Damon Del Monte

Damon Del Monte from KBW inquired about the expected seasonality of capital markets revenue for the upcoming year, particularly in the first quarter, and sought an update on the timing and target size of the planned permanent loan securitization.

Answer

President and CEO Todd A. Gipple explained that the first quarter is historically the slowest for capital markets revenue across the affordable housing industry, advising against expecting another $20M+ quarter, but noted it would be better than the previous year's Q1. He confirmed the target for a permanent loan securitization of $300M-$350M with Freddie Mac is still expected in the first half of the year, prior to June 30th, despite program changes.

Damon Del Monte inquired about Northpointe Bancshares' 2026 provision outlook of $3-$4 million, seeking clarity on the comfort level with declining reserve levels and a targeted reserve ratio. He also asked about the increase in the taxes and insurance expense line, specifically regarding FDIC charges, and the ongoing strategy for adding retail mortgage professionals.

Answer

CFO Brad Howes explained that the provision guidance accounts for nominal growth and conservative charge-off estimates. He detailed the allowance methodology, noting a 37 basis points coverage (excluding MPP and fair value loans) on a seasoned, high-quality, residential real estate-backed portfolio with low LTVs and high FICO scores. He attributed the recent decline in reserve to improved economic forecasts, particularly Home Price Index (HPI). Mr. Howes confirmed the increase in taxes and insurance is due to rising FDIC insurance charges, driven by capital leverage and the percentage of wholesale funding, emphasizing the importance of non-brokered deposits. President Kevin Kamps added that Northpointe has a formalized recruiting strategy for retail loan officers and is actively building a pipeline of new originators.

Damon Del Monte from KBW asked about the significant increase in the UPV (Unpaid Principal Balance) on loans serviced for others, seeking clarification on the drivers. He also questioned whether future custodial deposit relationships would be as large as the recent $300 million increase and requested a re-explanation of the expense guidance for Q4 2025 and full-year 2026.

Answer

President and Secretary Kevin Comps attributed the UPV increase to ramping up sub-servicing of AIO-like products for new end investors and retaining MSRs from own production. EVP and CFO Brad Howes stated that the recent custodial deposit relationship was likely an outsized one, but the company continues to seek additional non-brokered funding sources. Brad Howes then reiterated the expense guidance: Q4 2025 similar to Q3, and $140 million-$144 million for full-year 2026, driven by higher mortgage volume, variable compensation, business activity, cost of living adjustments, and team strengthening.

Damon Del Monte, a Managing Director and Equity Research Analyst at Keefe, Bruyette & Woods (KBW), questioned whether Equity Bancshares' 2026 provision outlook includes day-two CECL expectations or represents an operating basis. He also asked for clarification on why the provision outlook appears higher than recent trends. Additionally, Mr. Del Monte inquired about the expected future ratio of the securities portfolio to average earning assets, specifically if it would return to 20-21% or settle in the mid-teen range.

Answer

CFO Chris Navratil confirmed that the 2026 provision outlook is on an operating basis and does not include the day-two CECL double count. He attributed the higher outlook to conservatism rather than specific additive risks. Regarding the securities portfolio, Chris Navratil stated that it is expected to settle at a lower than 20% position, closer to the mid-to-high teens, due to the additions of NBC Oklahoma and Frontier Holdings, as well as ongoing liquidity and pledging needs.