margin (NIM), including deposit betas and the impact of potential Fed rate cuts.

Answer

CFO Kelly Pecoraro reported a stronger loan pipeline of over $60 million at approximately 8.7% yields and projected a Q4 NIM in the low 1.90% range. Executive James Nesci added that the bank is prepared for a cyclical shift from CDs to core savings products and is well-positioned to benefit from a normalizing rate environment. Pecoraro also noted that roughly $300 million in CDs are set to reprice in the fourth quarter.

Christopher O'Connell inquired about the 2025 expense guide, seeking clarity on adjustments that offset Q1 seasonal costs. He also asked for details on the uptick in multifamily non-performing loans and the specific office credit issue driving an increase in criticized and classified loans.

Answer

Executive Susan Cullen confirmed the expense guide remains a 5% to 8% increase from a $160 million base, with the Q1 run rate being a good proxy for future quarters. She explained that Q1 adjustments were true-ups for year-end accruals. Regarding credit, she noted the multifamily NPL increase was from a single, well-secured relationship (43% LTV) being resolved. The office issue involves a condo unit where a major tenant left, but there is active work with the borrower to re-lease the space. Executive John Buran clarified the loan is on the condo, not the entire building.

Christopher O'Connell requested more details on the new office nonperforming loan, including its size and the basis for confidence in its resolution. He also sought clarification on the $4 million BOLI benefit, questioned the expense outlook for 2025, and asked for a qualitative update on the multifamily portfolio's maturing loans.

Answer

Executive Susan Cullen described the office nonperforming loan as having a low LTV and strong indications of a full recovery upon sale. She and Executive John Buran clarified the BOLI benefit is an incremental $4 million over the next year, expected to be lumpy but average about $1 million per quarter. They also explained that expenses will continue to rise due to strategic investments in new branches and the full-year impact of staff hired mid-year. John Buran noted that while early-stage multifamily delinquencies ticked up, late-stage delinquencies remain very low.

Christopher O'Connell asked about the revenue outlook for the wealth and insurance businesses, the forward-looking Net Interest Margin (NIM) trend, the cadence of expenses throughout 2025, and whether de novo branch costs would extend into 2026.

Answer

Executive Dimitar Karaivanov reaffirmed the mid-single-digit growth outlook for aggregate fee income, with insurance likely outperforming market-sensitive businesses. CFO Marya Wlos confirmed the NIM outlook for 2-7 basis points of quarterly expansion remains valid. Dimitar Karaivanov outlined that expenses would rise in Q2 and Q3 before moderating in Q4, and that any de novo costs in 2026 would be negligible, with Q4 2025 establishing a clean run rate.

Christopher O'Connell asked if the de novo branch expansion strategy would preclude bank M&A in the same markets. He also inquired about the timing of the branch project, the spot NIM for December, the securities maturity schedule for 2025-2026, the outlook for swap fee income, and details on the NPL increase.

Answer

Executive Dimitar Karaivanov clarified that the de novo strategy does not preclude M&A, as building market density is a priority, and the goal is to complete the branch project by year-end 2025. Executive Joseph Sutaris stated the December spot margin was comparable to the full quarter and detailed a light securities maturity schedule for 2025 (~$100-150M) with larger maturities in late 2026 and 2027. Karaivanov added that the back half of 2024 is a good run-rate for banking fees. Sutaris explained the NPL increase was driven by a single $12M multi-family loan with a specific reserve.

Christopher O'Connell questioned the dollar amount of rate-sensitive deposits, the current spot deposit cost, the expected deposit beta in a cutting cycle, the net interest margin (NIM) trajectory, and the timeline for the strategic branch expansion.

Answer

Executive Joseph Sutaris estimated about $1 billion in rate-sensitive deposits would be the primary target for rate adjustments and expected the NIM to drift up by 3-5 basis points per quarter. Executive Dimitar Karaivanov added that the total deposit beta on rate cuts would likely be slower initially, given that 70% of deposits are in very low-cost accounts. He also outlined that most new branch openings are slated for Q1 through Q3 of 2025, with a continued commitment to expense neutrality through consolidations.

Christopher O'Connell of KBW followed up on the Evans deal, asking for the purchase accounting impact on the margin. He also inquired about loan repricing opportunities, the health of the consumer, balance sheet plans post-close, and the company's appetite for future M&A.

Answer

Executive Scott Kingsley clarified that the entire decline in the Evans EPS accretion estimate was related to purchase accounting marks. He detailed loan repricing opportunities, noting the most significant pickup is on the commercial side. CFO Annette Burns commented that consumer health remains strong. Kingsley explained that NBTB has been pre-investing in securities ahead of the deal and may churn some of Evans' portfolio. He stated that while the current focus is on integrating Evans, the bank continues to have M&A dialogues.

Christopher O'Connell from Keefe, Bruyette & Woods sought clarification on the 2025 expense outlook, the growth prospects for fee-based businesses, the timing of the Evans merger close, and potential post-merger balance sheet actions. He also asked for spot margin data and the long-term outlook for the residential solar loan runoff.

Answer

CFO Annette Burns confirmed the expense guidance includes merit increases. Executive Scott Kingsley expressed bullishness on fee businesses, targeting mid-single-digit growth, and affirmed the Q2 2025 merger closing date to ensure a smooth systems conversion. He noted the annual runoff rate for the solar portfolio is a good proxy for future periods.

On behalf of Christopher O'Connell, Angel Eiser asked for guidance on the expense run rate for Q4 and into 2025, given the elevated incentive accruals in the third quarter. She also inquired about the spot deposit cost for September, the near-term outlook for the net interest margin, and whether the company had provided a deposit beta assumption for the current rate-cutting cycle.

Answer

CFO Annette Burns clarified that Q3 expenses included about $0.03 per share in additional incentive compensation and that the run rate should normalize in Q4. For 2025, she guided to a 4-5% increase in expenses from that normalized base. Executive Scott Kingsley stated that September's spot rates were not materially different from the quarterly average. He noted that future margin performance depends heavily on the yield curve developing a slope, as the recent 50-basis point rate cut was larger than anticipated. He declined to provide a specific deposit beta assumption on the call.

Christopher O'Connell from Keefe, Bruyette & Woods asked about the outlook for commercial real estate runoff, the rationale for expense guidance, the timing of the post-merger system conversion, and the bank's exposure to the Cambridge and lab space markets.

Answer

CFO Carl Carlson noted the Q1 CRE runoff was accelerated but doesn't expect a similar magnitude going forward, and that the expense guide reflects the original budget, with current spending running well below plan. CEO Paul Perrault explained the system conversion is slightly delayed to February, which will shift some cost savings, but the net effect is not material. Management stated that lab space exposure is minimal at approximately $50 million and is not concentrated in Cambridge.

Christopher O'Connell from Keefe, Bruyette & Woods questioned why the quarterly margin expansion wasn't greater, the components behind the difference between core and total loan yields, and the yield on new originations. He also asked for updates on actions to manage pro forma CRE concentration post-merger and the impact of credit model weighting shifts on the reserve.

Answer

CFO Carl M. Carlson attributed the modest margin expansion to the timing of deposit rate changes and sub-debt repricing. He stated the Q4 loan origination yield was 734 basis points. Regarding the Berkshire merger, Mr. Carlson reiterated that it accelerates their existing CRE reduction plans but offered no new details. He also explained that shifts in reserve model weightings are a gradual management decision, though he estimated a hypothetical shift to neutral targets could impact the reserve by $6 million to $10 million.

Christopher O'Connell questioned the future charge-off outlook for the runoff specialty vehicle portfolio, the drivers behind the provision for unfunded commitments, the long-term outlook for the overall reserve ratio, details on CRE LTVs in the medical category, and the yields on maturing and newly originated CRE loans.

Answer

CEO Paul A. Perrault expressed hope that charge-offs in the specialty vehicle portfolio would improve as balances decline. CFO Carl M. Carlson explained the provision for unfunded commitments decreased due to updated models and a shift in economic scenario weightings. He suggested the general reserve of around 110 basis points (excluding specifics) could decline over time. He also stated that maturing CRE loans have yields around 6%, while new commercial real estate originations in the quarter were at a weighted average coupon of 7.22%.

Christopher O'Connell inquired about the strategic impact of new deposit teams, the 2025 loan growth outlook, and drivers of net interest margin expansion, including loan yields and deposit costs. He also sought details on SBA business performance, fee income guidance, expense trends, credit quality following recent NPA dispositions, and the company's share repurchase strategy.

Answer

President and Chief Banking Officer Matthew McNeill explained the new teams are deposit-focused and that loan growth was impacted by unexpected Q1 payoffs but the pipeline remains robust. CEO Christopher Gruseke affirmed the low single-digit loan growth outlook for 2025 and noted guidance assumes no Fed rate cuts. CFO Courtney Sacchetti detailed the drivers of margin expansion, providing a core loan portfolio yield of 6.40% and explaining that deposit cost improvements were partly offset by one-time fees on called brokered CDs. McNeill also discussed the strong start to the SBA business, while cautioning about potential regulatory changes. Regarding credit, he provided updates on remaining NPAs and clarified that the increase in special mention loans was related to performing healthcare credits backed by strong sponsors. Gruseke concluded on capital, stating the company will balance share repurchases with the goal of building its CET1 ratio.

Christopher O'Connell of Keefe, Bruyette & Woods inquired about Bankwell's loan pipeline, origination yields, and growth outlook, particularly concerning the CRE concentration. He also asked about capital allocation priorities between building the CET1 ratio and share buybacks, the expected ramp-up of the SBA lending division and its impact on fee income, and the drivers behind the net interest margin (NIM) guidance. Further questions covered the cadence of expense growth, the timing and details of significant non-performing asset sales, the status of remaining non-performers, the risk profile of the maturing office loan portfolio, and the expected tax rate for 2025.

Answer

President and Chief Banking Officer Matthew McNeill stated that new loan originations are yielding around 7%. CEO Christopher Gruseke clarified that loan growth is moderated by the goal of increasing the CET1 ratio to 11%, not just by CRE concentration. Regarding capital, management explained that buybacks are weighed against growth profitability and have a modest impact on capital ratios. For the SBA division, they project $50 million in 2025 originations, with the majority in the second half, expecting to double non-interest income. CFO Courtney Sacchetti addressed the Q4 NIM, attributing the dip to lower loan fees and high cash balances, and projected a rebound from a normalized 2.70% base toward 2.90% for the full year 2025, driven by CD repricing. She also guided to a 24.5%-25% tax rate. Management confirmed the pending sales of two large non-performing assets should close soon, significantly reducing the NPA ratio, and provided updates on the remaining challenged credits.

Christopher O'Connell of Keefe, Bruyette & Woods asked about Bankwell's balance sheet and margin outlook for 2025, the impact of new small business lending initiatives, long-term capital targets, and the expense run-rate. He also sought details on a specific nonperforming multifamily loan, the Bankwell Direct digital platform, and the go-forward tax rate.

Answer

CFO Courtney Sacchetti provided guidance on loan and deposit repricing, confirming a Q4 NIM estimate of 2.70% and a long-term tax rate of 24.5%. CEO Chris Gruseke and CBO Matt McNeill detailed the strategy for a stable balance sheet, emphasizing a mix shift towards C&I and SBA lending, with sales of guaranteed portions, and away from investor CRE. Gruseke outlined a CET1 capital target of over 11% by late 2026 and noted that investments for new initiatives are largely already in the expense run rate. CIO Ryan Hildebrand also discussed the flexibility of their tech-driven initiatives.

Christopher O'Connell of Keefe, Bruyette & Woods asked about the current state of loan demand, the expected trajectory of the expense base, and the normalized range for net charge-offs following the runoff of non-strategic portfolios.

Answer

CEO Nitin Mhatre indicated that loan demand is slowing but expects annualized growth to remain around 5%. CFO Brett Brbovic projected that the expense base will stay relatively stable. Nitin Mhatre added that the normalized net charge-off rate is anticipated to be around 20 basis points, given current economic uncertainties.

Christopher O'Connell of Keefe, Bruyette & Woods inquired about the current state of loan demand and the outlook for stand-alone growth amid economic uncertainty. He also asked about the expected trajectory for the expense base through the rest of the year and the new normalized range for net charge-offs following the sale of the Upstart loan portfolio.

Answer

CEO Nitin Mhatre described loan demand as mixed, with a recent slowdown in the pipeline, but still projected annualized loan growth around 5%. CFO Brett Brbovic stated that he expects the expense base to remain relatively stable and consistent with the current quarter. Regarding credit, Nitin Mhatre reaffirmed that the bank expects net charge-offs to normalize around the 20 basis point level, acknowledging the uncertain environment.

Christopher O'Connell of Keefe, Bruyette & Woods inquired about the normalized net charge-off rate, the maturity profile of criticized office loans, the scale and cost of the new digital deposit initiative, and the expense run rate for the first quarter.

Answer

CEO Nitin Mhatre stated that the normalized net charge-off rate is expected to be around 20 basis points. Chief Risk Officer Gregory Lindenmuth clarified that no criticized office loans are maturing in 2025, with only a small credit maturing in 2026. COO Sean Gray reported that digital deposits have surpassed $60 million with pricing similar to other channels. CFO Brett Brbovic indicated that the positive expense momentum is expected to continue into Q1.

Christopher O'Connell of Keefe, Bruyette & Woods inquired about the validity of previous 2024 guidance, the rationale for expecting higher deposit betas in a falling rate environment, and requested spot rates for deposit costs and the net interest margin (NIM).

Answer

CFO Brett Brbovic confirmed the Q4 outlook, expecting NIM between 3.10% and 3.20%, flat to slightly down revenue, and modestly lower expenses. CEO Nitin Mhatre explained that significant CD maturities and swap rollovers provide tailwinds to manage deposit costs down. Brbovic provided the September spot deposit cost of 2.41% and a spot NIM of 3.10%.

Christopher O'Connell of Keefe, Bruyette & Woods asked about the validity of Berkshire's 2024 guidance, the rationale for expecting higher deposit betas in a falling rate environment, the bank's current spot deposit costs, and the recent increase in demand for swap products.

Answer

CFO Brett Brbovic confirmed the Q4 outlook, projecting a Net Interest Margin (NIM) between 3.10% and 3.20%, with flat to slightly down revenue and modestly lower expenses. CEO Nitin Mhatre explained that significant upcoming CD maturities and expiring swaps provide tailwinds to manage deposit costs effectively. Brbovic also provided the September spot deposit cost at 241 basis points. Mhatre noted that the strong momentum in swap product demand appears to be continuing into the fourth quarter.

Christopher O'Connell of KBW asked for an update on the political deposit pipeline, the source of strong early Q2 deposit growth, the strategy for using off-balance sheet deposits, the expected expense ramp-up, and whether any tangible impacts from the new political administration have been observed.

Answer

Chief Banking Officer Sam Brown confirmed that the 11% growth in political deposits was expected and that overall deposit growth was well-diversified. Executive Jason Darby explained that the off-balance sheet strategy is a secondary lever, used after on-balance sheet growth targets are met. He also reaffirmed the full-year expense guidance, attributing the expected ramp-up to digital transformation costs and deferred hiring. Priscilla Sims Brown and Sam Brown stated that while they are monitoring risks, they have not seen tangible negative impacts on customers, noting the not-for-profit loan portfolio has minimal exposure to federal grant funding.

Christopher O'Connell of KBW sought details on Amalgamated Bank's 2025 financial outlook, asking for specific expense guidance, the expected pace of PACE loan growth, and the assumptions for Fed rate cuts embedded in the NII forecast. He also inquired about the nature of recent deposit outflows, the expected timeline for their recovery, the outlook for consumer solar charge-offs, and the appropriate go-forward tax rate.

Answer

Executive Jason Darby provided a 2025 expense target of approximately $170 million, a 6% increase, to fund strategic investments. He also outlined a target of ~$150 million in net PACE loan growth for the year. Darby confirmed the NII guide assumes two Fed rate cuts and that Q1 NII may see slight compression as deposit balances rebuild slowly after seasonal and election-related outflows. President and CEO Priscilla Sims Brown and Chief Banking Officer Sam Brown characterized the outflows as predictable and cyclical. Regarding credit, Darby stated that consumer solar charge-offs are modeled to be similar to the prior year. Sam Brown provided a go-forward effective tax rate of approximately 26.85%.

Christopher O'Connell of Keefe, Bruyette & Woods asked about the loan pipeline's mix and yields, the net interest margin trajectory amid rate cuts, the Q4 outlook for the off-balance sheet strategy, and the timeline for reaching the new Tier 1 leverage target and its impact on share repurchases.

Answer

Chief Banking Officer Sam Brown noted a strong forward pipeline in real estate and C&I, with an expected 1-2% growth in Q4. Executive Jason Darby provided specific new origination yields, with CRE in the 6.25-6.5% range and C&I in the upper 7-8% range. Darby anticipates a stable Q4 margin, with potential for modest NII growth in 2025. He also projected lower off-balance sheet fee income in Q4 and stated that the pace of securities restructuring will slow. He expects to hit the 9% Tier 1 leverage target by Q1 or Q2 2025 and will provide a full-year capital return plan on the next call.

Christopher O'Connell followed up on a nonperforming credit with a purchase and sale agreement, inquired about production goals and breakeven timelines for new hires, and questioned the conservative Q2 NIM guidance given the strong loan pipeline.

Answer

Executive Stuart Lubow confirmed the credit in question is marked to its expected sale price. CFO Avinash Reddy outlined breakeven timelines for new hires, estimating six months for deposit teams and longer for loan teams, with recent hires being 70-80% loan-focused. Reddy defended the Q2 NIM guidance (range-bound around 2.90%) by noting limited asset repricing in Q2 compared to a significant increase in the second half of the year, though Stuart Lubow conceded the guidance is somewhat conservative.

Christopher O'Connell of KBW asked about the deployment strategy for the elevated year-end cash balance, the dynamics of CRE and multifamily loan runoff, and the potential scale of new banker hiring in the upcoming bonus season.

Answer

CFO Avinash Reddy explained that the cash position was temporarily high due to seasonal deposits and the bank is being judicious with deployment, prioritizing balance sheet flexibility over rushing into new securities. He clarified that the CRE runoff is a deliberate strategy to lower concentration, which will provide more flexibility to retain credits later in 2025. Regarding hiring, Reddy noted it's early to quantify but opportunities are balanced between lending and deposits, with CEO Stuart Lubow adding that announcements are expected in the next 30-45 days.

Christopher O'Connell inquired about the specific model drivers for the planned loan loss reserve increase, the average reserve rate for new business loans, the CD portfolio's maturity schedule, the 2025 net loan growth outlook, and the deposit mix from newly hired teams.

Answer

CFO Avinash Reddy explained the reserve build is driven by a combination of factors, primarily the portfolio shift towards higher-reserved C&I and healthcare loans, which are reserved at around 130-150 basis points. He detailed the CD maturity schedule, noting a short duration for brokered CDs and about $725 million in non-brokered CDs maturing through 2025. Reddy suggested low double-digit balance sheet growth for 2025 is a reasonable assumption, contingent on multifamily runoff. He and CEO Stuart Lubow confirmed the deposit mix from new teams is in line with expectations, at 35-40% DDA.

Christopher O'Connell of KBW asked about the strength of the loan pipeline following a robust Q1, the largest opportunities among deposit verticals, the strategic approach to the EB-5 business amid potential program changes, target capital ratios, and clarification on one-time expenses in Q1.

Answer

Executive Mark DeFazio and CFO Daniel Dougherty responded. DeFazio confirmed the loan pipeline remains strong and supports the higher full-year guidance. He stressed a diversified approach to deposit gathering rather than focusing on a single vertical. On EB-5, he highlighted the bank's strategy of avoiding concentration risk. Dougherty noted a target to keep the capital ratio 'north of 9%' and detailed the ~$1.5 million in seasonal/one-time Q1 expenses, confirming a core 2025 expense base of around $165 million before IT project costs.

Christopher O'Connell of Keefe, Bruyette & Woods inquired about the net interest margin's sensitivity to Fed rate cuts, plans for new deposit verticals post-GPG exit, the spot interest-bearing deposit cost for December, the expected expense run rate for 2026, and the credit assumptions behind the ROATCE forecast.

Answer

Executive Daniel Dougherty estimated that each 25 basis point rate cut would impact the NIM by approximately 5 basis points. He did not have the December spot deposit cost but noted the quarterly average was 3.15%. Regarding expenses, Dougherty indicated the 2026 run rate should be lower than a simple subtraction of one-time costs, targeting a 5% annual growth rate thereafter. He also confirmed the bank's forecast includes no credit charge-off assumptions due to stable credit quality. Executive Mark DeFazio added that existing deposit verticals are sufficient to fund 2025 growth, with new initiatives being developed for 2026 and beyond.

Christopher O'Connell sought clarification on the Q4 loan growth forecast, expected loan types and origination yields, the timeline for remaining regulatory remediation costs, the baseline for the flat 2025 expense guidance, the normalized long-term expense growth rate, progress on non-performing loan (NPL) workouts, and details on the deposit repricing beta.

Answer

CFO Daniel Dougherty confirmed the implied Q4 net loan growth of $200M-$250M with yields between 7.5%-8.0%. Executive Mark DeFazio added that growth would be focused in C&I and healthcare. DeFazio expects regulatory costs to end by June 2025. Dougherty clarified the flat 2025 expense guidance is relative to the full-year 2024 estimate of $164M-$166M and includes remaining transformation costs, reiterating a goal for a low $150M run rate by late 2025. DeFazio noted positive progress on NPL workouts expected throughout 2025 and confirmed the 75%-80% deposit beta applies to the overall deposit base.

Christopher O'Connell sought confirmation on the net impact to the Q2 net interest margin from sub-debt and core expansion, plans for deploying cash from the debt raise, and capital deployment priorities post-acquisition.

Answer

CFO Mark Ruggiero confirmed the Q2 margin would see an approximate 11 basis point headwind from the sub-debt, partially offset by 3 to 4 basis points of core margin expansion. He stated the cash proceeds would be used to support loan growth, fund the cash portion of the Enterprise acquisition, and pay down acquired debt, indicating they would not rush deployment. Regarding capital, Ruggiero prioritized organic growth but noted that given the modest growth outlook and the bank's valuation, a share buyback 'makes sense'.

Christopher O'Connell inquired about the upcoming core system conversion, the timing of sub-debt issuance for the Enterprise deal, the regulatory tone on the acquisition, and sought clarity on the margin outlook for 2025.

Answer

Executive Jeffrey Tengel and CFO Mark Ruggiero detailed that the core conversion is a significant upgrade to a more efficient FIS platform, enhancing capabilities in cash management and branch operations. Ruggiero noted there is no specific timing yet for the sub-debt issuance. Tengel stated there has been no change in tone from regulators regarding the deal's approval timeline. Ruggiero clarified the guided 12-15 bps margin expansion is a one-year outlook and that CD repricing should provide a net lift in the first half of 2025.

Christopher O'Connell of Keefe, Bruyette & Woods asked for the total dollar amount of criticized and classified loans maturing in the second half of 2025. He also probed for the bank's long-term, normalized net interest margin (NIM) potential in a positive yield curve environment and the expected timing of a positive inflection point for the NIM.

Answer

CFO Mark Ruggiero estimated that $15 million to $18 million in criticized loans are set to mature in the latter half of 2025. Regarding the NIM, Ruggiero was hesitant to provide a specific target but described the bank's liability-sensitive position as favorable for future rate cuts. He suggested a NIM in the 3.85%-4.00% range was a 'fair potential' in a normalized environment. He projected the NIM would reach a positive inflection point around mid-2025, after the bulk of higher-cost CDs reprice in the coming quarters, allowing the benefits of rate cuts to materialize.

Asked about the timing of Q1 balance sheet actions, the net interest margin (NIM) trajectory for the second half of 2024, the portion of the CD portfolio yet to reprice, recent loan yields, a specific fee income line item, and current credit trends.

Answer

The balance sheet actions occurred late in March. The NIM is expected to flatten out in the latter half of the year after a Q2 reset. About 20% of the CD portfolio still needs to reprice. New loan yields are in the 7.25-7.5% range. A recurring fee income item from the wealth business remains in the insurance line for comparability. Management is not observing any significant credit stress in their markets.