Feddie Strickland • Hovde Group

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EVP & CFO Annette Burns explained that the company paid off $118 million of sub-debt with a 5.45% rate that was set to reset to nearly 9%. By using liquidity costing around 4.25-4.4%, the bank realized significant savings. Regarding credit, Burns stated that while Q2 performance was excellent, the low level of net charge-offs is not expected to recur. She guided that a more normalized quarterly range for net charge-offs is likely between $3 million and $5 million.

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CFO Annette Burns confirmed that the majority of future charge-offs are expected to come from the Auto and Residential Solar books, as commercial charge-offs are more episodic. Executive Scott Kingsley noted that the specific AUM/AUA figures were not in the presentation but offered to provide them offline.

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Senior EVP & CFO William Burns responded that he doesn't foresee major changes in classified/criticized assets but noted potential opportunities to unload some loans given the write-downs. Regarding capital, Burns explained that the CRE concentration is expected to decrease naturally due to new originations and strong capital accretion. While the bank initially planned to pause share repurchases post-merger, he indicated that capital ratios are looking stronger than anticipated, leaving the door open for future buybacks.

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CFO William Burns responded that credit quality has been steady and improving, with delinquencies at historically low levels and no significant workout pipeline. He noted that about $1 billion in loans are set to reprice through 2026, following a successful repricing of a similar amount since mid-2023. Mr. Burns explained that margin expansion is driven by both sides: repricing CDs on the funding side and a large portfolio of adjustable-rate loans that will benefit as deposit costs potentially fall.

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CEO Christopher Gruseke explained that while there is no hard target for DDAs, the bank aims to meaningfully expand them and reduce its wholesale funding ratio. He noted that future reductions in brokered deposits will be balanced against loan growth opportunities. President & Chief Banking Officer Matthew McNeill added that the healthcare loan book remains strong and is not expected to be materially impacted by recent legislative changes.

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Senior EVP and CFO Thomas M. Lyons confirmed it is possible to reach the lower end of the expense range, despite some nonrecurring severance costs in Q2, but maintained the full range due to potential incentive accrual adjustments later in the year. President and CEO Anthony Labozzetta explained that brokered deposits were strategically used to offset seasonal municipal outflows and replace higher-cost CDs. He anticipates strong municipal inflows during the third quarter.

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CFO Tom Lyons confirmed that quarterly expenses are expected to track toward the lower end of the guided $113 million to $115 million range for the rest of the year. CEO Anthony Labozzetta described the insurance business as seasonal, with Q1 and Q2 being the strongest, and noted it has been growing at a rate close to 20% year-over-year. On capital, Lyons stated that while they want the flexibility for opportunistic buybacks, their primary focus is deploying capital to fund the strong and profitable organic loan growth pipeline.

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CFO Tom Lyons detailed that approximately $3 billion in CDs will reprice over the next 12 months, noting the balance sheet is very neutral to rate changes. Regarding wealth management, Lyons stated there is little room to increase the fee rate, which is already strong. CEO Tony Labozzetta added that the focus is on growing assets under management (AUM) through cross-channel synergies. On credit, Lyons confirmed they are actively working to resolve the remaining nonperforming assets and REO through customer workouts and potential note sales.

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President & CEO Duane Dewey attributed the non-interest income growth to broad-based improvement across wealth management, brokerage, and mortgage banking. On M&A, he reiterated the focus on contiguous Southeastern markets for targets generally in the $1 billion to $5 billion asset range, while noting an increase in available opportunities and a willingness to be opportunistic.

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CFO David Kirkley acknowledged that the pace of NIM expansion from loan repricing might see a slight slowdown in Q3 but is expected to pick up again in Q4 and beyond as more fixed-rate loans originated in 2021 mature. On M&A, Chairman, President & CEO John Bordelon explained that the bank's improved stock valuation has expanded its potential target size up to the $1 billion asset range. He noted that while conversations have occurred in both Louisiana and Texas, the bulk of opportunities have been in Texas.

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CFO David Kirkley responded that no significant expense lumpiness is anticipated, with increases being gradual. Executive John Bordelon detailed the loan strategy, highlighting a focus on C&I lending to foster full banking relationships, and noted that loan pricing has stabilized. Regarding fee income, Bordelon acknowledged potential regulatory pressure on deposit fees, while Kirkley pointed to expected growth in treasury management fees, SBA loan sales, and mortgage loan sales as key drivers for noninterest income.

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Executive John Bordelon confirmed that a series of rate cuts could restore loan growth, particularly in the 1-to-4 family portfolio, and identified Houston, New Orleans, and Lafayette as the strongest growth markets. He clarified that a key nonaccrual credit was related to a partner dispute on performing rental properties and is expected to be fully resolved. CFO David Kirkley and Bordelon explained that gradual rate cuts allow them to manage repricing more effectively than the disclosure's shock scenario suggests, potentially protecting the margin. Kirkley noted that while annual merit raises occur in April, no other material expense drivers are anticipated for 2025.

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