Damon Del Monte

Damon DelMonte sought clarification on Brian Spielmann's margin comments, asking if the delta between 3.53% and 3.63% implies a benefit in Q1. He then asked about expense growth expectations for 2026, specifically for compensation (given it's expected to grow more than 2025's ~7.5%) and the rest of the expense base. Lastly, DelMonte questioned the confidence in achieving consistent double-digit loan growth for 2026, given that six of the last eight quarters showed 7%-9% annualized growth.

Answer

CFO Brian Spielmann clarified that the 10 basis points difference between 3.53% and 3.63% was due to the non-accrual interest reversal in Q4, meaning the Q1 run rate will naturally start closer to 3.63%. He expects compensation to grow 'a bit more' than 2025's 7.5%, leaving 'not much left' for the rest of the expense base, consistent with the goal of positive operating leverage. CEO Corey Chambas expressed confidence in 10% loan growth for 2026, citing strong pipelines, potential rate cuts (though less likely now), and benefits from new tax policy. President and COO Dave Seiler added that the bank's 2020-2025 loan CAGR is 10%, and recent softness was due to higher-than-normalized payoffs, not a new business volume issue. He emphasized the strength of their teams and new leadership in key markets.

Damon DelMonte sought clarification on the Q1 margin outlook, specifically how the strong ABL pipeline and SBA activity would impact the margin. He also asked for expectations on expense growth, particularly for non-compensation expenses, and what gives management confidence in returning to double-digit loan growth for 2026 after recent quarters of 7-9% growth.

Answer

CFO Brian Spielmann clarified that the 3.63% margin is the Q4 margin excluding the non-accrual interest reversal, serving as a higher run rate for Q1. He explained that strong C&I pipelines would help maintain spreads within the 3.60%-3.65% target. For expenses, Brian Spielmann indicated modest growth for non-compensation expenses, aiming for positive operating leverage. CEO Corey Chambas expressed confidence in 10% annual loan growth for 2026, citing strong pipelines, potential rate cuts, and new tax policy benefits. Brian Spielmann highlighted the bank's 10% loan CAGR from 2020-2025 and Dave Seiler added that higher-than-normalized payoffs, not new business volume, impacted recent growth.

Damon Delmonte from Keefe, Bruyette & Woods (KBW) questioned the credit quality outlook for the remaining transportation portfolio. He also asked about expectations for expense growth in the second half of the year and the outlook for the loan loss provision.

Answer

CEO Corey Chambas expressed confidence in the transportation portfolio, noting the equipment finance portion is running off and the conventional side is well-collateralized. CFO Brian Spielmann projected modest expense growth, anticipating the company will achieve positive operating leverage for the year. Spielmann also suggested the recent provision run rate of $2.5M to $2.7M per quarter is a reasonable expectation to support growth.

Damon Del Monte sought to quantify the impact of the loan income reclassification on the net interest margin in basis points. He also asked about the opportunities for repricing the bank's fixed-rate loans and certificates of deposit (CDs).

Answer

CFO Brian Spielmann confirmed the reclassification added approximately 5 basis points to the 'fees in lieu of interest' component of the NIM and suggested modeling this component at the higher end of its historical 15-20 basis point range. CEO Corey Chambas noted a modest repricing opportunity remains in their small CD portfolio, with over $100 million maturing at a '4 handle' and renewing at a 'sub-4 handle,' but acknowledged that repricing opportunities on the broader loan and bond portfolios are diminishing.

Damon Del Monte questioned the bank's credit reserve levels, asking if there was a need to build reserves further due to the remaining transportation loan portfolio. He also inquired about the outlook for the provision given potential charge-off volatility. Separately, he asked for a ballpark expectation for fee income from SBIC investments in the upcoming year.

Answer

CFO Brian Spielmann responded that the bank believes it is adequately reserved as of year-end, particularly in the small-ticket space, and that the reserve is built to absorb the expected run-rate of charge-offs from the equipment finance portfolio. Regarding fee income, he suggested that the Q4 total fee income of about $8 million serves as a good starting point for 2025, with an expectation to grow that by 10% year-over-year, despite variability in individual components like SBIC gains.

Damon Del Monte from Keefe, Bruyette & Woods asked for an outlook on the reserve level, questioning how much of the current reserve is built up for the transportation sector and what a more normalized level might be. He also inquired whether the costs associated with AI and robotic process automation (RPA) are one-time or ongoing expenses.

Answer

CFO Brian Spielmann stated that while there is an elevated reserve for the small-ticket transportation portfolio, the current overall reserve level is appropriate and expected to remain stable, absent broader macroeconomic events. Both Spielmann and Executive Corey Chambas clarified that the costs for RPA and AI are now a baked-in, run-rate expense since the development teams are on staff, though Q3 did have a unique increase in capitalized costs related to a separate, larger software project.

Damon DelMonte asked about the expected cadence of the net interest margin (NIM) throughout 2026, particularly if there would be an initial step down before increasing. He also inquired about the margin's response to a potential 25 basis point rate cut, the outlook for loan growth, specifically if the indirect auto portfolio runoff is intentional, and whether C&I or CRE prospects are stronger. Finally, he asked about the company's thoughts on share buybacks for 2026.

Answer

CFO W. Jack Plants II explained that the December 2025 margin was 3.56%, impacted by a mid-month sub debt raise, and that margin should expand incrementally after the mid-January retirement of pre-existing sub debt. He added that the company has demonstrated an ability to reprice deposits aggressively, suggesting the margin would be largely flat with a 25 basis point rate adjustment, absent the sub debt issuance impact. President and CEO Martin K. Birmingham confirmed the intentional management of the indirect auto portfolio for runoff. He noted a strong commercial pipeline of around $700 billion-ish, with equal-weighted opportunities in C&I and CRE across Upstate New York, driven by increased borrower confidence since early Q1 2025, with loan production expected to be lumpy and materialize in the back half of the year. CFO W. Jack Plants II clarified that equal weighting is on a percentage basis, so CRE, having a larger portfolio, would likely see more balance sheet growth. President and CEO Martin K. Birmingham expressed satisfaction with Q4 share buybacks (337,000 shares, earn back less than a year), viewing it as an attractive capital allocation option, while being judicious due to the 11% Common Equity Tier 1 (CET1) constraint. CFO W. Jack Plants II added that CET1 ended at 11.1% and is projected to add 40-50 basis points, indicating capacity for continued execution.

Damon DelMonte asked about the expected cadence of the net interest margin (NIM) throughout 2026, the anticipated impact of a 25 basis point rate cut on NIM, the intentional runoff strategy for the indirect auto portfolio, the prospects for commercial and industrial (C&I) versus commercial real estate (CRE) loan growth, and the company's outlook on share buybacks for 2026 given current share price levels.

Answer

CFO W. Jack Plants II clarified that the December 2025 margin was 3.56%, impacted by sub debt issuance, and expects incremental expansion after the mid-January sub debt retirement. He also stated that the company's guidance holds for a 25 basis point rate cut due to aggressive deposit repricing. President and CEO Martin K. Birmingham confirmed the intentional management of the indirect auto portfolio runoff and expressed confidence in commercial lending opportunities in Upstate New York, with growth expected to be equally weighted between C&I and CRE. Jack Plants added that CRE, having a larger portfolio, would likely see more balance sheet growth on a percentage basis. Marty Birmingham expressed satisfaction with Q4 share buyback execution, noting it remains an attractive capital allocation option, while being judicious about the Common Equity Tier 1 (CET1) constraint. Jack Plants added that with CET1 at 11.1% and projected additions, there is capacity for continued buybacks.

Damon DelMonte of KBW inquired about the net interest margin (NIM) outlook, specifically how potential rate cuts in Q4 2025 might impact NIM and when it's expected to rebound in 2026. He also asked about the company's plans for share buybacks given strong capital levels and current valuation, and sought clarification on the loan growth trajectory, questioning if mid-single-digit growth is achievable in 2026.

Answer

President and CEO Marty Birmingham explained that aggressive deposit repricing and pre-planning for October rate cuts would lead to a modest impact on the full-year NIM, potentially at the bottom of the guided range, with a 2026 starting point around $360 and an expectation for a grind higher. Regarding buybacks, Mr. Birmingham stated the board approved the plan as an option and they would update the market when activity occurs. CFO W. Jack Plants II indicated that mid-single-digit loan growth for 2026 is appropriate for modeling, citing encouraging recent performance.

Damon DelMonte of KBW inquired about Financial Institutions Inc.'s net interest margin (NIM) outlook, specifically how potential rate cuts in Q4 2025 might impact the margin and its expected trajectory into 2026, including drivers for future improvement. He also asked about the company's plans for share buyback activity given growing capital levels and current valuation, and the loan growth expectations for late 2025 and 2026, particularly regarding a return to mid-single-digit growth rates.

Answer

President and CEO Marty Birmingham stated that the company has been aggressive with deposit repricing in anticipation of rate cuts, expecting a modest impact to the full-year NIM guide, potentially at the bottom of the range. He projected a 2026 starting point for NIM around $360, with further grind higher driven by new loan production, fixed-rate loan repricing, and funding cost management. Regarding share buybacks, Mr. Birmingham noted the board's approval and the company's intention to update the market when activity occurs. CFO Jack Plants added that for loan growth, a high or mid-single-digit rate is appropriate for 2026 modeling, reflecting encouraging recent performance.

Damon Delmonte of Keefe, Bruyette & Woods (KBW) inquired about the reaffirmed full-year guidance, asking for details on the regional drivers of loan growth, clarification on the outlook for credit provisions versus net charge-offs, and the expected normalization of expenses after a higher Q2.

Answer

President and CEO Marty Birmingham confirmed that Upstate New York currently offers more robust loan growth opportunities, though early construction loan prepayments have tempered overall growth. CFO Jack Plants clarified that the full-year net charge-off guidance of 25-35 basis points is unchanged, and the loan loss coverage ratio is expected to remain between 1.04% and 1.08%. He also reaffirmed the $140 million full-year expense guidance, noting that elevated Q2 medical costs are expected to be mitigated by stop-loss insurance in the second half of the year.

Damon DelMonte of KBW asked for clarification on the expected cadence of company-owned life insurance (COLI) income and inquired about the outlook for the provision for credit losses, given the reiterated net charge-off guidance and potentially slowing loan growth.

Answer

CFO, Jack Plants, clarified that COLI income will see a slight increase in Q2 before normalizing at a rate higher than 2024 levels. The temporary Q2 elevation is due to a delay in receiving $73 million in cash surrender value from a restructured policy. Regarding credit, he suggested the allowance for credit losses to average loans ratio would likely remain stable around the current 1.07%-1.08% level for the remainder of the year.

Damon Del Monte questioned the conservative 1-3% loan growth outlook for 2025, suggesting it could be higher, and asked for clarity on the net interest margin (NIM) trajectory, including the starting point for Q1.

Answer

CFO Jack Plants explained the loan growth forecast is conservative due to construction lending demand awaiting rate cuts and the timing of major economic development impacts expected later in the year. For the NIM, he projected a starting point in the 3.30% range for Q1, with further expansion driven by favorable loan repricing and a faster-than-anticipated positive reaction to rate cuts on deposit costs.

Damon Del Monte inquired about the net interest margin outlook for the remainder of 2024 and into 2025 given potential rate cuts, the prospects for loan growth next year, and the expected expense trajectory.

Answer

CFO Jack Plants explained that while deposit repricing has been faster than initially modeled, he expects a neutral near-term impact on net interest margin from rate cuts. President and CEO Marty Birmingham confirmed confidence in achieving mid-single-digit loan growth in 2025 as the commercial pipeline rebuilds. Regarding expenses, Mr. Plants noted a focus on prudent management and highlighted that redeploying staff from the discontinued BaaS business represents a cost avoidance for future growth initiatives.

Damon DelMonte inquired about the primary drivers of Alerus Financial's loan growth outlook for 2026, specifically the balance between economic trends and market disruption. He also asked about the expected trajectory of the provision for loan losses and the resolution of non-performing assets in upcoming quarters, concluding with a question on the anticipated tax rate for 2026.

Answer

Chief Banking and Revenue Officer Jim Collins estimated that 70% of the loan growth in 2026 would come from market disruption and talent acquired, with 30% from general economic growth. COO Karin Taylor stated that the provision for loan losses in 2026 would primarily be driven by loan growth and macroeconomic factors, noting that several non-performing assets are expected to resolve in the first half of the year. CFO Al Villalon provided a 2026 tax rate expectation of 24%.

Damon DelMonte asked about the primary drivers of loan growth for 2026, specifically the balance between underlying economic trends and market disruption from M&A. He also inquired about the outlook for the provision for loan losses, the anticipated resolution of non-performing assets, and the expected tax rate for 2026.

Answer

Chief Banking and Revenue Officer Jim Collins estimated 70% of 2026 loan growth would stem from market disruption and talent acquisition, with 30% from economic growth. COO Karin Taylor stated that the 2026 provision would be primarily driven by loan growth and macroeconomic factors, with several non-performing assets expected to resolve in H1 2026. CFO Al Villalon provided a 2026 tax rate expectation of 24%.

Damon Delmonte of Keefe, Bruyette & Woods (KBW) questioned the drivers behind the loan growth outlook, asking if it stemmed from new customers or existing clients. He also inquired about which loan segments offered the best growth opportunities and confirmed the basis for the full-year margin guidance.

Answer

An executive, likely EVP & Chief Banking and Revenue Officer Jim Collins, stated that loan growth is primarily from taking market share and expanding existing relationships, with a continued focus on C&I in the lower-middle market. EVP & CFO Al Villalon confirmed the full-year margin guidance of 3.25% to 3.35% is on a reported basis, inclusive of all purchase accounting accretion.

Damon DelMonte asked about the repricing dynamics for the company's CD and fixed-rate loan portfolios, and what to expect for the provision for credit losses going forward.

Answer

Chief Financial Officer Alan Villalon detailed that about $380 million in loans are set to mature in 2025 with an expected 100 basis point yield pickup, and roughly $100 million in 9-month CDs are also repricing. Chief Operating Officer Karin Taylor suggested a provision in the $1.5 million to $2.0 million range is a fair assumption, contingent on economic forecasts for the CECL model.

Damon DelMonte questioned the seemingly conservative low to mid-single-digit loan growth guidance for 2025 given recent strong performance. He also asked for details on the drivers of credit trends and sought to confirm his understanding of the core expense outlook.

Answer

Chief Banking and Revenue Officer Jim Collins explained the guidance reflects a strategic focus on C&I relationships while slowing investor CRE originations. COO Karin Taylor confirmed the increase in nonperforming assets was primarily driven by advances on a single large multifamily construction project. CFO Al Villalon affirmed the expense outlook, clarifying the core 2024 expense base for the growth calculation is approximately $175-$176 million.

Damon DelMonte of KBW asked for an expense outlook for the combined company in the fourth quarter, considering merger costs and platform upgrades. He also requested more detail on the two new nonaccrual loans, including their size and associated reserves, and inquired about the funding status of the large nonaccrual construction loan, asking if the company was at full exposure.

Answer

CFO Alan Villalon stated that Q4 expenses would be 'messy' due to deal-related costs but confirmed that a core run rate could be estimated by adding HMNF's base to Alerus's core expenses. Chief Operating and Risk Officer Karin Taylor provided details on the new nonaccruals, specifying one relationship of about $8.5 million has a 5% reserve. For the large construction loan, she clarified that the outstanding balance was $25 million against a total approval of just under $29 million, and that additional funding remains a possibility as part of the resolution strategy.

Damon DelMonte from KBW asked for Washington Trust Bancorp's full-year outlook on expenses, including quarter-to-quarter variability, and an update on loan growth expectations, particularly regarding the potential return to low-to-mid single-digit growth given recent commercial lending hires.

Answer

Senior EVP and CFO Ron Ohsberg and EVP and Chief Risk Officer Bill Wray outlined a 6% increase in Q1 salaries and benefits due to merit raises, FICA resets, institutional team investment, and increased medical insurance, with a 5% year-over-year increase for other expenses, including costs for a new branch. Ron Ohsberg, Bill Wray, and Chairman and CEO Ned Handy projected a solid 5% year-over-year loan growth, with 4-5% in CRE, faster growth in C&I from the new team, and residential runoff. Ned Handy noted significant credit formation in the quarter offset by higher-than-expected payoffs.

Damon Delmonte asked for Washington Trust Bancorp's outlook on expenses for the full year, including quarter-to-quarter variability, specifically addressing Q1 increases in salaries and benefits and other expenses. He also sought an update on loan growth expectations, particularly for CRE, C&I, and residential portfolios, and the anticipated impact of recent commercial lending team hires.

Answer

Ron Ohsberg, EVP and CFO, projected a 6% increase in Q1 salaries and benefits due to merit raises, FICA resets, institutional team investment, and increased medical insurance. He also anticipated a 5% year-over-year increase in other expenses, noting the new branch opening would add $600,000 over the year. Regarding loan growth, Ron Ohsberg expected 4-5% growth in CRE, faster growth in C&I from the new team, and a net runoff in residential, targeting a solid 5% year-over-year overall. Ned Handy, Chairman and CEO, added that while credit formation was strong, high payoffs impacted net growth, and the new C&I team's impact would be clearer next quarter. Bill Wray, EVP and Chief Risk Officer, emphasized confidence in the seasoned C&I team and strategic focus on C&I growth due to CRE concentration levels.

Damon DelMonte asked about Washington Trust's loan growth expectations for year-end, considering current pipelines and the flat third-quarter performance.

Answer

Ned Handy, Chairman and CEO, projected low single-digit loan growth for the year, citing a healthy pipeline and the positive impact of new Chief Commercial Banking Officer, Jim Brown.

Damon DelMonte asked about Washington Trust's loan growth expectations and pipeline going into year-end, the expense outlook for Q4 considering recent hires and acquisitions, and the likelihood of further share buybacks for the remainder of the year.

Answer

Ned Handy, Chairman and CEO, affirmed a low single-digit loan growth target for the year, noting a healthy pipeline and excitement for new Chief Commercial Banking Officer Jim Brown. Ron Ohsberg, SEVP, CFO, and Treasurer, guided Q4 expenses to approximately $37 million due to higher marketing and a foundation contribution. He also stated that the $7 million internal share repurchase allocation was complete, and while future buybacks are not ruled out, there are no current plans for additional repurchases.

Damon Delmonte from Keefe, Bruyette & Woods asked about the drivers behind the 9% annualized commercial loan growth and the outlook for the remainder of the year. He also sought to understand the current sentiment of commercial borrowers and questioned whether the strong Q2 derivative income was sustainable.

Answer

Chairman & CEO Edward Handy confirmed a strong commercial pipeline at quarter-end, supporting the bank's low single-digit growth guidance for the full year. He characterized borrower sentiment as 'optimistic but careful' and 'a little better than lukewarm.' SEVP, CFO & Treasurer Ronald Ohsberg described the derivative income as 'chunky' and hard to predict, suggesting it would likely return to more normalized levels, although the bank is actively promoting the product.

Damon Delmonte from Keefe, Bruyette & Woods (KBW) asked about the outlook for loan growth, the current sentiment among commercial borrowers, and the sustainability of the strong loan-related derivative income seen in the quarter.

Answer

Chairman & CEO Edward Handy confirmed the commercial loan pipeline grew to approximately $140-145 million, supporting the low single-digit growth guidance for the year despite some anticipated payoffs. He characterized borrower sentiment as 'optimistic but careful,' noting continued caution in investments. SEVP & CFO Ronald Ohsberg advised that the high level of derivative income is 'chunky' and hard to predict, suggesting it would likely return to more normal levels in subsequent quarters.

Damon Delmonte of Keefe, Bruyette & Woods asked about the drivers of recent loan growth, the outlook for the loan pipeline, current borrower sentiment, and the sustainability of the strong Q2 derivative income.

Answer

Chairman & CEO Edward Handy confirmed strong Q2 loan growth was driven by the commercial portfolio and noted the pipeline grew substantially to nearly $145 million, supporting low single-digit growth guidance for the year. He characterized borrower sentiment as "optimistic but careful." SEVP, CFO & Treasurer Ronald Ohsberg commented on derivative income, stating that the strong Q2 result was transactional and likely to return to more normalized levels rather than being repeated.

Damon Delmonte from Keefe, Bruyette & Woods asked about the outlook for loan growth, the current state of commercial loan pipelines, borrower sentiment, and whether the strong Q2 derivative income is sustainable.

Answer

Chairman & CEO Edward Handy confirmed the commercial loan pipeline grew to nearly $105 million, supporting the bank's low single-digit growth guidance for the year. He characterized borrower sentiment as 'optimistic but careful.' SEVP, CFO & Treasurer Ronald Ohsberg indicated that the strong derivative income is 'chunky in nature' and likely to return to more normalized levels, though the bank is actively promoting the product.

Damon Delmonte asked about the drivers of the 9% annualized commercial loan growth, the outlook for the loan pipeline in the second half of the year, and the current sentiment among borrowers. He also questioned if the strong loan-related derivative income seen in the quarter was sustainable.

Answer

Chairman & CEO Edward Handy confirmed strong loan growth, noting the pipeline increased substantially to approximately $140-145 million, supporting the low single-digit growth guidance for the year. He characterized borrower sentiment as 'optimistic but careful.' SEVP, CFO & Treasurer Ronald Ohsberg indicated that the high derivative income was transactional and likely to return to more normalized levels, as it is difficult to predict.

Damon Delmonte from Keefe, Bruyette & Woods asked about the outlook for loan growth, the current sentiment among commercial borrowers, and the sustainability of the strong derivative income recorded in the quarter.

Answer

Chairman & CEO Edward Handy confirmed a healthy loan pipeline of around $140-145 million, supporting guidance for low single-digit growth for the year. He characterized borrower sentiment as 'optimistic but careful,' noting a level of uncertainty persists. SEVP, CFO & Treasurer Ronald Ohsberg commented on derivative income, suggesting it would likely return to more normalized levels as it is transactional and 'chunky' in nature, though the bank is actively promoting the product to customers.

Damon Del Monte of KBW asked about the bank's current interest rate sensitivity following its balance sheet restructuring and the key drivers behind the strong in-market core deposit growth observed during the quarter.

Answer

CFO Ronald Ohsberg explained that the recent restructuring has moved the bank to a more rate-neutral position, reducing upside from potential future rate cuts. He also attributed the strong deposit growth to a combination of a single large new relationship and successful organic growth strategies, including new retail sales officers and targeted promotions, despite intense market competition.

Damon Del Monte of Keefe, Bruyette & Woods asked about the outlook for loan growth following the recent balance sheet repositioning, questioning if growth could return to historical levels. He also inquired about the expected noninterest expense run rate for 2025, suggesting a potential 2-4% year-over-year growth.

Answer

CEO Edward Handy projected modest commercial loan growth around 3%, with a strategic focus on C&I loans to manage CRE concentration, while the residential portfolio is expected to see a mild reduction. CFO Ronald Ohsberg provided detailed expense guidance, indicating a higher run rate than suggested due to the restoration of incentive compensation and strategic people investments. He projected quarterly salaries and benefits of approximately $23.5 million and other expenses around $13.5 million.

Damon Del Monte asked about the drivers behind the quarterly loan decline, the outlook for loan growth and net interest income (NII), the spot rate on deposits, and the expense run rate for Q4 and 2025.

Answer

CFO Ronald Ohsberg explained the loan decline resulted from an intentional pullback and managed credit exits, which are now complete. CEO Ned Handy projected low single-digit loan growth for Q4 and into 2025. Ohsberg confirmed the NII outlook reflects this growth and expects Q4 expenses to be stable with Q3, with an increase in 2025.

Damon DelMonte asked about the expected seasonality of capital markets revenue for the upcoming year and sought an update on the timing and target size for the planned LIHTC permanent loan securitization.

Answer

Todd A. Gipple, President and CEO of QCR Holdings, explained that the first quarter is historically the slowest for capital markets revenue due to developer activity, but expects it to be better than the previous year's Q1. He confirmed that the permanent loan securitization, targeting $300 million-$350 million, is still expected in the first half of the current year, despite some delays with Freddie Mac's program changes.

Damon DelMonte inquired about QCR Holdings' net interest margin (NIM) guidance for the fourth quarter, specifically whether it accounts for potential rate cuts, and the expected impact of each 25 basis point rate reduction. He also asked about the company's future share repurchase activity given increasing capital levels.

Answer

CFO Nick Anderson clarified that the Q4 NIM guidance of three to seven basis points expansion does not include future rate cuts, but does reflect the full benefit of the September rate cut. He added that each 25 basis point rate cut could lead to an additional two to three basis points of NIM accretion. President and CEO Todd Gipple stated that buybacks are a high priority due to strong profitability, reduced need for capital for organic growth and M&A, and current attractive valuations, indicating an opportunistic approach to repurchases.

Damon DelMonte inquired about QCR Holdings' net interest margin (NIM) guidance, specifically the 3-7 basis point expansion forecast for Q4, and the potential impact of future Federal Reserve rate cuts on NIM. He also asked about the company's continued activity in share buybacks given growing capital levels.

Answer

CFO Nick Anderson confirmed the NIM guidance excludes future rate cuts, noting that 2-3 basis points of the Q4 expansion come from the September rate cut, along with fixed-rate loan and CD repricing. President and CEO Todd Gipple stated that with higher profitability, less need for capital retention due to LIHTC offtake, and a modest dividend, share repurchases are a significant capital allocation tool. He emphasized an opportunistic approach to buybacks based on attractive valuations.

Damon Delmonte of Keefe, Bruyette & Woods inquired about the key drivers for the Q3 net interest margin (NIM) guidance, the potential impact of Fed rate cuts, the expected size of the early 2026 loan securitization, and the forward-looking growth rate for the wealth management business.

Answer

EVP & CFO Nick Anderson explained that the NIM guidance of static to up 4 bps is supported by a strong June NIM, favorable repricing on maturing loans and CDs, and the company's liability-sensitive position, which would add 2-3 bps to margin per 25 bp rate cut. President & CEO Todd Gipple stated the next securitization is targeted at a minimum of $350 million to improve economics and free up capital. Gipple also affirmed expectations for continued double-digit growth in the wealth management business, which has seen a 10% CAGR over the last five years.

Damon Delmonte inquired about the outlook for QCR Holdings' net interest margin (NIM) in Q3, the potential impact of Fed rate cuts, the expected size of the next LIHTC securitization, and the growth forecast for the wealth management division.

Answer

EVP & CFO Nick Anderson provided a Q3 NIM guidance of static to up four basis points, citing strong loan and CD repricing opportunities. He also noted that a 25 basis point Fed cut could add 2-3 basis points to the margin. President & CEO Todd Gipple added that the next securitization is targeted for Q1 2026 with a floor of $350 million, and that the wealth management business is expected to maintain double-digit growth.

Damon Delmonte inquired about the outlook for QCRH's net interest margin (NIM), the potential impact of Fed rate cuts, the expected size of the next loan securitization, and the growth prospects for the wealth management division.

Answer

EVP & CFO Nick Anderson provided guidance for the Q3 NIM to be static to up four basis points, citing strong loan and CD repricing dynamics. He also noted a 25 bps rate cut could add 2-3 bps to the margin. President & CEO Todd Gipple stated the next securitization in Q1 2026 is targeted at $350 million to improve economics and free up capital. Gipple also expressed confidence in achieving double-digit growth in the wealth management business, which has seen a 10% CAGR over the past five years.

Damon Del Monte asked about the rationale behind lowering the Q2 loan growth outlook to 4-6% despite optimism for LIHTC projects, the potential impact on the provision for credit losses, and the repricing cadence for fixed-rate loans.

Answer

Executive Larry Helling explained the reduced loan growth guidance stems from broad macroeconomic uncertainty affecting client capital decisions, rather than a weak LIHTC pipeline. Executive Todd Gipple confirmed that lower loan growth would likely lead to a reduced provision expense. Gipple also noted a positive 36 basis point spread on new loans versus maturing loans and detailed that the $2.8 billion fixed-rate portfolio has an approximate 36-month weighted average duration.

Damon DelMonte of Keefe, Bruyette & Woods inquired about the expected cadence for the guided $50-$60 million in 2025 swap fee income and the net interest margin (NIM) outlook beyond Q1, given the expiration of certain interest rate caps.

Answer

Executive Larry Helling addressed the swap fee outlook, noting that while the pipeline is robust, higher long-term rates could be a headwind and the first quarter is typically lighter. Executive Todd Gipple explained that the Q1 NIM guidance of static to up 5 basis points already includes the 4 basis point negative impact from expiring caps. He anticipates further modest NIM expansion through 2025, driven by deposit beta performance and dependent on the steepening of the yield curve.

Damon Del Monte inquired about the fourth-quarter Net Interest Margin (NIM) guidance, the potential impact of future Fed rate cuts, the volume of index-tied deposits, and the company's confidence in maintaining its expense outlook.

Answer

Executive Todd Gipple clarified that the Q4 NIM expansion guidance of 2-7 basis points does not include a Fed cut, which would add another 1-2 basis points. He detailed that the company has $2.2 billion in immediately repricing core deposits. Regarding expenses, Gipple expressed confidence in staying within the $49-$52 million range, citing approximately $900,000 in cost savings from the m2 Equipment Finance restructuring, with potential upward pressure only from performance-based incentives tied to strong earnings.

Damon DelMonte asked for the total dollar amount of fair value accretion for the quarter and a reasonable range for scheduled accretion. He also inquired about Camden National's plans for commercial hires and staffing levels to support loan growth, and sought management's perspective on whether the recent provision levels indicate a normalization of the credit cycle or were due to specific credit issues.

Answer

Mike Archer, Executive Vice President and Chief Financial Officer, stated that total fair value accretion for the quarter was $5.3 million, with an internal modeling range of $4.5 million to $4.75 million on a scheduled basis. Simon Griffiths, President and Chief Executive Officer, confirmed that the company continues to seek talent, especially in key markets, and is building out teams and expertise. Mr. Archer clarified that the $3 million provision was primarily driven by specific, one-off credit issues, and the company feels comfortable with its 90-91 basis points ECL to loans ratio, expecting net charge-offs to normalize.

Damon DelMonte questioned if the low single-digit loan growth outlook for the year accounted for any potential loan runoff from the acquired Northway portfolio and asked about the future level of provisioning.

Answer

President & CEO Simon Griffiths confirmed the loan growth forecast does not factor in any significant runoff, citing a similar credit philosophy and strong portfolio at Northway. Regarding provisioning, Griffiths stated that the Q1 reserve build was a conservative move due to macroeconomic uncertainty and that the bank would continue to take a thoughtful approach, potentially adding more reserves in Q2 depending on the economic outlook.

Damon DelMonte sought clarification on whether the loan growth forecast included runoff from the Northway acquisition and asked for details on post-merger balance sheet actions.

Answer

President and CEO Simon Griffiths clarified that the low single-digit loan growth guidance is for organic growth on a standalone basis. EVP and CFO Michael Archer reiterated post-closing actions, including paying down $45 million in FHLB borrowings and selling approximately $55 million of Northway's bond securities to optimize the balance sheet. Archer also confirmed a pro forma earning asset base around $6.5 billion is a reasonable estimate.

Damon DelMonte asked about the drivers behind the quarterly decline in C&I loans, the outlook for mortgage banking revenue, and the appropriate core expense run rate for modeling.

Answer

CFO Michael Archer explained the C&I loan decrease was due to a few large, non-recurring pay-downs and confirmed a core expense run rate of approximately $28.2 million. CEO Simon Griffiths highlighted strong residential and commercial loan pipelines ($72M and $124M, respectively) supporting year-end momentum, while noting ongoing franchise investments are self-funded within the current expense base.

Damon DelMonte asked about the expected cadence of the net interest margin (NIM) for 2026, particularly after a projected step down in Q1. He also inquired about the provisioning outlook, questioning if it would return to normalized levels or remain elevated, and sought details on capital management, including buyback plans and remaining capacity.

Answer

Keene Turner (CFO and COO) projected NIM to normalize around 4.20% after a slight step down from Q4's 4.23%, expecting it to remain sticky even with three anticipated Fed cuts, due to balance sheet composition and funding mix. Regarding provisioning, he stated that current non-performers are appropriately reserved, and with expected NPA resolutions and growth-driven provisioning, charge-offs should decrease from 2025 levels. Jim Lally (President and CEO) confirmed interest in buybacks, noting roughly $1 million remaining authorization, and emphasized growth and dividend increases. Keene Turner added that capital was leveraged for the branch acquisition, and there's work to be done on the capital stack in early 2026. Doug Bauche (Chief Banking Officer) preemptively stated that M&A is a very low priority, focusing on executing the current plan.

Damon DelMonte asked for the expected cadence of the 4.20% net interest margin guidance for 2026, particularly if a step-down is anticipated in Q1. He also sought insight into the future provisioning outlook, questioning if it would return to normalized levels or remain elevated. Finally, DelMonte inquired about the company's capital management plans for 2026, specifically regarding share buybacks and remaining authorization.

Answer

Keene Turner, CFO and COO, indicated a slight step-down in net interest margin from 4.23% to around 4.20% in Q1 2026, then remaining sticky, even with potential Fed rate cuts. He stated that current reserves adequately cover known non-performers, expecting provisioning to alleviate as charge-offs decrease, with a counterbalance from provisioning for portfolio growth. Jim Lally, President and CEO, confirmed interest in utilizing capital for buybacks, noting approximately $1 million remaining authorization, alongside plans for organic growth and dividend increases. Doug Bauche, Chief Banking Officer, added that M&A is a low priority, focusing on executing the current plan.

Damon DelMonte asked for guidance on the expense outlook for the fourth quarter and 2026, specifically inquiring about the run rate impact and one-time costs associated with the recent branch acquisition and integration. He also sought clarity on the fee income outlook, particularly the volatile tax credit income line, and how to project total non-interest income for the fourth quarter and annually into 2026, considering factors like SBA loan sales.

Answer

Keene Turner (CFO and COO) provided expense guidance, stating that the normalized Q3 run rate was $107 million, with an expected Q4 increase of roughly $4.5 million from the branch acquisition run rate and about $2.5 million in one-time integration costs, leading to a Q4 range of $111-$113 million. He projected year-over-year expenses to be up approximately 3.5% for 2026. Regarding fee income, Turner noted Q4 total non-interest income is expected to fall between the high watermark of Q2 and the baseline of Q3, with potential for improved CDE and private equity income, but uncertainty around SBA loan sales due to a government shutdown. He also mentioned an annual fee income contribution of roughly $2 million from the branch acquisitions.

Damon DelMonte of Keefe, Bruyette & Woods (KBW) asked for clarification on the net interest margin outlook for the second half of the year and whether loan growth was expected to accelerate from its current pace.

Answer

CFO Keene Turner stated that while there are some near-term pressures, he expects net interest income dollars to grow and the margin to be stable to growing over the next four quarters, absent any rate cuts. CEO James Lally expressed confidence that loan growth would accelerate from 4% to a 5-7% annualized rate in the back half of the year, driven by pent-up demand and increased economic certainty.

Damon DelMonte questioned the outlook for net interest margin (NIM) and net interest income (NII), the expected quarterly expense cadence for the rest of the year, and sought confirmation on the efficiency ratio of the acquired branch operations.

Answer

CFO and COO Keene Turner projected a potential 5 basis point sequential step-down in NIM for Q2 due to sub-debt repricing, but expects a stable margin thereafter, even with 75 basis points of Fed cuts. He anticipates no major shifts in the core expense run-rate, aside from transaction costs. He confirmed the acquired branches are modeled to have an efficiency ratio in the 52% to 54% range.

Damon DelMonte of KBW asked for an outlook on full-year loan growth and whether the mid-single-digit range remains achievable. He also inquired about any business impact from the West Coast wildfires and sought commentary on the future direction of the allowance for credit losses.

Answer

Executive James Lally affirmed that a mid-single-digit loan growth rate is "very achievable" for 2025, noting that market opportunities could even push it slightly higher. He also confirmed that all associates were safe from the wildfires with no collateral issues. CFO & COO Keene Turner addressed the reserve, stating they are comfortable with the current level (1.34% of unguaranteed loans) given its pessimistic weighting and do not expect it to move dramatically.

Damon DelMonte sought clarification on the net interest margin (NIM) outlook for Q4 and 2025, the full-year forecast for tax credit income, and the strategy for provisioning and the allowance for credit losses (ACL) level.

Answer

CFO & COO Keene Turner projected the NIM would remain above 4% in Q4 before drifting into the high 3% range during 2025, assuming five additional rate cuts. He revised the tax credit income outlook, noting it would likely fall short of the $9-$10 million target due to SOFR movements. Turner also stated the company will prudently maintain its ACL, with provisioning being a function of loan growth rather than releasing reserves.

Damon DelMonte inquired about First Merchants Corporation's expense outlook, specifically the core expense base and the impact of the FSFG acquisition. He also asked about the core margin, considering the impact of interest recoveries on non-accrual loans.

Answer

CFO Michele Kawiecki projected a 3-5% increase in core non-interest expense for 2026 due to talent additions, with First Savings adding 11 months of operating expense and 27.5% annualized cost savings expected in the latter half of 2026 post-integration. CEO Mark Hardwick noted a less than 2% increase in the core FTE base. Michele Kawiecki clarified that the $3.3 million interest recovery added about 8 basis points to the Q4 2025 core margin. For 2026, she expects a few basis points of core margin compression due to asset repricing, but anticipates year-over-year net interest income growth.

Damon DelMonte asked for guidance on First Merchants Corporation's core expense base outlook and how the First Savings Group acquisition would impact expenses in the first partial quarter.

Answer

CFO Michele Kawiecki stated that core non-interest expense is budgeted to increase by 3-5% year-over-year in 2026 due to talent additions. She noted that First Savings will add 11 months of operating expense, with 27.5% annualized cost savings expected to be fully realized in the latter half of 2026 post-May integration. CEO Mark Hardwick added that the core FTE base is expected to increase by less than 2%.

Damon DelMonte inquired about First Merchants' expense outlook for the fourth quarter and core growth projections for 2026, considering the upcoming merger. He also asked about the potential impact of two anticipated rate cuts in Q4 on the net interest margin and the bank's positioning for future rate adjustments, along with the drivers behind the increase in deposit costs during the quarter.

Answer

EVP and CFO Michele Kawiecki stated that Q4 core expenses are expected to be in line with Q3, excluding one-time charges, with 2026 guidance to follow. She projected a few basis points of margin compression for each 25 basis point rate cut due to the variable-rate loan portfolio, but noted active efforts to reduce deposit rates. CEO Mark Hardwick added that aggressive specials were used to fund high loan growth.

Damon DelMonte asked about the expense outlook for the fourth quarter and 2026, considering the upcoming merger, and the anticipated impact of potential rate cuts on the net interest margin. He also inquired about the drivers behind the increase in deposit costs during the quarter.

Answer

Michele Kawiecki, EVP and CFO, stated that Q4 core expenses are expected to be in line with Q3, with 2026 guidance to follow. She projected a few basis points of margin compression for each 25 basis point rate cut due to the variable-rate loan portfolio, but noted active efforts to reduce deposit rates. Mark Hardwick, CEO, added that aggressive specials were used to secure funding for high loan growth.

Damon DelMonte of Keefe, Bruyette & Woods asked for the expense outlook for the second half of the year. He also inquired about the credit and provision outlook, specifically whether the current quarter's provision level is a sustainable run rate given expected loan growth.

Answer

EVP & CFO Michele Kawiecki projected a modest 1-2% increase in expenses for the back half of the year. CEO & Director Mark Hardwick and President Michael Stewart added that recent strategic hires are embedded in the expense base and will drive future growth. Regarding the provision, Kawiecki stated it will depend on macroeconomic factors and loan growth, but the bank will continue to provide for growth at the current coverage ratio level, making the Q2 level subject to these variables.

Damon DelMonte from KBW sought an updated outlook on operating expenses, the deployment strategy for cash flows from the securities portfolio, and current thoughts on the M&A landscape.

Answer

CFO Michele Kawiecki confirmed that prior guidance for 1% to 3% expense growth over the 2024 base still holds. She also stated that cash flows from the securities portfolio are being used to support loan growth and not being reinvested at this time. Executive Mark Hardwick noted no change in M&A strategy, which remains focused on Indiana, Ohio, and Michigan, but mentioned that stock price volatility makes it difficult to gain momentum in conversations.

Damon Del Monte sought more detail on the net interest margin outlook, particularly the use of cash flows from the securities portfolio. He also asked for clarification on the loan growth outlook for 2025 and the company's capital management priorities, including M&A.

Answer

Chief Financial Officer Michele Kawiecki explained that cash flows from the securities portfolio are intended to fund loan growth and that the bank plans to grow its net interest margin in 2025, despite two planned rate cuts. President Michael Stewart and Executive Mark Hardwick confirmed a mid-single-digit loan growth outlook, targeting around 6%. Mark Hardwick outlined capital priorities as organic growth first, followed by dividends, with any M&A activity focused on core markets in Indiana, Ohio, and Michigan.

Damon Del Monte asked for guidance on the expense run rate for Q4 and 2025, the sustainable level of core fee income after excluding one-time items, and for clarification on the provisioning needed for the remaining trucking relationship charge-off.

Answer

CFO Michele Kawiecki suggested Q3's expense level is a good run rate for Q4 and that core fee income guidance of $30-$32 million for the second half of the year remains reasonable. CEO Mark Hardwick emphasized a focus on maintaining the current expense level in 2025. Chief Credit Officer John Martin clarified that a $1 million specific reserve is already allocated to the trucking relationship, though the ultimate provision expense depends on the entire portfolio's performance.

Damon DelMonte asked for clarification on Byline Bancorp's mid-single-digit loan growth outlook, seeking insights into which lending platform areas and segments offer the best opportunities to drive this growth.

Answer

President Alberto Paracchini indicated that commercial banking remains the primary driver for loan growth. He noted that real estate lending activity is contingent on transaction volumes, which have been muted since 2022 but could improve with declining interest rates. CFO Tom Bell provided commentary on net interest income (NII) for the upcoming quarter, explaining that Q1 typically sees lower NII due to fewer days and reduced loan fees, but generally expects stable to growing NII throughout the year. Mr. Paracchini added that as an asset-sensitive bank, there's a transition period of about a quarter to reprice and reset after rate cuts. Mr. Bell also mentioned that SBA loans resetting on January 1st would contribute to lower Q1 NII guidance. Regarding credit quality, Mr. Paracchini reiterated consistent guidance for net charge-offs in the 30-40 basis point range for the upcoming year.

Damon DelMonte asked for insights into Byline Bancorp's mid-single-digit loan growth outlook, specifically identifying the lending platforms offering the best opportunities. He also inquired about the typical seasonality of Net Interest Income (NII) in the first quarter and the company's outlook for net charge-offs and provisioning for the upcoming year.

Answer

Alberto Paracchini (President) indicated that commercial lending would be the primary driver of growth, with real estate growth contingent on transaction activity. Tom Bell (CFO) confirmed that Q1 is typically a seasonally lower quarter for NII due to fewer days and lower loan fees, but anticipates stable to growing NII throughout the year, noting the impact of Fed cuts on SBA loans resetting in January. Alberto Paracchini provided a net charge-off guidance range of 30-40 basis points.

Damon Delmonte from Keefe, Bruyette & Woods (KBW) asked about the future strategy for the securities portfolio given the optimistic loan growth outlook, questioning if it would shrink to fund loans. He also sought to clarify if the nine basis point increase in money market deposit costs was due to the First Security acquisition or broader competitive pressures.

Answer

EVP, CFO & Treasurer Thomas Bell responded that the company will likely let cash flows from the securities portfolio run off to fund loan growth rather than growing the portfolio further. He confirmed that the increase in money market costs was directly related to blending in deposits from the First Security transaction and not a result of increased competitive pricing pressure in their core markets.

Damon Del Monte sought an update on the outlook for SBA gain-on-sale revenue, clarification on the rate cut assumptions within the NII guidance, and expectations for the size of the securities portfolio.

Answer

CFO Thomas J. Bell reiterated the guidance for an average of $5 million per quarter in SBA gain-on-sale with premiums around 9.5% to 10%. He confirmed the Q2 NII guidance of $87M-$89M (excluding the acquisition) incorporates the market's expectation of a June rate cut. Bell also stated that he expects the securities portfolio to remain flat or potentially decrease for the remainder of the year, given strong loan growth.

Damon DelMonte inquired about growth opportunities in fee-generating categories beyond SBA gain-on-sale. He also asked for the outlook on provisioning and net charge-offs for 2025 and the expected tax rate.

Answer

President Alberto Paracchini highlighted treasury management, wealth management, and customer derivatives as key areas for fee income growth. He also stated that the normalized net charge-off range is expected to be between 30 to 40 basis points, with some potential quarterly volatility from resolving acquired PCD loans. CFO and Treasurer Thomas J. Bell confirmed that the tax rate outlook for 2025 remains consistent with prior periods.

Damon DelMonte from Keefe, Bruyette & Woods questioned the drivers of the positive loan growth outlook for 2025, particularly regarding commercial real estate activity. He also asked about the expected trend for net charge-offs and the company's plans for capital management, given the TCE ratio is above its target range.

Answer

President Alberto Paracchini noted that while lower short-term rates help, the CRE pipeline's strength is driven more by well-capitalized sponsors than by recent rate cuts. He pointed out that the net charge-off rate, when excluding purchased credit deteriorated (PCD) loans, is around 35 basis points, consistent with historical levels. Regarding capital, Paracchini reiterated Byline's strategy: prioritize organic growth, then consider dividends, buybacks, or strategic M&A like the recent deal, before returning excess capital to shareholders.

Damon Delmonte inquired about the higher provision outlook of $30 million-$40 million compared to the previous year, seeking insight into the credit landscape and any perceived softness. He also asked for guidance on the pro forma average earning asset base for Q1, considering the runoff of brokered CDs and wholesale funding from HarborOne.

Answer

CFO David Rosato explained that the provision guidance is conservative, similar to the prior year, with an expectation to outperform, and should not be interpreted as concerns about the credit front. CEO Denis Sheahan confirmed no material shift in credit metrics or trends. David Rosato advised using the period-end balance sheet from 12/31, factoring in projected loan and deposit growth, with a slight uptick in the securities portfolio throughout the year, and noted residential mortgage balances would remain flat.

Damon DelMonte inquired about the higher provision outlook of $30 million to $40 million for 2026 compared to the previous year, seeking insight into potential softness in the credit landscape. He also asked for guidance on a pro forma average earning asset base for Q1, considering recent deleveraging.

Answer

CFO David Rosato explained that the provision guidance is a conservative estimate, similar to prior years, and does not reflect specific concerns about the credit environment, with the company hoping to outperform it. CEO Denis Sheahan affirmed that no material shifts in credit metrics or trends are currently observed. CFO David Rosato advised using the period-end balance sheet from 12/31 and the laid-out growth numbers for loans and deposits, adding a slight uptick (maybe 1% of total assets) in the securities portfolio throughout the year, targeting 15% of total assets in securities.

Damon Delmonte of Keefe, Bruyette & Woods (KBW) inquired about the specific drivers of the strong C&I loan growth, the expected trend for the core net interest margin (NIM) in the second half of the year, and how to model the impact of Rabbi Trust income and expenses.

Answer

CEO Denis Sheahan attributed the C&I growth to increased customer confidence and strategic hiring of lending talent. CFO David Rosato added that the growth was broad-based across all C&I verticals. Rosato projected a 'flattish' core NIM for the second half of 2025, noting that the competitive deposit environment has intensified. He also clarified that Rabbi Trust income is directly impacted by equity market performance, with positive markets leading to higher income.

Damon Del Monte of Keefe, Bruyette & Woods inquired about Eastern's share buyback plans during the pending HarborOne merger, the deal's closing timeline, and details on the new franchise lending group.

Answer

CFO R. Rosato explained that share repurchases will be paused until after the HarborOne shareholder vote. He also confirmed a target closing date before October 31, with an option to delay to Q1 2026 to avoid year-end complications. CEO Denis Sheahan added that two seasoned leaders were hired for the franchise lending group, which drove growth in Q1, and they are optimistic about its continued expansion.

Damon Del Monte of KBW asked for guidance on modeling the net interest margin (NIM) on a quarterly basis, specifically how to account for the timing of the securities portfolio restructuring in Q1 and what the exit NIM might look like for 2025. He also questioned whether the 2% to 4% loan growth outlook for 2025 includes potential market share gains from recent M&A disruption in the Boston market.

Answer

CFO R. Rosato confirmed that the benefit from the restructuring would be phased in during Q1, as the transactions would occur mid-quarter. He noted the full-year NIM of 3.45% to 3.55% will be influenced by the rate environment, but will see incremental improvement through the year due to CD repricing and hedge amortizations. Rosato also clarified that while Eastern is hopeful to capitalize on market disruption from recent mergers, any potential benefit is not currently factored into the 2% to 4% loan growth guidance.

Damon DelMonte of Keefe, Bruyette & Woods asked about the potential for additional expense savings in 2025, the company's capital management strategy regarding buybacks and securities restructuring, and the outlook for average earning assets given the high cash balance.

Answer

CFO David Rosato responded that while further expense savings in 2025 are possible, a clearer picture will be available in January after the budget process is complete. On capital, Rosato confirmed the company has excess capacity, views its stock as a good value for buybacks, and is actively discussing a potential securities restructuring. He also noted that the high cash balance will be used to fund a maturing deposit, seasonal outflows, organic loan growth, and potentially modest securities purchases.

Damon DelMonte asked about the net interest margin's unexpected strength in Q4 2025 despite the swap impact, inquiring about the margin outlook for 2026, specifically if modest compression or further expansion is expected. He also questioned the outlook for loan growth, given elevated payoffs, and whether net growth is anticipated in 2026. Finally, DelMonte asked about the expectation for non-interest expenses, considering a potential uptick due to annual salary and benefit resets.

Answer

CFO Rex Copeland explained that proactive funding cost management and redeployment of lower-rate loan funds into higher-rate loans contributed to the margin performance. President and CEO Joseph Turner added that significant further improvement from the deposit portfolio is unlikely without Fed action, and while the loan portfolio might see a slight upward bias, it's not meaningful. Regarding loan growth, both Rex Copeland and Joseph Turner indicated that it remains challenging due to continued elevated payoffs, particularly in multifamily, despite good origination activity and maintained pricing/credit discipline. For expenses, Rex Copeland confirmed an expected uptick in Q1 2026 due to annual employee increases and payroll tax resets.

Damon DelMonte asked about the outlook for Great Southern Bancorp's net interest margin in 2026, considering the better-than-expected performance in Q4 2025 despite the swap impact, and inquired about the potential for further compression or expansion.

Answer

CFO Rex Copeland explained that proactive management of funding costs and redeployment of funds from lower-rate fixed loans into higher-rate current market loans contributed to the Q4 margin. President and CEO Joseph Turner added that significant further improvement from the deposit portfolio is unlikely without Fed action, and any upward bias from the loan portfolio would be minimal.

Damon DelMonte inquired about Great Southern Bancorp's loan growth opportunities across its footprint, potential signs of weakness in specific portfolio segments, the outlook for provision for credit losses, and the impact of recent and potential future rate cuts on the net interest margin.

Answer

President and CEO Joe Turner highlighted loan growth opportunities in Texas, Atlanta, St. Louis, and Kansas City, while noting elevated payoffs. He confirmed no broad portfolio weakness, only idiosyncratic project issues, and stated the company avoids factoring and subprime lending. Joe Turner also agreed that a minimal provision for credit losses is reasonable, covering net growth and any net charge-offs. CFO Rex Copeland added that the company is well-positioned for rate cuts, with the September cut having minimal impact so far, but reminded that the $2 million per quarter swap benefit has concluded.

Damon Delmonte inquired about the loan growth outlook for the second half of 2025, asking about origination activity and visibility on loan payoffs. He also questioned the expense outlook and whether the company could maintain its recent cost control.

Answer

President & CEO Joseph Turner stated that the loan market remains highly competitive, and he does not anticipate a significant change in origination volume from the first half of the year. He added that loan payoffs are inherently "lumpy" and difficult to predict. On expenses, CFO Rex Copeland projected that costs would remain "fairly consistent," with potential for minor increases from technology and compensation adjustments, but nothing dramatic.

Damon DelMonte asked for clarification on the timing of the terminated interest rate swap's benefit, the company's approach to stock buybacks given slow growth, and the expected trajectory for noninterest expenses.

Answer

CFO Rex Copeland clarified that the ~$2 million quarterly benefit from the terminated swap will cease at the beginning of Q4 2025. CEO Joseph Turner stated that the company expects to remain active with its share repurchase program, contingent on price and share availability. Regarding expenses, Turner confirmed that aside from a non-recurring benefit in Q1, the expense run rate should remain relatively stable with no major planned expenditures.

Damon Del Monte asked for insights into loan growth expectations for 2025, focusing on the funding pace of unfunded commitments and whether the bank could achieve a growth rate similar to 2024's 2%. He also requested details on the volume and potential yield pickup from fixed-rate loans expected to reprice during the year.

Answer

Executive Joseph Turner stated that while the company doesn't provide forward guidance, the outlook for loan growth is similar to the previous year. He and Executive Rex Copeland noted that unfunded commitments fund at a rate of $50-$70 million per month, which is often offset by repayments. Regarding loan repricing, they directed him to detailed tables in the upcoming 10-K filing but confirmed the repricing of the low-yield fixed-rate portfolio should be a net positive for the bank.

Damon DelMonte asked about credit quality and the loan loss reserve, questioning if the current reserve level in the mid-1.30s is appropriate or if there is room for it to decrease. He also inquired about the loan growth outlook for the remainder of the year, given the strong performance in the last two quarters.

Answer

CEO Joseph Turner stated that he feels the current reserve ratios are "pretty good" and does not anticipate a significant "bleed out" in coming quarters. CFO Rex Copeland added that the reserve level will also be influenced by future loan growth. On loan growth, Turner suggested that the year-to-date growth trend would be the best indicator for the full year, avoiding specific forward-looking guidance.

Damon DelMonte asked for clarification on the projected net interest margin expansion cadence for Q1 2026 and subsequent quarters, along with the key drivers supporting this optimistic outlook. He also inquired about the company's broader capital management strategy, including its appetite for share repurchases given current capital levels, and its perspective on the M&A landscape in Michigan, particularly regarding potential mergers.

Answer

Gavin Mohr, EVP and CFO, outlined a forecast of 5-7 basis points margin expansion in Q1 2026, followed by 3-5 basis points in each subsequent quarter, driven by anticipated rate cuts, a beneficial forward yield curve, and the repricing of below-market assets. Regarding capital, Mr. Mohr expressed excitement about the capital build providing flexibility for share repurchases and supporting a stable, growing dividend. Brad Kessel, President and CEO, discussed M&A opportunities in Michigan, noting potential from market dislocations and a willingness to consider strategic acquisitions that materially add to EPS without diluting shareholders, while emphasizing that M&A is not essential for the bank's ongoing success.

Damon DelMonte asked for clarification on the expected cadence of net interest margin expansion for Q1 2026 and subsequent quarters, as well as the key drivers behind this optimistic outlook. He also inquired about the company's appetite for share buybacks given current capital levels and its perspective on the M&A landscape, including any interest in pursuing mergers.

Answer

Gavin Mohr, EVP and CFO, outlined a forecast of 5-7 basis points of NIM expansion in Q1 2026, followed by 3-5 basis points in each subsequent quarter, driven by anticipated rate cuts in March and August, a 40%+ deposit beta, a beneficial forward yield curve shape, and continued repricing of below-market assets. He expressed excitement about the capital build providing flexibility for buybacks and a stable, growing dividend. Brad Kessel, President and CEO, discussed M&A in Michigan, noting potential consolidation and the company's openness to strategic, accretive, and non-dilutive opportunities, though M&A is not a requirement for continued success.

Damon DelMonte of KBW questioned if a resolution on tariffs could unleash pent-up loan demand and also inquired about the bank's current appetite for M&A opportunities.

Answer

EVP of Commercial Banking Joel Rahn concurred that there is likely pent-up demand for business expansion loans that could materialize if economic uncertainty subsides. President and CEO William Kessel affirmed the company's interest in M&A, stating that technology investments and the successful 2018 acquisition of Traverse City State Bank have positioned IBCP to be a good partner for other community banks.

Damon DelMonte asked about the opportunity to pull back loan participations from Frontier Bank, inquiring about the types of loans and the potential scope. He also questioned the confidence in achieving the targeted 23% cost savings from the Frontier merger and the likelihood of reaching the lower end of the expense guide. Lastly, he asked about the capital management strategy, specifically the near-term focus on share buybacks versus M&A opportunities.

Answer

Rick Sems, Bank CEO, stated that the loan participations from Frontier are a combination of types, totaling approximately $50 million. Rick Sems affirmed that the 23% cost savings target for Frontier is a good baseline with potential upside, and the lower end of the expense guide is achievable due to ongoing efficiency initiatives. Brad Elliott, Chairman and CEO, indicated that Equity Bancshares generates significant capital, allowing for both buybacks and M&A, and that they evaluate buybacks based on a three-year earnback range, similar to acquisitions, while actively pursuing M&A opportunities.

Damon DelMonte asked about the types of loan participations that could be pulled back from Frontier Bank and the opportunity they represent. He also questioned the confidence in achieving the targeted 23% cost savings from the Frontier merger and the potential for hitting the lower end of the expense guide. Finally, he inquired about the capital management strategy post-Frontier integration, specifically regarding buybacks versus M&A opportunities.

Answer

Rick Sems, Bank CEO, stated that the Frontier loan participations are a combination of types, totaling approximately $50 million. Regarding cost savings, Rick Sems affirmed the 23% target for Frontier is a good baseline, with potential for upside, and confirmed the lower end of the expense guide is achievable through ongoing efficiency initiatives. Brad Elliott, Chairman and CEO, indicated that Equity Bancshares has ample capital for both buybacks and M&A, looking at opportunities mid-year, and remains active in M&A discussions.

Damon DelMonte inquired about the future trajectory of Equity Bancshares' securities portfolio as a percentage of average earning assets, given its recent decline to around 16% from 20-21% earlier in the year.

Answer

Chris Navratil, CFO, anticipates the ratio will settle lower than 20%, likely in the mid-to-high teens. This is attributed to the additions from NBC and Frontier, which inherently reduce the ratio, and the ongoing need to maintain the portfolio for liquidity and pledging requirements.

Damon Delmonte of Keefe, Bruyette & Woods inquired about the outlook for loan growth in the second half of the year, the reasons for lower line utilization in Q2, and specifics on the loan repricing expected to impact the net interest margin.

Answer

Richard Sems, CEO of Equity Bank, expressed optimism for loan growth, citing record-high pipelines in C&I and CRE and an expectation for payoffs to normalize. He and Chairman & CEO Brad Elliott explained that lower line utilization was a unique, temporary event caused by a few wealthy clients receiving funds and paying down their lines. EVP & CFO Chris Navratil projected the core margin would remain stable around 4.17%, supported by lagged repricing on both loans and deposits, with further repricing opportunities extending into 2026.

Damon Delmonte sought to confirm the outlook for a stable core margin in Q2, asked about the margin's defensibility if the Fed cuts rates, and inquired about the bank's flexibility on the expense side to offset potential revenue headwinds from economic uncertainty.

Answer

CFO Chris Navratil confirmed that a stable core margin in Q2 is a fair expectation. He stated that while the bank is positioned to defend its margin during rate cuts, there is modest upside potential given its demonstrated liability sensitivity. He also affirmed that management is actively focused on managing expense lines to improve efficiency and create value, indicating flexibility exists.

Damon DelMonte of Keefe, Bruyette & Woods requested the spot net interest margin for December and sought to clarify the expected Q1 margin trajectory, particularly regarding potential near-term pressure.

Answer

CFO Chris Navratil provided the adjusted December spot margin of 4.06%. He confirmed that the Q1 guidance reflects potential risk to the margin from loan payoffs and competitive pricing pressures, which could create a short-term headwind, justifying the conservative range.

Damon DelMonte asked for details on fixed-rate loan repricing, upcoming CD maturities, the quarterly impact of purchase accounting accretion, the reason for the lower tax rate, and any updates to the M&A strategy.

Answer

CFO Chris Navratil detailed that $300-400 million in fixed-rate loans (many sub-5%) will reprice over the next five quarters and that CD maturities are continuous, not in large blocks. He quantified purchase accounting accretion at 4 basis points for the quarter. He explained the lower tax rate resulted from a tax planning strategy, with the full-year rate expected around 21%. CEO Brad Elliott confirmed the M&A strategy and geography are unchanged and noted that the pipeline of potential deals is strong and has recently become more active.

Damon DelMonte inquired about the specific drivers for Horizon Bancorp's mid-$40 million fee income outlook for 2026, the spot net interest margin at the end of December, and the anticipated impact of two 25-basis-point rate cuts on the margin.

Answer

EVP and CFO John Stewart indicated that fee income growth is expected to be well-balanced across service charges, interchange, fiduciary activities, and mortgage fees, with no single driver pushing significant growth. He also stated that the December spot margin was a couple of basis points above the full quarter average and confirmed that the company expects to remain relatively neutral to rate cuts due to balanced asset and liability sensitivity.

Damon DelMonte from KBW inquired about the specific drivers behind Horizon Bancorp's mid-$40 million fee income outlook for 2026, the December spot margin, and the company's interest rate sensitivity to potential rate cuts.

Answer

John Stewart, EVP and CFO, explained that the fee income growth is expected to be balanced across service charges, interchange, fiduciary activities, and mortgage fees, without a single dominant driver. He noted the December spot margin was a couple of basis points above the full quarter average. Stewart also reiterated the company's belief in being relatively neutral to rate cuts, assuming a ~30 beta on non-time interest-bearing deposits, which was exceeded in Q4.

Damon DelMonte asked about credit trends, specifically the $5 million quarter-over-quarter increase in non-performing assets (NPAs), any signs of stress in the portfolio, the outlook for provision in coming quarters, and the strategy for syndicated equipment finance sales.

Answer

EVP and Chief Commercial Banking Officer Lynn Kerber clarified that the NPA increase was due to the migration of two commercial loans to non-accrual, one with payment arrangements and the other SBA-guaranteed, not indicating significant stress. CEO and President Thomas Prame added that exiting the indirect auto portfolio, previously the highest risk, significantly enhances the overall credit profile. Ms. Kerber expects future provision to be more similar to the average of Q1 and Q2, driven by growth rate and credit trends, with the indirect auto release being a one-time impact. Regarding syndicated equipment finance, Ms. Kerber described it as a successful pilot, providing flexibility for managing outstandings and fee income, with an expectation of $20 million to $30 million in sales next year.

Damon DelMonte asked about credit trends, specifically the increase in non-performing assets (NPAs) quarter-over-quarter, and any areas of stress within Horizon Bancorp Inc.'s portfolio. He also inquired about the expected provision for credit losses in coming quarters after the indirect auto loan removal and the strategy and future progression of syndicated equipment finance sales.

Answer

EVP and Chief Commercial Banking Officer Lynn Kerber explained that the NPA increase was due to a migration of two commercial loans to non-accrual, which are not significant concerns. CEO and President Thomas Prame added that exiting the indirect auto portfolio, which historically accounted for two-thirds of charge-offs, significantly enhances the overall credit profile. Lynn Kerber anticipates future provision expense to be more aligned with Q1/Q2 averages, driven by growth rate and credit trends, rather than being lighter due to the indirect auto removal. She also described the syndicated equipment finance strategy as a successful pilot, providing flexibility for managing outstandings and fee income, with expected volumes of $20M-$30M next year.

Damon Delmonte of Keefe, Bruyette & Woods inquired about the drivers of commercial loan growth, whether there were any sizable CD repricings expected, and if any specific initiatives were driving the successful expense management.

Answer

Chief Commercial Banking Officer Lynn Kerber stated that commercial loan growth is primarily driven by expanding relationships with existing customers. CEO Thomas Prame confirmed the CD portfolio is homogenous with a short duration, so no large repricing events are anticipated. He added that expense control is due to diligent, business-as-usual management across the organization rather than a specific named initiative.

Damon Del Monte from KBW questioned the source of Horizon's optimistic loan growth outlook relative to peers, asking about client sentiment amid potential tariff concerns. He also inquired about the mortgage banking pipeline and gain-on-sale income prospects.

Answer

Executive Thomas Prame attributed the positive outlook to the company's embedded local talent, diversified portfolio, and consistent underwriting, which builds market reputation. He noted consumer credit remains stable. EVP & Chief Commercial Banking Officer Lynn Kerber added that commercial clients are cautious but not halting projects. Regarding mortgages, Thomas Prame mentioned that while originations are up year-over-year, low housing inventory in their Midwest markets remains the primary constraint, potentially tempering growth below MBA forecasts.

Damon Del Monte asked for confirmation on several guidance points: whether the Q3 2024 expense level is a good quarterly run rate for 2025, if the 3.15%-3.20% margin target was for the end of 2025, and the outlook for the loan loss reserve level given planned commercial growth.

Answer

John Stewart, EVP and CFO, confirmed that after adjusting for non-recurring Q4 items, the go-forward quarterly expense run rate is approximately $39.5 million to $40 million. He also affirmed the 3.15%-3.20% margin range is the target for the end of Q4 2025. Lynn Kerber, EVP and Chief Commercial Banking Officer, addressed the reserve, stating that while loan growth is a factor, the mix shift away from higher-loss indirect auto loans and stable credit quality lead to a 'relatively stable' outlook for the ACL ratio.

Damon DelMonte requested details on where the elevated Q4 expenses would be categorized and asked about the outlook for the allowance for credit losses (ACL) ratio, questioning if the current 1.10% level is adequate.

Answer

Executive Thomas Prame explained that the elevated Q4 expenses, tied to strategic internal projects, would be evenly distributed between salary/benefits and third-party professional services. Lynn Kerber, EVP and Chief Commercial Banking Officer, stated she does not foresee a significant directional change in the reserve level, citing the portfolio mix shift away from higher-loss indirect auto loans and the strong performance and net recoveries in the commercial portfolio.

Damon DelMonte of KBW asked about Northpointe Bancshares' 2026 provision outlook, comfort with the declining reserve level in 2025, the expected trajectory of taxes and insurance expenses, and updates on the strategy for adding retail loan officers.

Answer

CFO Brad Howes explained that the 2026 provision guidance primarily covers nominal growth in MPP and AIO loans and potential higher charge-offs. He expressed comfort with the reserve decline, attributing it to improved economic forecasts (especially HPI), a seasoned loan book, and stronger asset quality from MPP and AIO growth. Mr. Howes confirmed that taxes and insurance expenses are expected to rise due to increased FDIC insurance charges, driven by higher capital levels and the percentage of wholesale brokered funding. Regarding retail hires, Mr. Howes stated that Northpointe has a formalized recruiting strategy for new originators, with a pipeline in progress.

Damon DelMonte from KBW asked about the significant $500 million increase in the unpaid principal balance (UPB) of loans serviced for others within Northpointe Bancshares' servicing portfolio during the quarter, seeking clarification on the driving factors. He also inquired about the outlook for deposit growth, specifically whether future custodial deposit relationships would be similar in size to the large one onboarded in Q3. Additionally, Damon DelMonte sought clarification on the expense guidance provided by management.

Answer

President and Secretary Kevin Comps and EVP and CFO Brad Howes attributed the increase in UPB of loans serviced for others to the ramp-up of sub-servicing for All-in-One (AIO) loan-like products for new end investors and the retention of Mortgage Servicing Rights (MSRs) from Northpointe's own production. EVP and CFO Brad Howes clarified that while the recent Q3 custodial deposit was "outsized," Northpointe continues to actively pursue diverse non-brokered funding sources. For expense guidance, EVP and CFO Brad Howes detailed the Q4 2025 outlook and the 2026 full-year projection ($140-$144 million), citing drivers such as higher mortgage volume (variable compensation), business activity (bonus/incentive compensation), cost of living adjustments, and team development for public company status.

Damon Delmonte of Keefe, Bruyette & Woods (KBW) asked for more details on the $250 million custodial deposit agreement, including the process for securing it, the potential for similar future relationships, and the associated funding cost dynamics. He also inquired about the company's capital ratio targets and comfort level with current capital given the strong growth outlook.

Answer

President & Secretary Kevin Comps explained the custodial deposit deal was negotiated directly with the holder, aligning with the IPO strategy to diversify funding. He noted the floating rate is slightly better than brokered CDs and helps reduce the wholesale funding ratio and FDIC premiums. EVP & CFO Brad Howes affirmed that current capital levels are sufficient to support guided growth, with organic capital generation providing a buffer above internal minimums. Kevin Comps added that the loan participation program could be leveraged if growth exceeds forecasts.

Damon DelMonte with KBW asked about the timing and cadence of realizing cost savings from Mercantile Bank Corporation's Eastern Michigan Financial Corporation acquisition, particularly regarding systems conversion and operational leverage. He also inquired about the projected tax rate for 2026, specifically how it would be impacted by the availability of transferable energy tax credits, and sought guidance on the expected quarterly provision for credit losses in Q4, referencing Q1 and Q2 as potential barometers.

Answer

Ray Reitsma, President and CEO, clarified that most significant cost savings from the Eastern Michigan Financial Corporation acquisition are expected in 2027, following the core conversion in February 2027, with some overhead savings from the parent company merger occurring earlier. He noted that 2026 would involve upfront costs for conversion preparation. Regarding the tax rate, Ray Reitsma stated that without energy tax credits, the 2026 rate would be around 17.5% to 18%, but with planned additional energy tax credits, it could be closer to 16%. For the provision, Ray Reitsma indicated that Q1 and Q2 serve as a good barometer, given strong credit quality and growth expectations, while acknowledging that specific reserves are established as appropriate and prepayment speeds are reviewed annually.

Damon DelMonte from KBW asked about the timing and cadence of cost savings realization from the Eastern Michigan Financial Corporation acquisition, particularly concerning systems conversion. He also inquired about the projected 2026 tax rate, considering the potential for additional transferable energy tax credits, and whether Q1 and Q2 2025 provision expense levels could serve as a barometer for Q4 2025.

Answer

President and CEO Ray Reitsma explained that most significant cost savings from the Eastern Michigan acquisition are expected in 2027, following the core conversion in February 2027, with some upfront costs in 2026. He estimated the 2026 tax rate would be around 17.5-18% without further energy tax credits, but closer to 16% with planned additional credits. Regarding provision expense, Ray Reitsma agreed that Q1 and Q2 2025 could be a good barometer for Q4, given strong credit quality and growth expectations, noting that mortgage loan prepayment speed impacts are generally annual.

Damon Delmonte of Keefe, Bruyette & Woods (KBW) asked if the expense guidance for the remainder of 2025 incorporates costs related to the core system conversion. He also sought clarification on the drivers behind the expected step-down in fee income and inquired about the anticipated closing timeline for the Eastern Michigan Bank acquisition.

Answer

EVP & CFO Charles Christmas confirmed the current expense guidance does not include any significant costs related to the core conversion for the rest of the year. He explained the fee income guidance reflects a normalization from an exceptionally strong Q2 in swaps and mortgage banking, not a negative outlook. He projected the acquisition would likely close in the back half of Q4 2025, pending regulatory approvals.

Damon Del Monte from Keefe, Bruyette & Woods inquired about the expected pace of securities purchases, the drivers behind salary and benefit expense fluctuations, and the outlook for the allowance for credit losses given slower growth and economic uncertainty.

Answer

EVP and CFO Charles Christmas stated that securities purchases are expected to be similar to loan growth in dollar terms, funded by deposit growth. He clarified that Q1 salary expenses were lower than Q4 2024 due to higher year-end bonus accruals in the prior quarter. He also explained the Q1 provision increase was a prudent move to blend base and adverse economic forecasts due to uncertainty, making future builds difficult to predict.

Damon DelMonte of KBW asked for the outlook on credit provisioning, an update on the mortgage banking pipeline for 2025 given the strategic shift, and clarification on the lower-than-guided Q4 tax rate.

Answer

EVP and CFO Chuck Christmas explained that the 2025 provision expense is expected to be driven primarily by loan growth, with a stable economic outlook and low net charge-offs anticipated. President and CEO Ray Reitsma described the mortgage pipeline as 'seasonally strong.' Christmas clarified the lower Q4 tax rate was due to year-end true-ups, mainly related to successful low-income housing and historical tax credit activities, which are expected to continue benefiting the bank's profitability.

Damon DelMonte from Keefe, Bruyette & Woods asked about balance sheet dynamics, specifically if analysts should forecast higher securities and cash balances due to deposit growth outpacing loan growth. He also questioned if Net Interest Income (NII) could remain stable despite margin pressure and asked for the outlook on mortgage banking income given lower rates versus typical seasonality.

Answer

EVP and CFO Chuck Christmas confirmed that forecasting higher securities and cash is correct, noting the securities portfolio is growing by about $10 million per month. He stated that NII could actually increase, as balance sheet growth can have a positive impact on net income dollars despite compressing the margin percentage. He also provided specifics on repricing opportunities, including $150 million in fixed-rate loans maturing in 2025. President and CEO Raymond Reitsma added that mortgage activity increased with the fall rate drop, offsetting normal seasonality and suggesting a stronger-than-typical fourth quarter.

Damon Delmonte of Keefe, Bruyette & Woods (KBW) questioned the outlook for the provision for credit losses in the second half of the year. He also asked about plans for the securities portfolio and sought guidance on the effective tax rate for the remainder of 2025.

Answer

CEO Charles Reeves stated that he expects provision expense to return to more normalized levels. He anticipates the allowance coverage ratio will revert to the 1.20% range post-resolution of the large CRE credit, with a charge-off likely in Q3. He also noted securities runoff will continue to fund loan growth and guided to a full-year effective tax rate of around 22%.

Damon Delmonte of Keefe, Bruyette & Woods (KBW) inquired about the outlook for the provision for credit losses, the strategy for the securities portfolio, and the expected effective tax rate for the remainder of the year.

Answer

CEO Charles Reeves stated that he expects the provision expense to return to normalized levels in the second half of the year, with a charge-off for the large CRE loan likely in Q3. He also noted that cash flows from the securities portfolio are being redeployed into loans and projected a full-year effective tax rate of approximately 22%.

Damon DelMonte of KBW inquired about the strategy for the loan-loss reserve level, the current sentiment and risks within the agricultural portfolio due to tariff discussions, and the expected quarterly cadence of noninterest expenses for the remainder of the year.

Answer

Chief Credit Officer Gary Sims explained that the bank proactively used stressed economic scenarios to maintain its reserve coverage at 1.25% and expects to keep it in the mid-1.20s range. He also noted that while 2025 looks stable for the ag portfolio, there is concern about the impact of tariffs on 2026. Executive Barry Ray clarified that expenses are expected to ramp up slightly from Q1 levels through the rest of the year.

Damon DelMonte of Keefe, Bruyette & Woods inquired about credit quality, asking about specific areas of concern in the loan portfolio, the adequacy of the loan loss reserve, and the company's strategy for driving organic growth in 2025.

Answer

Chief Credit Officer Gary Sims identified office and senior living as continued pressure points but noted operational improvements in the latter and affirmed the reserve is adequate for planned resolutions. CEO Charles Reeves stated the bank will continue its organic growth strategy by investing in talent and infrastructure, with a geographic focus on the Twin Cities, Denver, and Iowa Metro markets, while also preparing for potential M&A.

Damon DelMonte asked about the drivers behind the decline in nonperforming assets (NPAs), trends in classified and watch list loans, the outlook for the loan loss reserve level, and how competitors have reacted to recent Fed rate cuts in their deposit pricing.

Answer

Chief Credit Officer Gary Sims attributed the NPA decline to successful resolution efforts, including the payoff of a large, long-term agricultural credit. He noted a decrease in classified assets but an increase in criticized assets due to two specific C&I downgrades. Sims expects the reserve to remain in the mid-to-high 1.20s range. EVP and CFO Barry Ray observed that competitors have been aggressive with deposit pricing, with some front-running the Fed cut, and expects deposit betas on the way down to be similar to the ~40% seen on the way up.

Sought clarification on the provision outlook, asking if the 'up slightly' guidance for 2024 was based on the elevated Q4 2023 level. Also asked if the credit driving the provision was part of the NPL increase and about the dynamics of the flat fee income guidance.

Answer

The provision outlook is based on expected loan growth and a conservative view of the economy. The credit that drove the provision higher was a smaller part of the overall NPL increase. The flat fee income forecast is correct, with pressure from lower service fees expected to be offset by growth in areas like treasury management.

Inquired about credit quality, specifically the moving parts within non-performing assets (NPAs) where NPLs decreased but OREO increased, and also asked about the geographic sources of loan growth.

Answer

The increase in OREO was due to a single multifamily credit being moved to that status for a quick resolution and is not considered a systemic issue. Loan growth continues to be strongest in the Mountain West and Southwest regions, driven by consistent calling efforts and the bank's "open for business" stance while competitors have pulled back.

Damon DelMonte of Keefe, Bruyette & Woods inquired about the outlook for the net interest margin (NIM), asking if it was expected to bottom out soon, and also requested guidance on the loan loss provision for the upcoming year.

Answer

Executive Eric Lemke responded that while some near-term pressure on the NIM is possible, he anticipates it will be 'relatively stable' for the next quarter, assuming moderate Fed rate hikes allow fixed-rate assets to reprice. Executive Jeffrey Ludwig added that the loan loss provision for 2023 might be slightly higher than Q4's low level but should not be dramatically different from the full-year 2022 figure, provided the economy avoids a deep recession.

Damon DelMonte of Keefe, Bruyette & Woods asked for an outlook on the net interest margin (NIM), questioning when it might bottom out. He also requested guidance on the loan loss provision, noting that the fourth quarter's provision was lower than the preceding three quarters.

Answer

Executive Eric Lemke explained that while there may be near-term pressure on the NIM, it is expected to stabilize in the coming quarter, assuming a moderation in Federal Reserve rate hikes. He noted that the rapid turnover of the fixed-rate equipment finance portfolio would help support the margin. Executive Jeffrey Ludwig addressed the provision, stating that while it's hard to predict, he expects it to be slightly higher than Q4 but not dramatically so for the full year, assuming a mild recession and continued improvements in credit quality.

Damon DelMonte of Keefe, Bruyette & Woods, Inc. questioned the outlook for the consumer loan portfolio, whether the Q3 provision for credit losses represents a peak, which lending areas are seeing increased caution, and the reason for the quarter's lower effective tax rate.

Answer

CFO Eric Lemke projected a net $30 million decline in the consumer portfolio next quarter as a $50 million GreenSky runoff will only be partially offset by LendingPoint originations. Lemke and CEO Jeffrey Ludwig expressed hope that the $7 million provision is a peak, contingent on slowing loan growth, though the economic outlook remains a wildcard. Ludwig identified office and residential development as areas of increased caution. Lemke attributed the lower tax rate to benefits from finalized state tax returns and guided to a forward rate of around 23.5%.

Damon DelMonte from KBW asked for perspective on the loan growth outlook for the second half of the year, specific portfolio drivers, details on the new LendingPoint relationship, and the forward-looking view on the provision for credit losses.

Answer

President and CEO Jeff Ludwig stated that loan growth is expected to moderate from its strong first-half pace to below double-digit levels. He anticipates the equipment finance business will remain a key driver, while commercial real estate growth will likely slow. He described the LendingPoint portfolio as high-FICO home improvement loans with credit enhancements, similar to the GreenSky program. Ludwig expects the provision for credit losses to remain at a level similar to the current quarter.

Damon DelMonte of Keefe, Bruyette & Woods asked for a detailed breakdown of the net interest margin (NIM) expansion, seeking to identify the impact of PPP loans and any other non-recurring items to establish a core NIM. He also questioned the expected drivers of loan growth in the upcoming quarter and sought guidance on the quarterly run-rate for fee income.

Answer

CFO Eric Lemke quantified the PPP loan impact on the margin at approximately five basis points and noted some minor prepayment fees in equipment finance, ultimately suggesting a core NIM in the low 3.40s. President and CEO Jeff Ludwig projected that while CRE would remain the primary driver of loan growth, the commercial and equipment finance segments are also expected to contribute. Ludwig also confirmed that fee income should rebound to over $16 million quarterly as seasonal softness in interchange and service charges subsides.