Daniel Tamayo

Daniel Tamayo inquired about Northwest Bancshares Inc.'s loan growth expectations, specifically how new de novo branches in Indianapolis and Columbus integrate into the overall loan growth strategy. He also asked for insights into future expense numbers, considering ongoing cost savings from the Penns Woods merger and investments in new de novo branches.

Answer

Doug Schosser, CFO, indicated a stable balance sheet for the next quarter, with loan growth opportunities taken as they arise, and suggested 2026 loan growth would be comparable to GDP. Louis Torchio, President and CEO, detailed the de novo strategy, including hiring commercial real estate and business bankers, and plans for deposit gathering in 2026 ahead of new branch launches in Columbus and Indianapolis. Schosser also addressed expenses, aiming for positive operating leverage and continued investment for growth, with merger cost savings expected to rationalize by Q3 2026.

Daniel Tamayo asked about Northwest Bancshares' loan growth expectations, specifically how new de novo branches in Indianapolis and Columbus fit into the guidance, and later inquired about expense numbers and future growth into 2026.

Answer

Douglas Schosser (CFO, Northwest Bancshares Inc) indicated expectations to hold the balance sheet stable for the next quarter, with good pipelines. Louis Torchio (President and CEO, Northwest Bancshares Inc) detailed the de novo strategy, including hiring and planned deposit gathering for 2026, with 2026 loan growth expected to align with GDP. Schosser also discussed expense management, focusing on positive operating leverage and investment for growth, with Penns Woods merger cost savings expected to rationalize expenses by Q3 2026.

Daniel Tamayo of Raymond James Financial inquired about the Pennswoods acquisition, focusing on the timeline for remaining cost savings, potential margin accretion, and any updated estimates for tangible book value dilution.

Answer

CFO Douglas Schosser explained that full guidance on remaining cost savings would be provided in January 2026. He noted that the company is still finalizing purchase accounting marks, preventing a precise update on margin accretion, but did provide a Q4 net interest income target. Schosser also mentioned that the lower-than-expected equity consideration for the deal would likely result in less goodwill and slightly lower earnings accretion from interest rate marks.

Daniel Tamayo asked for clarification on Northwest's net interest margin (NIM) guidance, the core margin trend considering potential Fed cuts, and the drivers behind the strong money market deposit growth, including rates on new accounts.

Answer

CFO Douglas Schosser stated that the core margin ended Q1 at 3.48% and is expected to perform at or above the high end of the guided range. He noted that their forecast includes one to two Fed rate cuts and that updated guidance reflecting the Penns Woods acquisition will be provided in Q2. Schosser explained that deposit growth was driven by a strategy to move maturing CDs into more liquid money market products, with new money market accounts opening at rates around 3.75%.

Daniel Tamayo inquired about the drivers behind the low single-digit loan growth guidance for 2025, asking about the momentum in commercial lending versus potential reductions in other portfolios. He also questioned if loan growth might accelerate later in the year and into 2026. Lastly, he asked about the securities portfolio, specifically cash flows from maturing securities and their potential to benefit the net interest margin.

Answer

Chief Financial Officer Douglas Schosser noted decent commercial pipeline strength and plans for additional hiring in commercial verticals, while also maintaining a balanced approach to pursue profitable consumer loan opportunities. He emphasized a focus on pricing discipline over pure volume. President and CEO Louis Torchio added that the bank's strategy is intact, with maturing verticals and a renewed focus on the core franchise expected to build momentum through the year. Regarding the securities book, Schosser confirmed they are reinvesting cash flows into higher-yielding assets and may consider an opportunistic repositioning, but it is not a core strategic focus.

Daniel Tamayo questioned the fee income guidance for Q4 and 2025, which appeared lower than expected, and sought clarification on the drivers behind the increased guidance for normalized net charge-offs.

Answer

CFO Douglas Schosser clarified that fee income is expected to rebound by mid-single digits from the Q3 adjusted base, returning to a core level of $29-$30 million. He explained the higher net charge-off guidance reflects a long-term normalization expectation due to the strategic shift toward commercial lending, rather than a near-term credit deterioration.

Daniel Tamayo from Raymond James questioned the Q4 fee and expense guidance, excluding Westfield, asking about any seasonal or unique factors and the projected run rates for 2026. He also sought clarity on the expected duration of current credit costs and the long-term run rate for charge-offs. Additionally, he inquired about First Financial Bancorp's capital strategy post-acquisitions, specifically regarding potential share buybacks and target capital ratios.

Answer

Jamie Anderson, Chief Financial Officer, and Archie Brown, President and CEO, attributed the higher Q4 fee income guide primarily to a stronger forecast from Bannockburn, along with bumps in Summit operating leases and wealth management. They noted Bannockburn's commission-based nature and projected a 10% annual growth rate for that business, with a 2026 run rate of $65 million-$70 million for FX trading. Archie Brown expects credit costs to remain steady, with a mid-20s basis points run rate for charge-offs over several quarters. Jamie Anderson explained that after the Westfield deal, which will cause a 120 basis point hit to TCE, the company will assess capital ratios over the next two to three quarters, potentially considering buybacks if the stock trades at or below 150% of tangible book value.

Daniel Tamayo inquired about the higher fourth-quarter guidance for fees and expenses (excluding Westfield), asking about seasonal or unusual factors and the expected run rates for 2026. He also questioned the outlook for credit costs beyond Q4 and the company's capital strategy, including potential buybacks, after the upcoming acquisitions.

Answer

Jamie Anderson, CFO and COO, attributed the Q4 fee increase primarily to Bannockburn's strong forecast, with contributions from Summit's operating leases and the wealth department's M&A activities. He noted Bannockburn's year-over-year growth typically around 10% and projected a 2026 run rate for FX income of $65-70 million, not annualizing the Q4 peak. Archie Brown, CEO and President, indicated that credit costs are expected to remain steady, with net charge-offs in the mid-20s basis points over several quarters. Jamie Anderson added that after the acquisitions, the company would assess capital ratios over the next two to three quarters, potentially considering buybacks if the stock trades at or below 150% of tangible book value, noting a ~120 basis point hit to TCE from the all-cash Westfield deal.

Daniel Tamayo of Raymond James Financial inquired about the sustainability of deposit cost reductions, the potential peak for the net interest margin (NIM), and the expected size of seasonal deposit outflows in the third quarter.

Answer

CFO & COO Jamie Anderson responded that deposit costs are nearing their bottom, with only a slight 2-3 basis point drop expected in Q3. He confirmed the guided 4.00% to 4.05% NIM range is likely the peak, noting that each 25 basis point rate cut would negatively impact the margin by about 5-6 basis points. Anderson also quantified the expected seasonal public fund outflows at approximately $100 million on average for the quarter.

Daniel Tamayo questioned the loan growth outlook for the second half of the year given prepayment pressures, sought clarity on the normalized net charge-off rate, and asked which portfolio segments are being monitored closely due to potential tariff impacts.

Answer

President and CEO Archie Brown revised full-year loan growth expectations to 4-5% from 6-7%, citing payoff pressure in CRE from purposeful exits and private credit competition. He reaffirmed a normalized annual charge-off target of 25-30 basis points, expecting Q2 to be lower than Q1. Regarding tariffs, Brown stated the focus is on client communication, with the main concern being a potential slowdown in broad consumer demand rather than a specific industry risk.

Daniel Tamayo inquired about the outlook for loan growth in 2025, the trajectory of the net interest margin (NIM) considering potential Fed rate cuts, and the strategy behind the bank's expansion into new markets like Grand Rapids.

Answer

President and CEO Archie Brown explained that the Q1 loan growth moderation is due to higher commercial real estate payoffs and seasonality, but noted that pipelines remain healthy. CFO Jamie Anderson stated that with one anticipated rate cut in June, the NIM is expected to hold steady in the 3.85% to 3.90% range. Archie Brown added that market expansion is opportunistic and focused on steady, relationship-based growth.

Daniel Tamayo inquired about the outlook for loan growth beyond Q4 2024 into 2025, seeking a normalized growth rate. He also asked for specifics on loan yields, particularly the rates for new originations versus loans rolling off the books.

Answer

President and CEO Archie Brown projected a mid- to high-single-digit annualized loan growth rate for 2025, noting the bank remains disciplined in exiting lower-return relationships. Brown and CFO James Anderson added that new loan originations in Q3 were in the high 7% range (7.75-7.80%), while payoff yields were approximately 20 basis points lower.

Daniel Tamayo inquired about the modest increase in deposit costs during Q3 2025, seeking clarification on whether it reflected increased competition or other unusual factors. He also asked about the pace and timing of additional incremental relationship manager (RM) hires.

Answer

CFO Derek Meyer clarified that the increase in deposit costs was primarily due to seasonality, with higher-priced accounts returning, rather than increased competition, and expressed confidence based on early responses to rate cuts. President and CEO Andy Harmening stated that Associated Banc-Corp is open to hiring quality RMs year-round, particularly opportunistic for teams with strong reputations in disrupted markets, but does not have a stated plan to increase beyond current numbers.

Daniel Tamayo inquired about the pace and timing of additional incremental hires for relationship managers, especially given the expiring non-solicitation agreements.

Answer

President and CEO Andy Harmening stated that the company is open to hiring quality relationship managers year-round, particularly opportunistic hires of well-known teams in markets with disruption. He emphasized that while there's no stated plan to increase the number of new RMs beyond current levels, they will take advantage of opportunities as they arise.

Daniel Tamayo of Raymond James Financial inquired about the drivers behind the seasonal deposit decline and the strategy to achieve the full-year core deposit growth guidance of $1.6 billion in the second half. He also asked for clarification on the increased total deposit guidance and sought an update on the office Commercial Real Estate (CRE) portfolio's performance and trends.

Answer

President and CEO Andrew Harmening explained the deposit outflow was a predictable seasonal event, expressing confidence in H2 growth driven by a $500 million commercial deposit pipeline, new technology verticals, and record household growth. EVP & CFO Derek Meyer clarified the higher total deposit guide reflects wholesale funding, not a change in core deposit strategy. Regarding CRE, EVP & Chief Credit Officer Patrick Ahern noted the office portfolio is improving, with proactive clients performing well, stressed credits declining, and a focus on direct sponsor relationships rather than large syndicated deals.

Daniel Tamayo of Raymond James questioned the potential Net Interest Margin (NIM) impact from Fed rate cuts, the company's capital allocation priorities regarding share buybacks, and the existence of qualitative reserve overlays to mitigate future builds in a downturn.

Answer

Executive Andrew Harmening and CFO Derek Meyer confirmed the balance sheet is now highly neutral to rate changes, with a 25 basis point cut having a minimal impact of about $500,000 per quarter. Harmening stated that the best use of capital is funding organic growth and the strategic balance sheet remix, rather than buybacks. Chief Credit Officer Pat Ahern added that the bank has maintained conservative overlays for economic uncertainty for several quarters, providing a strong starting position to handle market changes.

Daniel Tamayo asked for an update on the credit portfolio 'deep dives,' questioning how far along the process is and if further credit migration should be expected. He also inquired whether the major strategic and balance sheet transformations are now complete.

Answer

Chief Credit Officer Pat Ahern clarified that the portfolio deep dives are a constant, ongoing process, not a one-time project. He explained that the observed migration reflects proactive risk rating and noted that the stability in non-accrual loans is a positive indicator. CEO Andrew Harmening added that while the core organic strategy is proven and no further inorganic moves are planned for 2024, the company is now positioned to scale and could opportunistically consider a deal in the next 12-24 months, though the immediate focus is on organic execution.

Daniel Tamayo inquired about the margin outlook, focusing on rate pickup opportunities from maturing funds, and asked for an update on the lender hiring initiative and its expected impact on performance.

Answer

CEO Andrew Harmening highlighted the bank's strategic positioning with short-duration funding, including $3.6 billion in 7-month CDs renewing at a 100+ basis point pickup. He noted that reduced asset sensitivity allows the bank to focus on execution. Regarding hiring, Harmening confirmed RM headcount is up 17% and the high-probability deal pipeline is up 18%, expressing confidence in hitting the target of 26 net new RMs and seeing their impact grow through 2025.

Daniel Tamayo asked about the competitive landscape for deposits, specifically if competition had intensified compared to the prior quarter, and inquired about WesBanco's overall strategy regarding M&A versus the Loan Production Office (LPO) strategy once capital targets are met.

Answer

Senior Executive Vice President and CFO Daniel Weiss noted that deposit competition remains similar to previous quarters and has not intensified, suggesting that commercial real estate payoffs could provide some relief on deposit pricing. President and CEO Jeff Jackson emphasized that WesBanco is currently focused on its LPO strategy, new verticals, and organic business growth, citing a strong growth runway and successful hiring. He stated that M&A is not the current focus, as the company sees significant organic opportunities for the next year and beyond.

Daniel Tamayo from Raymond James inquired about the competitive landscape for deposits, specifically regarding money market and savings deposit rates, and whether competition has intensified. He also asked about WesBanco's post-capital build strategy, particularly how M&A fits in relative to the ongoing LPO expansion.

Answer

Daniel Weiss, Senior Executive Vice President and Chief Financial Officer, noted that deposit competition remains similar to prior quarters, without intensification, and suggested that commercial real estate payoffs could offer some relief on deposit pricing. Jeff Jackson, President and Chief Executive Officer, stated that WesBanco is currently focused entirely on organic growth through LPOs and new verticals, emphasizing a strong growth runway and no immediate focus on M&A, given the success of their current expansion strategies.

Daniel Tamayo from Raymond James Financial inquired about the increase in criticized loans, credit culture in new LPOs, capital deployment priorities, and plans for callable preferred stock and subordinated debt.

Answer

President and CEO Jeffrey Jackson attributed the rise in criticized loans to regrading acquired Premier credits and expects improvement. He affirmed that all LPOs follow the same centralized, stringent credit policies. Jackson outlined capital priorities as 1) the dividend and 2) organic growth, with M&A and buybacks being lower priorities. Senior EVP & CFO Daniel Weiss added that the company is evaluating its options for its preferred stock and sub-debt, which are callable soon, and plans to take action to avoid high reset rates.

Daniel Tamayo asked for guidance on the absolute net interest income for 2025 and the expected size of the balance sheet. He also questioned the reason for the increase in criticized loans and the outlook for credit quality and charge-offs.

Answer

Daniel Weiss, Senior Executive Vice President and CFO, provided detailed estimates for purchase accounting accretion, projecting approximately $59 million for loans in 2025. Jeffrey Jackson, President and CEO, explained that the rise in criticized loans was a normal result of acquiring and marking the Premier portfolio. He reiterated confidence in the company's credit metrics, expecting them to remain better than peers, and noted the portfolio's diversity and limited exposure to specific market risks.

Daniel Tamayo sought clarification on whether the loan growth guidance includes an expected increase in payoffs, asked about the use of funds if deposit growth exceeds loan growth, and inquired about the drivers behind the recent uptick in credit metrics.

Answer

CEO Jeffrey Jackson and CFO Daniel Weiss confirmed the mid-single-digit loan growth guidance is a net figure that accounts for higher payoffs. They affirmed that excess deposits would be used to pay down FHLB borrowings, which positively impacts NIM. Jackson attributed the uptick in NPLs to normal fluctuations and one specific credit, stating there are no concerning trends.

Daniel Tamayo inquired about the net interest margin outlook, specifically the impact of future Fed rate cuts, and asked for an update on credit quality, including near-term visibility on charge-offs and the drivers behind the increase in criticized and classified loans.

Answer

CFO Daniel Weiss explained that the primary drivers for Q4 margin improvement are recent deposit growth enabling FHLB paydowns and the recent capital raise. CEO Jeffrey Jackson addressed credit, stating he expects quality to remain stable and within the range of recent quarters, noting the increase in criticized loans was broad-based across industries with no single point of concern.

Daniel Tamayo inquired about the one-time costs associated with QCR Holdings' core system conversions in Q4 and how these costs would impact the expense run rate for 2026 and beyond, particularly regarding expected savings. He also asked if the allowance for credit losses (ACL) as a percentage of loans is expected to continue trending down, given recent reserve releases and the strategy to move construction loans off-balance sheet.

Answer

President and CEO Todd Gipple highlighted the strategic benefits of the digital transformation, including improved efficiency, with the first core conversion successfully completed. He noted that significant efficiencies are expected in the back half of 2027 and beyond. CFO Nick Anderson detailed that overlap costs for the Bank of the Future initiative are estimated at $4 million-$5 million in 2025, reducing to $3 million-$4 million in 2026. Todd Gipple clarified that while ACL has decreased due to resolving NPAs and lower M2 Equipment Finance charge-offs, the company does not expect the coverage ratio to drop much further, as freed-up reserves from LIHTC construction loan sales would be quickly redeployed into new originations.

Daniel Tamayo inquired about the one-time costs associated with QCR Holdings' core system conversions in the fourth quarter and the expected expense run rate for 2026 and 2027, including anticipated savings. He also asked about the future trend of the allowance for credit losses (ACL) as a percentage of loans, given recent declines and the strategy to sell construction loans.

Answer

President and CEO Todd Gipple detailed the multi-year digital transformation, highlighting the successful Q2 online banking platform conversion and the first core system conversion at Guarantee Bank. He emphasized long-term efficiencies, with significant savings expected in the back half of 2027 and beyond. CFO Nick Anderson specified that one-time conversion expenses are estimated at $4-5 million in 2025, reducing to $3-4 million in 2026. Todd Gipple stated that the ACL ratio of 1.24% is not expected to drop much further, as recent reductions were due to resolving NPAs and charge-offs from the M2 Equipment Finance portfolio, and freed-up reserves from construction loan sales would be quickly redeployed.

Daniel Tamayo from Raymond James Financial asked about the potential impact of HUD budget cuts on the LIHTC industry, the status of B-piece securities from prior securitizations held on the balance sheet, and the company's preparations for crossing the $10 billion asset threshold, including the Durbin amendment impact.

Answer

President & CEO Todd Gipple expressed confidence that the LIHTC program is safe from disruption due to strong bipartisan support. EVP & CFO Nick Anderson clarified that QCRH holds about $80 million in B-pieces yielding ~9% and that future securitizations will aim to sell the B-piece. Regarding the $10 billion threshold, Gipple estimated a manageable $3 million Durbin impact, which can be offset by other non-interest income, and noted the company is already building out necessary expenses and capabilities.

Daniel Tamayo asked about the potential impact of rumored HUD budget cuts, the status of B-pieces from prior securitizations held on the balance sheet, and the company's preparations for crossing the $10 billion asset threshold and the related Durbin Amendment impact.

Answer

President & CEO Todd Gipple stated that any HUD disruption would likely only slow deal closings and that he is optimistic about bipartisan support for the LIHTC program. EVP & CFO Nick Anderson confirmed QCRH holds about $80 million in B-pieces from prior deals. Gipple added that while they could sell them, the focus is on selling the B-piece in the next securitization. Regarding the $10 billion threshold, Gipple anticipates a manageable $3 million Durbin impact, which they are prepared for and can mitigate with other non-interest income.

Daniel Tamayo asked about the potential impact of HUD budget cuts on the LITEK industry, the amount of retained B-pieces from prior securitizations and plans for them, and the company's preparations for crossing the $10 billion asset threshold.

Answer

President & CEO Todd Gipple downplayed concerns about HUD, noting few deals require HUD sign-off and that bipartisan support for LITEK remains strong. EVP & CFO Nick Anderson specified that QCRH holds just over $80 million in B-pieces from prior securitizations. Gipple added that while they might sell existing B-pieces, the focus is on selling the B-piece of the next securitization to resolve capital disparities. Regarding the $10 billion threshold, Gipple anticipates a ~$3 million Durbin impact, which he believes can be offset by other non-interest income, and noted the expense build-up is already underway.

Daniel Tamayo sought more detail on the 'uncertainty' affecting LIHTC lending, how an LIHTC rebound would influence securitization timing, and how the expense outlook would adjust if business accelerates in the second half of the year.

Answer

Executive Larry Helling specified the LIHTC uncertainty was tied to tax credit policy and disruptions at federal agencies like HUD, which have started to abate. Executive Todd Gipple confirmed that a rebound in LIHTC production would likely trigger a large securitization (~$350M) to manage concentrations, possibly in Q4 2025 or early 2026. Gipple also explained that the expense guidance would only revert to the higher, prior range of $52-$55 million if revenue and loan growth normalize, as the current lower guidance is a direct result of reduced variable compensation.

On behalf of Daniel Tamayo of Raymond James, a representative asked for details on the M2 equipment finance portfolio runoff included in the 2025 loan growth guidance and whether there were levers to improve gains on future securitizations.

Answer

Executive Larry Helling clarified that the M2 portfolio stands at about $340 million, with an expected runoff of approximately $120 million over the next 12 months. Executive Todd Gipple addressed securitizations, explaining the strategic pivot to a single, larger deal of around $350 million in late 2025. He noted this approach is expected to drive better execution and financial results due to improved economics and leverage compared to past smaller deals.

Daniel Tamayo asked about the strategy for the loan-to-deposit ratio now that it's within the target range, and inquired about the timeline and expected financial impact of crossing the $10 billion asset threshold.

Answer

Executive Todd Gipple emphasized that the company remains highly focused on growing core deposits to further drive down the loan-to-deposit ratio and will not 'take their foot off the gas.' Executive Larry Helling projected crossing the $10 billion asset mark in about two years. He estimated the total Durbin impact at $5-6 million annually in three years but stated the company is proactively managing expenses and revenues to 'power through' the transition, making the impact unnoticeable to investors.

Daniel Tamayo asked about the sustainability of the strong C&I loan growth observed, given stable pipelines, and sought details on the impact of paydowns on the commercial real estate book. He also inquired about the expected pace of classified loan balance changes going forward.

Answer

Mike Stewart, President, affirmed that the C&I growth reflects normal Midwest business activity and focused banking efforts, with potential for further growth from market disruptions. John Martin, CCO, added that asset-based lending provides additional momentum. Regarding commercial real estate, John Martin noted that growth was largely driven by prior year commitments, particularly in multifamily construction draws, and that higher rates have moderated the portfolio's growth rate. He also indicated that classified loan balances are currently 'trading dollars' with some segments more challenged, but overall, improvements have been made.

Daniel Tamayo questioned the sustainability of First Merchants' strong C&I loan growth, which was up 14% year-over-year, and the stability of current loan pipelines. He also inquired about the impact of paydowns on the commercial real estate book, specifically the non-owner-occupied segment, and the expected pace of classified loan balance changes going forward.

Answer

President Mike Stewart affirmed that the C&I growth reflects normal activity driven by Midwest business expansion, CapEx financing, M&A, and new relationships, with stable pipelines. Chief Credit Officer John Martin added that the asset-based lending team further supports C&I momentum. John Martin explained that non-owner-occupied CRE growth was largely from prior year commitments, with higher rates moderating growth. He noted improvements in classified loans, particularly in commercial real estate, and expects balances to largely trade dollars going forward.

Daniel Tamayo of Raymond James Financial inquired about the drivers of funding cost pressure and the future outlook for the net interest margin. He also asked whether the strong loan growth was due to core business investment or a pull-through of delayed activity.

Answer

EVP & CFO Michele Kawiecki acknowledged that strong loan growth and customers utilizing cash led to higher deposit costs, projecting modest margin compression in the second half of the year. President Michael Stewart and Executive VP & Chief Credit Officer John Martin confirmed the loan growth was core and normal-course, with only a minor potential pull-through from businesses drawing on credit lines ahead of anticipated tariffs.

Daniel Tamayo of Raymond James inquired about credit quality, specifically the resolution of a large nonperforming multifamily loan and whether nonperforming assets had peaked. He also asked for the outlook on fee income, particularly mortgage banking, and the potential impact of tariffs on loan demand.

Answer

Chief Credit Officer John Martin confirmed the nonperforming loan is expected to resolve in Q2 without principal loss and suggested nonperforming assets could decline. CFO Michele Kawiecki reiterated guidance for mid-to-high single-digit year-over-year growth in fee income, driven by double-digit growth in mortgage and wealth management. President Michael Stewart added that the mortgage pipeline is strong. Regarding tariffs, Martin noted that construction projects have priced in costs, while Stewart mentioned M&A analysis is incorporating tariff impacts but activity continues.

Daniel Tamayo asked for details on the Q4 securities portfolio restructuring, its impact on the Q1 margin, and whether the proceeds were reinvested. He also asked a broader question about the bank's long-term Return on Assets (ROA) target given recent strategic investments.

Answer

Chief Financial Officer Michele Kawiecki clarified that proceeds from the bond sale were not reinvested but used to replace deposits sold with the Illinois branches, creating an expected 2-3 basis point benefit to the net interest margin in 2025. Executive Mark Hardwick stated that the bank targets a long-term ROA of around 1.30%, viewing the current 1.25% level as a strong position that reflects top-quartile performance potential, supported by growth initiatives and expense discipline.

Daniel Tamayo asked about the company's capital deployment priorities, including plans for sub-debt redemption, M&A, and share buybacks, and whether there was a valuation threshold for repurchases.

Answer

CEO Mark Hardwick stated the company is not in a capital-building mode and aims to optimize its capital, with a focus on keeping the TCE ratio above 8%. The priority is deploying capital for balance sheet growth and potential M&A. He added that if those opportunities are not available, the company would be active in share buybacks, especially when trading at current levels, which he views as materially below historical averages.

Daniel Tamayo asked for clarification on OceanFirst Financial Corp.'s 2026 net interest income (NII) guidance, specifically regarding the net interest margin (NIM) trajectory, balance sheet growth dynamics, and how NII growth relates to loan growth, seeking to reconcile various projections.

Answer

Patrick Barrett, CFO, clarified that the 3% terminal rate referred to Fed rate cuts, not NIM. He expects NIM to exceed 3% by Q1-Q2 2026 and expand, with the balance sheet growing in high single digits, primarily from loan growth, driving NII growth commensurate with or better than loan growth. Christopher Maher, Chairman and CEO, added that securities purchases in Q3 were a one-time pre-funding for 2026, with the securities portfolio expected to be stable. He anticipates loan growth of approximately $250 million per quarter, leading to about $1 billion in balance sheet growth for 2026, which, combined with NIM expansion, should result in a return on average assets (ROA) of 90+ basis points by Q4 2026.

Daniel Tamayo inquired about OceanFirst Financial Corp.'s 2026 net interest income (NII) guidance, seeking clarification on the interplay between balance sheet growth, net interest margin (NIM) expansion, and the impact of pre-funded securities.

Answer

Patrick Barrett, CFO, clarified that the 3% terminal rate referred to Fed rate cuts, not NIM, and projected NIM to breach 3% by Q1-Q2 2026 with steady expansion. Christopher Maher, Chairman and CEO, added that the securities portfolio would remain relatively stable after pre-funding 2026 growth, with loan and deposit growth driving the balance sheet, aiming for a 90+ basis point ROA by Q4 2026.

Daniel Tamayo inquired about the potential to reduce deposit funding costs absent rate cuts, the long-term trajectory for net interest margin (NIM) expansion, and the potential impact of Fed rate cuts on the margin.

Answer

Chairman & CEO Christopher Maher explained that while significant near-term funding cost reductions are unlikely without rate cuts, a mix shift towards C&I deposits offers some opportunity. He projected a 'slow and steady' NIM expansion of a few basis points per quarter. President & COO Joseph Lebel added that deposit balances should improve seasonally in Q3 and Q4.

Daniel Tamayo asked about the long-term financial goals for Premier Bank, including its profitability breakeven timeline, the target loan-to-deposit ratio, and for clarification on the 10% expense run rate increase.

Answer

CEO Christopher Maher projected a 12-18 month payback period for the Premier Bank initiative, with margin improvement overcoming operating expenses in about four to five quarters. He estimated the initiative's loan-to-deposit ratio would be around 20%. CFO Patrick Barrett clarified the 10% expense increase is off a normalized $66 million base, not the reported $64.3 million, suggesting a quarterly run rate of around $70-$71 million going forward.

Daniel Tamayo asked about the future of OceanFirst's core Commercial Real Estate (CRE) business in light of the strategic push into C&I lending.

Answer

CEO Christopher Maher affirmed that while the company values its well-performing and conservatively underwritten CRE portfolio, it believes greater diversification will create a more valuable company. He clarified that the investor CRE portfolio will slowly decrease as C&I grows, but OceanFirst is not exiting the CRE market and continues to originate well-structured and priced loans for its clients.

Daniel Tamayo inquired about the funding side, asking how deposit repricing has progressed since the recent rate cuts and what the outlook is for net interest margin (NIM) and net interest income (NII). He also asked about capital deployment priorities.

Answer

CEO Christopher Maher stated that capital is being prioritized for organic growth and to maintain optionality for redeeming repricing debt instruments in May 2025. President Joseph Lebel noted successful deposit repricing with high retention. CFO Patrick Barrett expressed cautious optimism for modest NIM expansion but emphasized that NII has likely troughed and is expected to see steady growth.

Daniel Tamayo asked about the revised net interest income (NII) guidance, the implied margin compression in the fourth quarter due to anticipated rate cuts, and the expected impact of current versus future rate cuts on the company's financial performance. He also inquired about the possibility and likelihood of achieving positive operating leverage in 2026, considering potential rate cuts, and any break-even points.

Answer

Curt Myers, CEO and Chairman, explained that the NII guidance implies some margin pressure in Q4, with each 25 basis point rate cut representing about a $2 million annualized NII headwind. He noted a lag of approximately three months for deposit cost adjustments to catch up. Myers also stated that the company is focused on generating organic growth to drive consistent positive operating leverage, managing various components, and benefiting from a more neutral balance sheet position regarding rate changes.

Daniel Tamayo asked about the revised net interest income guidance, the implied margin compression in the fourth quarter due to rate cuts, and the differential impact of the initial rate cut versus subsequent cuts.

Answer

Curt Myers, CEO and Chairman, and Rick Kraemer, CFO, explained that each 25 basis point rate cut represents approximately a $2 million annualized net interest income headwind, with a lag of about three months for deposit cost adjustments. They noted that margin pressure would level out several months after the Federal Reserve stops cutting rates. Curt Myers also addressed the possibility of positive operating leverage in 2026, emphasizing the company's focus on organic growth and managing components to achieve consistent positive operating leverage, aided by a more neutral balance sheet position.

Daniel Tamayo inquired about Fulton Financial's expense guidance, asking for clarity on the expected ramp-up in the second half of 2025 and whether the full-year results might fall below the guidance midpoint. He also asked about the sustainability of fee income growth and any potential one-time items.

Answer

CFO Richard Kraemer explained that while the expense guidance range of $190M-$195M for Q3/Q4 is maintained, it provides optionality for new initiatives, and results could land below the midpoint. He noted the Q2 increase was partly due to merit raises, which won't repeat. CEO Curtis Myers added that fee income performance was strong across all categories and that hitting the top end of the guidance range depends on continued consistent outperformance without headwinds.

Daniel Tamayo asked for an assessment of the credit environment, particularly the potential impact of tariffs on borrowers, and whether current reserve levels are adequate for a potential downturn.

Answer

Chairman and Executive Officer Curtis Myers stated the company is analyzing its granular portfolio, with the most direct tariff risk being commodity price impacts on its $1 billion domestic agricultural portfolio. He noted the portfolio is strong and diversified. Chief Financial Officer Rick Kraemer commented that while reserves are strong, they are influenced by declining loan balances and a more cautious economic forecast, which could add pressure going forward.

Daniel Tamayo from Raymond James sought clarification on the 2025 guidance, asking about the basis for the low to mid-single-digit interest-earning asset growth, the drivers behind the provision forecast, expected purchase accounting accretion, and the potential impact of lower rates on specific fee income lines like mortgage banking.

Answer

CEO Curtis Myers clarified that the asset growth guidance is for period-end balances and reflects an expectation for a stable credit environment similar to 2024, albeit on a larger balance sheet. CFO Rick Kraemer added that quarterly purchase accounting accretion is expected to be stable around $13.5 million to $14 million and identified mortgage banking, commercial swaps, and wealth management as the fee income areas most sensitive to rate changes.

Daniel Tamayo asked for clarification on the 2025 expense outlook, seeking to understand the cadence of cost savings throughout the year. He also questioned the outlook for balance sheet and deposit growth, particularly how it would impact net interest income given the margin headwinds from rate cuts.

Answer

CFO Designee Rick Kraemer clarified that the 2025 expense savings would progress steadily, with roughly 45% realized in the first half. Chairman and CEO Curt Myers stated that the bank expects modest, low single-digit loan growth to continue and aims for deposit growth to match, excluding the seasonal Q4 runoff of municipal deposits.

Daniel Tamayo from Raymond James asked for clarification on Mercantile Bank's loan paydowns, specifically if Q3 2025 paydowns represented the majority of expected back-half paydowns. He also questioned the 5-7% loan growth guidance in light of these paydowns and inquired about the expense run rate for Q3 2025 and Q4 2025, seeking to understand any unusual items and the impact of tax credits on expenses.

Answer

EVP and CFO Chuck Christmas confirmed that Q3 paydowns included some anticipated for the latter half of the year, noting the inherent lumpiness in loan activity. He reiterated the 5-7% loan growth guidance for Q4 2025, with potential for higher growth, and suggested 6-8% for 2026. Regarding expenses, Chuck Christmas indicated that Q3 expenses, excluding acquisition costs and foundation contributions, represent a good run rate, and the Q4 guidance includes approximately $1 million in acquisition-related closing costs. He clarified that tax credits impact only the federal income tax line and not overhead expenses.

Daniel Tamayo with Raymond James asked for clarification on Mercantile Bank Corporation's third-quarter loan paydowns, specifically if they represented the full anticipated paydowns for the second half of the year, and how this impacts the 5% to 7% loan growth guidance for Q4 and future years. He also inquired about the higher-than-expected third-quarter expenses and the fourth-quarter guidance, asking if there were any unexpected or unusual items, and whether tax credits flow through expenses.

Answer

Chuck Christmas, Executive Vice President and CFO, explained that while some paydowns are anticipated, their exact timing is difficult to control, leading to lumpiness. He confirmed that the strong pipeline supports the 5% to 7% loan growth guidance for Q4, with a potential for higher growth if year-end closings materialize, and projected mid-single-digit loan growth (possibly 6% to 8%) for next year. Regarding expenses, Chuck Christmas stated that Q3 expenses, excluding acquisition costs and foundation contributions, represent a good run rate. He clarified that the Q4 guidance includes about $1 million in acquisition costs, assuming the deal closes by year-end, and confirmed that tax benefits only impact the federal income tax line, not overhead expenses.

Daniel Tamayo of Raymond James Financial asked about the timing and specifics of cost savings from the Eastern Michigan Bank acquisition, particularly concerning the Jack Henry core system conversion. He also inquired about plans for Eastern Michigan's loan portfolio, including potential runoff and key growth areas.

Answer

EVP & CFO Charles Christmas detailed the staggered realization of cost savings, with about 50% expected in 2026 and over 90% in 2027, coinciding with the core conversion. He emphasized the strategic benefit of Eastern Michigan's experience with the Jack Henry system. President & CEO Raymond Reitsma added that they intend to maintain Eastern's high-quality loan book while pursuing growth in mortgage banking and larger commercial loans within the new markets.

Daniel Tamayo of Raymond James sought clarity on the updated net interest margin (NIM) guidance, including its underlying rate cut assumptions, and requested details on CD re-pricing dynamics, new loan yields, and competitive pressures on loan spreads.

Answer

EVP and CFO Charles Christmas clarified the NIM guidance of 3.45% to 3.55% assumes no further rate cuts to provide a clear baseline. He noted that about 90% of CDs mature within a year, re-pricing down by an average of 75 basis points, while new loans are being originated around 7%. President and CEO Raymond Reitsma confirmed that loan spreads have remained stable.

Daniel Tamayo of Raymond James inquired about the progress and future goals for the loan-to-deposit ratio initiative, its potential impact on loan growth, expectations for 2025 deposit growth, and whether the rising CRE concentration is a concern.

Answer

President and CEO Ray Reitsma confirmed the mid-90% range remains the goal for the loan-to-deposit ratio and that the focus is on deposit-rich clients rather than reining in loan growth. He projected low double-digit deposit growth for the upcoming year. Regarding CRE, Reitsma and EVP & CFO Chuck Christmas explained the mix should remain consistent, with Christmas noting that the construction loan funding pipeline has decreased, which should temper CRE growth.

Daniel Tamayo from Raymond James asked for the specific cost of new deposits in the third quarter and sought clarification on the outlook for Net Interest Margin (NIM) compression beyond Q4. He also questioned if the current reserve level is considered appropriate given the economic outlook and credit trends.

Answer

EVP and CFO Chuck Christmas explained that new deposit costs were in the high 4% to low 5% range before dropping 50 basis points with the Fed cut. He clarified that significant NIM compression was expected in Q4 due to rapid rate cuts, but the margin should be 'relatively steady' in 2025 assuming a more gradual cutting cycle. Regarding reserves, Christmas noted the level is influenced by qualitative factors, including a specific increased allocation for softness in the C&I portfolio's automotive segment, which was partially offset by the release of reserves from two paid-off problem loans. President and CEO Raymond Reitsma underscored the noted deterioration in the automotive risk profile.

Daniel Tamayo inquired about Webster Financial's ability to reprice funding downward following the most recent rate cut and the impact on loan rates and spreads. He also asked if recent private credit and NBFI issues affect the bank's view of the Marathon Asset Management JV.

Answer

Neal Holland (CFO) stated that Webster is positioned neutrally, saw variable rate portfolio yields decline, and aggressively repriced commercial deposits, with consumer deposit repricing now moving down. He noted they are balancing the loan-to-deposit ratio with repricing speed, targeting a beta just shy of 30%. John Ciulla (CEO) affirmed that recent market events have no impact on the Marathon Asset Management JV, which is viewed as both a risk management tool and an offensive opportunity, emphasizing their conservative approach to sponsor finance and focus on predictable cash flows.

Daniel Tamayo of Raymond James Financial asked about demand trends in the sponsor finance business and the expected movement and strategy for the brokered deposit portfolio.

Answer

COO & President Luis Massiani confirmed the sponsor finance pipeline has improved and expects better growth, aided by the Marathon JV. Senior EVP & CFO Neal Holland explained that brokered deposits are used seasonally to manage liquidity and are expected to remain in a comfortable 3-5% range of total deposits.

Daniel Tamayo of Raymond James sought to clarify the relationship between the 25-35 basis point net charge-off assumption and the increased provision for a potential recession. He also asked about credit migration trends specifically within the sponsor finance portfolio.

Answer

CEO John Ciulla explained that the 25-35 bps charge-off range is a base-case assumption and is not directly triangulated with the short-term provision build for a recessionary scenario, which is based on a cumulative life-of-loan CECL model. He stated that if CECL works as intended, temporary spikes in charge-offs shouldn't automatically trigger significant new provisions. Regarding the sponsor book, he noted that outside of health care, it has performed as expected, with very little historical loss, and does not present a unique concern.

Daniel Tamayo from Raymond James asked for the rationale behind the 30% downward deposit beta assumption, given the higher beta during rate hikes, and questioned if the 2025 NIM guidance of 3.35%-3.40% represents a stable, normalized level for the bank.

Answer

CFO William Holland explained the 30% beta assumption is based on a different operating environment than the previous 0% rate world, with DDA balance trends being a key variable. He affirmed that, given the bank's neutral positioning and current variables, the 3.35%-3.40% range is a good midterm level to consider for the organization's normalized margin.

Daniel Tamayo of Raymond James sought clarification on the timing of a potential "inflection in credit," asking if non-accrual loans are nearing a peak and how that outlook affects capital return decisions. He also asked about the cadence of loan growth in Q3 and the expected mix going forward.

Answer

CEO John Ciulla projected a credit inflection point in the first half of 2025, driven by falling interest rates, which informs the decision on initiating buybacks in Q4 or H1 2025. He confirmed Q3 loan growth was more "back-ended," providing momentum, and reiterated a focus on C&I growth with residential mortgages used to supplement, maintaining a ~5% annualized growth outlook.

Daniel Tamayo from Raymond James Financial, Inc. asked for clarification on F.N.B.'s exposure to non-depository financial institution loans, seeking details on their concentration and a breakdown of the types of companies within this category to provide comfort around credit quality. He also inquired about the runway for continued fee income growth, given the 9% CAGR over the last decade, and specific areas of investment driving future expansion.

Answer

Chief Credit Officer Gary L. Guerrieri and Chairman, President, and CEO Vincent J. Delie explained that F.N.B.'s non-depository financial institution loans are primarily diversified across wealth management, advisory, insurance, and investment firms, with lending for working capital and expansion, explicitly stating they do not lend to private capital funds. Delie and CFO Vincent J. Calabrese highlighted future fee income growth drivers including recent investments in investment banking, public finance, hedging, and treasury management, particularly targeting the small business segment with AI-driven tools. They also anticipate a significant pickup in mortgage banking fee income in a lower rate environment and continued growth in wealth management.

Daniel Tamayo of Raymond James Financial questioned the Q3 net interest margin guidance, asking if it implies a contraction before expanding again, and sought clarification on the drivers for the increased expense guidance beyond the Down Payment Assistance Program.

Answer

CFO Vincent J. Calabrese clarified that the net interest margin is expected to be "flattish to up a tick" for the rest of the year, factoring in September and December rate cuts. He attributed the strong Q2 performance to earning asset growth, higher yields, and lower funding costs. Regarding expenses, Calabrese confirmed the Down Payment Assistance Program was a key driver, with higher revenue-tied commissions also contributing. He also mentioned recent investments in commodities hedging, public finance, and investment banking that are expected to drive future fee revenue.

Daniel Tamayo from Raymond James asked about potential risks to the mid-single-digit loan growth guidance, borrower sentiment amid tariff uncertainty, and the specifics of the credit risk assessment, including the potential impact of a recession on reserves.

Answer

CEO Vincent J. Delie acknowledged that loan pipelines are softer year-over-year due to tariff uncertainty causing a pause in client CapEx, but he expects a pickup in the second half. Chief Credit Officer Gary L. Guerrieri detailed a proactive survey of over 50% of the C&I portfolio, which identified that less than 5% of exposures face a greater impact from direct tariffs. CFO Vincent J. Calabrese added that a moderate recession scenario would likely require a reserve build of about half of what was seen during the pandemic.

Daniel Tamayo inquired about the timing and growth prospects for F.N.B.'s new fee income initiatives and the primary drivers behind the 2025 expense growth guidance.

Answer

CEO Vincent J. Delie explained that investments in new business lines like public finance and commercial investment banking are expected to generate revenue in 2025 and become meaningfully accretive in 2026. CFO Vincent J. Calabrese added that the 2025 expense guidance of approximately 4.6% growth reflects continued investments in risk management infrastructure for heightened standards as the bank approaches $50 billion in assets, partially offset by ongoing cost-saving initiatives.

Daniel Tamayo sought clarification on the fourth-quarter net interest income guidance, the implied margin compression, and the expected run rate for net charge-offs.

Answer

CFO Vincent J. Calabrese explained the NII guidance assumes further rate cuts and a conservative 15% deposit beta, suggesting the margin should be 'flattish' or down only a few basis points. Chief Credit Officer Gary L. Guerrieri noted that while charge-offs might normalize from current record lows, he expects continued strong performance due to proactive risk management. CEO Vincent J. Delie added that the bank's risk ratings are current, so no surprises are anticipated.

Daniel Tamayo of Raymond James Financial inquired about expense guidance for the second half of the year, the company's appetite for share repurchases, and the outlook for credit charge-offs.

Answer

CFO James Reske indicated that consensus expense forecasts were reasonable but noted potential for seasonal declines in both noninterest income and expenses in Q4. Regarding buybacks, Reske explained the company uses a price-sensitive grid, setting a cap (e.g., potentially $17) and buying on dips rather than repurchasing at any price. Chief Credit Officer Brian Sohocki addressed credit, stating that charge-offs have normalized after previous headwinds and are expected to return to the mid-20 basis point range, absent the single large commercial floor plan credit.

Daniel Tamayo inquired about the sustainability of loan growth, particularly in the equipment finance portfolio, and its potential performance in an economic slowdown. He also asked about borrower sentiment in the commercial and CRE books, and the drivers behind the strong growth in the savings deposit segment.

Answer

President and CEO Thomas Michael Price and Chief Lending Officer Michael McCuen noted strong momentum in equipment finance, partly due to talent investment and competitors pulling back. They observed that commercial clients, having learned from the pandemic, are proactively managing supply chains against tariff uncertainty. Regarding deposits, Price and Bank President Jane Grebenc explained that the growth in savings is partly due to customers parking funds from maturing CDs while awaiting rate clarity, and a strategic focus on deposit gathering.

Daniel Tamayo asked for details on the drivers of the 2025 fee income guidance, specifically mortgage banking, loan sales, and card income, and inquired about the expected drivers and ramp-up timing for the mid-single-digit loan growth forecast.

Answer

CFO James Reske explained that card income has stabilized post-Durbin impact, while SBA and mortgage businesses are performing well. He noted strong swap fee income in Q4 might not repeat at the same level but is primed for growth. President and CEO Thomas Michael Price added that year-over-year gains in SBA, mortgage, and wealth management's trust income successfully blunted the Durbin impact. Regarding loan growth, Price stated it will be a gradual ramp-up driven by a mix of CRE, C&I, indirect auto, and equipment finance, with a long-term strategic goal to increase the C&I portfolio to over 25% of the balance sheet.

Daniel Tamayo inquired about the future size of the securities portfolio, the target for the loan-to-deposit ratio, and requested details on the two legacy loans that required specific reserves during the quarter.

Answer

CFO Jim Reske stated that the securities portfolio is expected to grow by approximately $100 million in 2025. An executive, likely Chief Credit Officer Brian Taake, detailed the specific reserves: a $2.7 million reserve on a $10 million mixed-use office construction loan in Pittsburgh and a $2.8 million reserve on a $4.8 million term loan within the sponsor finance portfolio.

Daniel Tamayo of Raymond James Financial asked for specifics on the transportation C&I loan that drove the increase in non-performing assets (NPAs), including its size and reserve status. He also sought guidance on the outlook for SBA loan sale gains amid rising competition.

Answer

CFO Brian Spielmann clarified the loan that moved to non-performing status was approximately $6 million. CEO Corey Chambas added that the loan has been through an impairment analysis, is specifically reserved for, and is considered fully collateralized. Regarding SBA loans, Chambas noted that Q2 was lower than expected but anticipates volumes will bounce back closer to Q1 levels for the remainder of the year.

Daniel Tamayo inquired about the underlying components of the net interest margin (NIM), including new versus roll-off loan yields, and the potential for spread tightening. He also asked about the company's exposure to potential U.S. trade tariffs and the nature of the recent increase in equipment finance charge-offs.

Answer

CFO Brian Spielmann and CEO Corey Chambas stated that new loan yields are stable, with pricing over SOFR in the 2.25% to 2.75% range for competitive credits, and that the company no longer provides specific quarterly new loan yield data as it can be skewed by business mix. President and COO Dave Seiler noted that while there is client uncertainty regarding tariffs, no significant impact has been observed due to limited direct international exposure in their client base. Chief Credit Officer Bradley Quade clarified that the equipment finance charge-off was a one-quarter anomaly that accelerated future expected losses.

Daniel Tamayo inquired about the bank's 10% annual loan growth guidance, specifically asking for color on the fourth-quarter decline in the C&I loan bucket and its expected mix for the upcoming year. He also asked about the funding strategy, including opportunities for core deposit growth and the long-term mix between core and wholesale deposits.

Answer

CFO Brian Spielmann explained that C&I loans are expected to constitute a larger portion of growth in the coming year as CRE activity slows, attributing the Q4 decline to some asset-based lending loan payoffs. Executive Corey Chambas stated the funding mix will likely remain 70-80% in-market deposits and 20-30% wholesale to maintain a match-funded balance sheet. President and COO David Seiler added that core deposit growth is driven by a sales-oriented treasury management team, new hires, and strong banker incentives, evidenced by 11% growth in treasury management fees.

Daniel Tamayo from Raymond James asked about the drivers of loan demand and the expected loan mix in upcoming quarters. He also inquired about the outlook for overall net charge-offs, particularly concerning the previously mentioned pressures in the transportation portfolio, and asked for specifics on the reserves.

Answer

President and COO David Seiler indicated that he expects C&I loan growth to outpace CRE growth, highlighting strong demand in the Accounts Receivable Finance and vendor finance areas. Executive Corey Chambas stated that net charge-offs would likely remain at current levels as the transportation portfolio issues continue to work through the system. CFO Brian Spielmann specified that the reserves were primarily related to the Equipment Finance small-ticket transportation portfolio.

Daniel Tamayo asked about the future trajectory of credit quality, specifically whether reserve levels and net charge-offs have stabilized, and requested clarification on the financial impact of crossing the $10 billion asset threshold, including the Durbin amendment.

Answer

President Dave Antolik stated that the focus is now on stabilizing credit quality at current low levels, with future provisioning likely driven by loan growth rather than significant charge-offs. CEO Chris McComish highlighted this was the result of a multi-year effort. CFO Mark Kochvar confirmed the Durbin amendment impact is an estimated $6-7 million annually and that the bank has already made the necessary infrastructure investments to operate above the threshold.

Daniel Tamayo asked about the potential credit impact from tariffs on the loan portfolio, the outlook for credit quality normalization and reserves, and specifics on net interest margin drivers.

Answer

President Dave Antolik explained that the bank actively monitors tariff risk using detailed customer-level data and feels confident in its risk management practices. Executive Mark Kochvar noted that the allowance for credit losses is likely near its bottom, with the Q1 decrease driven by a specific reserve release. He also detailed that new loan yields are providing support to the NIM, which is expected to remain stable due to favorable repricing in loans, securities, and swaps.

Daniel Tamayo inquired about S&T Bancorp's loan growth outlook for 2025, credit quality trends, and the stability of the bank's reserve levels.

Answer

President Dave Antolik confirmed a bullish loan growth trajectory, expecting mid-single-digit growth in H1 2025 accelerating to high mid-single-digits for the full year, driven by a doubled pipeline, new banker hires, and improved customer confidence. On credit, Antolik noted that while criticized and classified loans are nearing a bottom after significant improvement, the bank does not foresee any outsized charge-offs. Executive Mark Kochvar added that the reserve ratio could see further modest decreases, but the dollar amount may rise with loan growth.

Daniel Tamayo inquired about the outlook for normalized net charge-offs and provisioning, given recent credit quality improvements. He also sought clarification on the net interest margin (NIM) guidance, asking how the forecast would change if anticipated Fed rate cuts did not materialize.

Answer

President Dave Antolik stated that Q3 charge-off levels are close to what he considers normalized and that future provisioning will support loan growth, though there is still room for improvement in criticized and classified assets. Executive Mark Kochvar explained that if the Fed cuts rates more slowly, the NIM would likely take longer to stabilize and would probably do so at a level slightly higher than the low 3.70s projected under a deeper cutting scenario.

Daniel Tamayo of Raymond James Financial inquired about the outlook for credit quality, focusing on the trajectory of charge-offs in the small ticket leasing portfolio versus the core bank. He also sought clarity on the drivers behind the significant Q2 provision for credit losses and whether management views the current reserve level as adequate for future expected losses.

Answer

President & CEO Tyler Wilcox explained that small ticket leasing charge-offs are expected to plateau in the second half of the year, consistent with Q2 levels, as the high-balance account portfolio continues to run off. He contrasted this with the strong health and nominal charge-offs in the core portfolio. Wilcox detailed that the large Q2 provision was a confluence of factors, including reserves on a specific commercial credit, a periodic CECL model update, and reserves for a specific tranche of leasing delinquencies, stating his belief that provisions have peaked and the bank is now appropriately reserved.

Daniel Tamayo inquired about the future trajectory of charge-offs, specifically comparing the troubled small ticket leasing portfolio to the rest of the bank's loans, and asked how the reserve levels might evolve given the specific provisions and recent updates to CECL model loss drivers.

Answer

Tyler Wilcox, President, CEO & Director, explained that charge-offs in the small ticket leasing portfolio are expected to plateau over the next two quarters at levels similar to Q2, driven by the runoff of high-balance accounts. He stressed the health of the core portfolio, noting that only about half of the quarter's specific reserves were for leasing, with the rest tied to a single commercial relationship. Wilcox clarified that the CECL model update was a routine biennial process and stated his belief that the provision for credit losses peaked in the second quarter.

Daniel Tamayo inquired about the credit outlook, focusing on the trajectory of charge-offs for the small ticket leasing portfolio versus the rest of the bank. He also asked for details on the reserve build, including the impact of specific reserves and CECL model changes, and whether the provision for credit losses has peaked.

Answer

President and CEO Tyler Wilcox explained that small ticket leasing charge-offs are expected to plateau in the second half of the year, consistent with Q2 levels, as the bank works through high-balance accounts. He emphasized the health of the core portfolio, which has nominal charge-offs. Wilcox clarified that the provision build was driven by multiple factors, including reserves on a single commercial relationship and a periodic CECL model update, and stated his belief that the provision has peaked and the bank is now appropriately reserved.

Daniel Tamayo of Raymond James Financial inquired about the credit outlook, focusing on the trajectory of charge-offs in the small ticket leasing portfolio versus the rest of the bank. He also asked for clarification on the components of the quarter's large provision for credit losses, including specific reserves and the impact of updated CECL model loss drivers.

Answer

President & CEO Tyler Wilcox explained that small ticket leasing charge-offs are expected to plateau over the next two quarters, consistent with Q2 levels, while the core portfolio remains healthy. He detailed that the large provision was due to a confluence of factors: a $3.8 million increase in reserves on individually analyzed loans (half for leasing, half for one commercial relationship), a $2.5 million increase for small ticket leases, and a $2.3 million increase from a periodic CECL model update. Mr. Wilcox stated his belief that the provision has peaked and the bank is now appropriately reserved.

Daniel Tamayo of Raymond James Financial inquired about credit quality, focusing on the trajectory of charge-offs in the small ticket leasing portfolio versus the rest of the bank. He also asked for clarity on the provision for credit losses, specifically the drivers behind the increase in reserves and the outlook for future reserve levels.

Answer

President & CEO Tyler Wilcox explained that small ticket leasing charge-offs are expected to plateau in the second half of the year, consistent with Q2 levels, as the high-balance account portfolio runs off. He emphasized the health of the core portfolio remains strong. Wilcox clarified that the large Q2 provision was due to a confluence of factors, including reserves on a specific commercial relationship, a periodic CECL model update, and issues in the leasing portfolio, stating that he believes the provision has now peaked.

Daniel Tamayo asked for clarification on the reduced fee income guidance, the outlook for CD repricing throughout the year, and the yields on new loans originated during the quarter.

Answer

Kathryn Bailey, CFO, explained the fee income guidance reduction was due to softer-than-expected insurance commissions, a decision to hold more mortgage loans on the balance sheet, and market volatility impacting wealth management income. She projected accretion income to be 15-17 basis points in Q2, falling slightly in the second half of the year. Ms. Bailey also noted significant opportunities to reprice the retail CD portfolio downward, as they continue to manage special rates lower. Regarding loan yields, she stated that while there was some compression, spreads remain attractive, particularly in the North Star Leasing portfolio.

Daniel Tamayo sought clarity on the drivers behind the 2025 net interest margin guidance of 4.00% to 4.20%, including deposit beta assumptions, and asked about the biggest perceived credit risk for the upcoming year.

Answer

CFO Kathryn Bailey confirmed the NIM guidance includes 15-20 basis points of accretion income and is supported by the ability to lower deposit costs due to a lag in raising them. Executive Tyler Wilcox identified external factors like inflation and interest rate shifts as the primary credit risks, while expressing high confidence in the overall quality of the diversified loan portfolio.

Daniel Tamayo inquired about the credit outlook for the small ticket leasing portfolio, asking for specifics on expected charge-off levels, the drivers for their normalization, and which industries the bank is exiting.

Answer

Tyler Wilcox, an executive, explained that he expects small ticket leasing charge-offs to peak in Q4 2024, with a full-year rate between 5% and 6%, before normalizing in the low-to-mid 4% range. He noted this is in line with historical pricing for the highly profitable business. Wilcox specified that the bank has backed away from titled fleet, over-the-road trucking, garment printers, and has reduced hospitality exposure to focus on core areas like manufacturing and landscaping equipment.

Daniel Tamayo questioned the dynamics of loan growth for the remainder of the year and sought color on the nature of conversations with regulators regarding the pending merger compared to the past.

Answer

CEO Frank Sorrentino acknowledged a temporary client pause but sees momentum returning, reaffirming a mid-to-high single-digit growth forecast for the year, supported by a strong NY metro market. CFO William Burns provided specific guidance for 2.5% sequential loan growth in Q2. Regarding regulators, Mr. Sorrentino described the relationship with the FDIC and state authorities as cooperative and 'standard business,' seeing no significant change in their review process.

Daniel Tamayo of Raymond James followed up on loan growth, asking how CRE concentration factors into the bank's growth outlook. He also questioned the sensitivity of the loan portfolio's credit quality to potential interest rate changes and sought clarity on the specific drivers for the projected decline in non-performing loans (NPLs).

Answer

CFO Bill Burns clarified that recent CRE growth was largely in owner-occupied and construction loans, and the overall CRE concentration is expected to trend downward. Regarding credit, he stated that while the repricing portfolio is under some stress, it has been 'remarkably sound' and any issues can be absorbed by earnings. Burns explained the anticipated NPL decline is due to active negotiations to sell a specific group of loans that have already been written down.

Daniel Tamayo requested clarification on the 10-basis-point increase in the spot net interest margin (NIM), asking for the baseline it was measured against. He also questioned the drivers behind the slight decrease in loan yields in Q3 and sought more detail on the increase in criticized loans.

Answer

CFO Bill Burns explained that the spot NIM was up 10 basis points from the Q3 average, leading to a Q4 NIM projection of 2.80%, assuming one more rate cut. He attributed the Q3 loan yield dip to the impact of the 50 bps rate cut and a large nonaccrual interest recapture in the prior quarter. Burns also clarified that the rise in criticized loans was primarily due to modifications on a single large CRE relationship, which he noted is well-secured and on a path to restoration.

Speaking on behalf of Daniel Tamayo of Raymond James, Tim Delas asked for an update on the Banking-as-a-Service (BaaS) strategy, including the nature of potential deposits. He also inquired about the comfort level with the current loan-to-deposit ratio and the expected tax rate for 2023.

Answer

Executive Eric Lemke explained the BaaS strategy is slow and deliberate, focusing on deposit-gathering partners, with an expected cost of funds materially cheaper than wholesale rates. Executive Jeffrey Ludwig stated the current loan-to-deposit ratio of just under 100% is as high as they'd like it to be, with plans to bring it down through slower loan growth and the GreenSky runoff. Eric Lemke projected the 2023 tax rate would be relatively stable with the Q4 2022 level.