Gary Tenner

Gary Tenner from D.A. Davidson asked about the drivers behind the $10 million quarter-over-quarter decline in mortgage fee income, beyond the MSR sale impact, given stable production and gain-on-sale margins. He also requested the year-end unpaid principal balance of the mortgage servicing portfolio. Finally, he inquired about Ameris Bancorp's approach to share repurchases, specifically how they balance stock price levels with their opportunistic buyback appetite.

Answer

CFO Nicole Stokes attributed the mortgage fee income decline to a heavier mix of less profitable wholesale production and seasonal pipeline reductions in Q4. She noted that for the full year, mortgage revenue was down 8% while expenses were down 4%, aligning with efficiency ratio expectations. Stokes stated the year-end unpaid principal balance of the servicing portfolio was $8.7 billion, representing 4% of Tier 1 capital. CEO Palmer Proctor explained that share buybacks are viewed as an investment in the company, similar to an M&A opportunity, and they will remain selective based on this perspective.

Gary Tenner inquired about the specific drivers of the mortgage segment's revenue decline beyond the MSR sale, the unpaid principal balance of the servicing portfolio, and Ameris Bancorp's capital allocation strategy, particularly regarding share buyback sensitivities to price levels.

Answer

CFO Nicole Stokes attributed the mortgage segment's Q4 revenue decline to a heavier mix of less profitable wholesale production and seasonal pipeline value reduction, noting that full-year mortgage revenue was down 8% while expenses were down 4%, aligning with a 50% efficiency ratio. She stated the unpaid principal balance of the servicing portfolio was $8.7 billion at year-end. CEO Palmer Proctor reiterated an opportunistic approach to buybacks, viewing it as investing in the company itself, similar to evaluating M&A opportunities.

Gary Tenner asked Gregory Garrabrants, CEO of Axos Financial, to characterize the opportunity presented by the recently announced Qualia partnership.

Answer

Gregory Garrabrants, CEO of Axos Financial, described the Qualia partnership as a significant opportunity, highlighting Qualia's innovative financial technology leadership in the escrow space and its potential to enhance Axos's deposit-gathering capabilities, particularly within exclusive territories.

Gary Tenner asked about the Verdant acquisition's impact on fees and expenses, specifically if a higher-than-expected percentage of assets were classified as operating leases. He also sought clarification on the interplay between Verdant's depreciation/amortization and fee growth, the nature of a $7 million increase in G&A expenses, and the opportunity presented by the Qualia partnership.

Answer

Derrick Walsh, EVP and CFO, clarified that the classification of over $200 million in operating leases from Verdant was expected, and previous communications might have presented a net rather than gross impact. He stated that the 30% expense growth target applies to salaries and professional services, not depreciation, and that Verdant's depreciation run rate is now established, aligning with fee income increases. Mr. Walsh explained the $7 million G&A increase was a one-time accrual related to a denied claim on subordinated loans from a clearing matter seven years prior. Gregory Garrabrants, CEO of Axos Financial, described the Qualia partnership as significant, leveraging Qualia's leadership in the escrow space to enhance specialty deposits and explore innovative collaborations.

Gary Tenner from D.A. Davidson & Co. asked for the rationale behind the recent multifamily loan sale. He also inquired about the expected primary drivers of loan growth in fiscal 2026 and sought clarification on whether the upcoming California tax benefit would be reinvested or flow directly to the bottom line.

Answer

President & CEO Gregory Garrabrants and EVP & CFO Derrick Walsh clarified that the sale involved a handful of multifamily loans and was an opportunistic decision based on interest from buyers. For fiscal 2026, Mr. Garrabrants identified C&I and commercial real estate specialty as the largest growth drivers, with contributions also expected from cap call, lender finance, and jumbo mortgage. He definitively stated that the benefit from the lower California tax rate will go to the bottom line, as the company's expense discipline ratio is a pre-tax measure.

Gary Tenner requested details on the drivers behind the sequential improvement in special mention and substandard loans and asked about the rationale for reallocating the allowance for credit losses (ACL) from real estate to C&I loans.

Answer

CEO Gregory Garrabrants explained that the improvement in criticized loans was driven by timely payoffs, refinancings, and some loan sales at par, highlighting the strong underlying collateral value. CFO Derrick Walsh and Mr. Garrabrants attributed the ACL shift to two factors: loan growth was primarily in the C&I portfolio, and the quantitative model, incorporating Moody's economic forecasts, reflected increased risk from potential tariffs which disproportionately impacted the C&I outlook.

Gary Tenner asked for Axos's thoughts on re-engaging with the cryptocurrency sector, the drivers behind the recent increase in non-performing assets (NPAs), and the demand drivers within the CRESL portfolio.

Answer

President and CEO Greg Garrabrants stated that re-engaging with crypto requires more specific regulatory clarity and rules from primary regulators and the SEC. Regarding NPAs, he explained that the increase was due to a few idiosyncratic situations, such as a syndicated lender finance loan where the borrower is current but information is lacking. He expressed confidence that there is minimal loss content in the NPAs, noting many are paying and that the bank is proactively managing them. For CRESL, he specified that demand is primarily in multifamily and condo projects, both bridge and construction, in metro markets like Florida, Texas, and Southern California.

Gary Tenner of D.A. Davidson & Co. asked about credit migration trends beyond the specific non-performing loans discussed, the drivers behind the quarterly expense increase, and whether the tightening of C&I loan spreads was concentrated in a specific area like fund finance.

Answer

President and CEO Greg Garrabrants stated he feels good about credit quality, noting that issues are idiosyncratic and resolutions are progressing without expectations of material loss. He clarified that spread pressure is not primarily in the niche fund finance business but more in standard 'club deals' where competitors are quick to concede on pricing. CFO Derrick Walsh attributed the expense increase to recent team hires and data processing costs, while Mr. Garrabrants added that he does not expect a similar level of growth next quarter as the company focuses on efficiency.

Gary Tenner inquired about the key leverage points impacting Trustmark's 2026 guidance across growth, fees, and expenses, and asked for specific drivers behind the sequential increase in wealth management revenue during Q4 2025.

Answer

Chief Financial Officer Tom Owens identified loan growth and capital deployment as primary drivers. President and CEO Duane Dewey highlighted improving mortgage market conditions, record wealth management revenue in 2025, and new talent acquisition in wealth management. Chief Credit and Operations Officer Barry Harvey emphasized continued focus on expense management. Duane Dewey further explained that Q4 wealth management revenue growth was driven by general improvement in asset values, new account acquisition, investments in the business, cross-sales, and the successful conversion to a new brokerage platform, with no unusual one-time items.

Gary Tenner asked for more details on Trustmark's producer and producer-supporting hires, specifically if there was a particular segment or deposit-focused area they were leaning into, beyond the previously mentioned geographic focus. He also inquired about the repricing timing of the company's public funds deposits, which constitute 13%-14% of total deposits.

Answer

Duane Dewey, President and CEO, reiterated the geographic focus on high-growth markets like Houston, Atlanta, Birmingham, and Huntsville. He highlighted good success in the equipment finance team and noted that new hires are diversified across commercial real estate, corporate banking, commercial banking, and even mortgage production in new markets. Tom Owens, EVP and CFO, clarified that public funds balances are largely administered or floating rate, with only a small percentage bid on fixed rates for extended periods.

Gary Tenner inquired about Trustmark's specific focus areas for producer and producer-supporting hires, asking if there were particular segments being emphasized beyond geographical focus. He also asked about the repricing timing and nature of the company's public funds deposits, which constitute 13% to 14% of total deposits.

Answer

President and CEO Duane Dewey stated that hiring is geographically focused on key growth markets like Houston, Atlanta, and Huntsville, and diversified across business lines including equipment finance, commercial real estate, corporate banking, commercial banking, and mortgage production. EVP and CFO Tom Owens clarified that public funds deposits are largely administered or floating rate, with only a small percentage bid on fixed rates for extended periods.

Gary Tenner of D.A. Davidson & Co. asked if the C&I loan traction in Q4 was sustainable or seasonal and inquired about potential restrictions on the stock repurchase program.

Answer

Chief Credit and Operations Officer Robert Harvey confirmed the C&I momentum is expected to continue, driven by new bookings and a rise in line utilization to 36%. CEO Duane Dewey added that the recent hiring of over 10 new C&I-focused production personnel should bolster performance. Regarding repurchases, Dewey noted the main constraint is the $100 million board authorization, with deployment depending on organic growth and M&A. CFO Thomas Owens added that with a CET1 ratio of 11.5%, there will likely be continued opportunity for buybacks.

Gary Tenner from D.A. Davidson & Co. asked for clarification on Q3 loan yields, questioning if any unusual loan fees influenced the metric. He also requested more detail on the two commercial credits that drove the quarterly increase in nonperforming assets (NPAs).

Answer

CFO Thomas Owens stated there was nothing particularly unusual regarding loan fees in the third quarter. Chief Credit and Operations Officer Robert Harvey explained the NPA increase was driven by two corporate customers. One was a relapsed credit moved back to nonaccrual, and the other was a troubled credit that required concessions. He expressed confidence that both have been appropriately reserved for based on current appraisals and liquidation estimates.

Gary Tenner asked about the competitive landscape and pricing power within the CD market, particularly given the recent rate cutting cycle, and inquired about the board's consideration for a higher dividend payout.

Answer

Romolo C. Santarosa, CFO, noted that wholesale funding rates haven't significantly decreased despite Fed actions, and the yield curve remains inverted on the short end. Anthony Kim, Chief Banking Officer, highlighted intense competition as customers seek to lock in higher rates, leading to a lower CD retention rate of 80% as the bank avoids irrational pricing. Bonnie Lee, President and CEO, added that some smaller banks are still running aggressive CD promotions. Mr. Santarosa confirmed that the dividend is typically reviewed annually, with the board considering past performance and the 2026 outlook.

Gary Tenner asked about the competitive landscape for CD repricing, noting a lack of significant pricing power despite the cutting cycle, especially compared to strong money market pricing power. He also inquired if the dividend payout would be reviewed in the first quarter, similar to the annual review for share repurchases.

Answer

CFO Romolo C. Santarosa noted wholesale funding hadn't moved much despite Fed rate reductions, and the yield curve remained inverted. Chief Banking Officer Anthony Kim and President and CEO Bonnie Lee explained intense CD competition, with some banks offering promotions above 3.85%, leading Hanmi to accept a lower retention rate (80%) rather than offering irrational rates. CFO Romolo C. Santarosa confirmed the dividend would typically be reviewed at least once a year, around the current time, considering past performance and future outlook.

On behalf of Gary Tenner, an analyst asked if C&I loans are expected to be the primary driver of loan growth in the second half of the year. He also inquired about the expected level of share buybacks given the bank's capital position and whether operating expenses are projected to remain stable.

Answer

CBO Anthony Kim confirmed that the C&I pipeline entering Q3 is significantly higher and that C&I, along with mortgage and SBA, will drive growth. CEO Bonita Lee added that overall production is typically higher in the second half. On buybacks, CFO Romolo Santarosa deferred to the board's quarterly decisions but pointed to the recent historical repurchase range of 25,000 to 75,000 shares per quarter as a reference. He also affirmed that expenses are expected to remain in a relatively stable range, accounting for normal seasonal variations.

On behalf of Gary Tenner, an analyst questioned the outlook for loan growth given flat production, whether deposit growth would align with loan growth, and how to model future share repurchases.

Answer

CEO Bonita Lee clarified that while production was solid, a 17% year-over-year increase in loan payoffs impacted net growth. She reiterated the forecast for low-to-mid-single-digit loan growth for the year and confirmed that deposit growth should follow a similar trend. CFO Romolo Santarosa stated that share repurchases would be opportunistic, depending on market conditions.

Gary Tenner asked about the outlook for the efficiency ratio, specifically whether there is much more room to push it lower from its current 40% level, considering the projected margin expansion and expense growth. He also questioned whether the bank currently has sufficient headcount to achieve its 10% loan growth target for 2026, or if there's an assumption of additional hires early in the year to support that growth.

Answer

James Beckwith, President and CEO of Five Star Bancorp, indicated that significant further reduction in the efficiency ratio is unlikely. He attributed this to continuous investment in the business, particularly in expanding the front-end staff (business development, support, and lenders), which he views as a long-term strategy for organic growth. Both Mr. Beckwith and Heather Luck, EVP and CFO, confirmed that the 10% growth target is achievable with the current team. Ms. Luck noted that the 12 BDOs hired in 2025 are still ramping up and will contribute to this growth.

Gary Tenner questioned the bank's efficiency ratio outlook, asking if there was significant room to push it lower given the expected margin expansion and expense growth. He also inquired whether the current headcount was sufficient to achieve the projected 10% loan growth for 2026, or if additional hires were anticipated early in the year to support this target.

Answer

James Beckwith, President and CEO, indicated that pushing the efficiency ratio significantly lower would be challenging due to continuous investment in the business, particularly in growing the front-end staff (biz dev, lenders, support). He emphasized a long-term organic growth strategy. Heather Luck, EVP and CFO, added that the 10% growth target is achievable with the current team, noting that the 12 BDOs hired in 2025 are still ramping up and will contribute to future growth.

An analyst on behalf of Gary Tenner from D.A. Davidson & Co. asked for specifics on loan purchase volumes during the quarter, whether there was anything unusual in the net interest margin (NIM) expansion, and the company's tax rate outlook for the remainder of 2025.

Answer

EVP and CFO Heather Luck stated that the bank purchased approximately $44 million in loans during the quarter, clarifying this was primarily to maintain their target outstanding balance of around $300 million as existing loans amortize. President and CEO James Beckwith explained the NIM expansion was driven by a combination of existing CRE loans resetting at higher rates and strong new loan production, which, as Heather Luck added, had a weighted average rate of 7.03% in Q2. For the tax rate, Luck advised using a range of 26.65% to 26.83% for modeling purposes.

Gary Tenner inquired about the specific model changes and factors that led to the increase in the allowance for credit losses, and also asked for commentary on the current loan pricing environment and the intensity of competition.

Answer

Executive Vice President & CFO Heather Luck explained the higher allowance was primarily due to portfolio growth and revised economic forecasts from the FOMC, rather than changes in model weightings. James Beckwith, an executive, added that the model is sensitive to GDP and unemployment forecasts. On pricing, Beckwith acknowledged a competitive market, especially in multifamily, but noted the bank is still achieving decent spreads and is benefiting from older loans repricing at significantly higher rates, which has so far occurred without creating credit concerns.

Gary Tenner asked for more color on the deposit growth mix, noting the high proportion of noninterest-bearing accounts within the non-wholesale growth. He also inquired about trends in the non-wholesale interest-bearing book, such as customer churn or balance usage for loan paydowns. Lastly, he requested the spot rate for the cost of deposits as of September 30.

Answer

Executive James Beckwith explained that the significant growth in noninterest-bearing deposits stems from new relationships established earlier in the year, which are now being funded, a cycle that can take 6-9 months. He expects this trend to continue as the bank onboards new clients. Beckwith added that he has not seen any noticeable evidence of customers using interest-bearing balances to pay down loans outside of the normal course of business. CFO Heather Luck provided the September 30 cost of deposit spot rate as 2.66%.

Gary Tenner sought clarification on Western Alliance's non-deposit cost expense growth for 2026, asking if flexibility in this area was primarily tied to changes in the Category 4 threshold rather than tethering to revenue growth, implying it's largely investment for long-term opportunities. He also asked for a first-quarter sense of the commercial banking fee line, specifically if a blend of Q3 and Q4 2025 results would be a more reasonable expectation.

Answer

President and CEO Ken Vecchione confirmed that the flexibility in non-deposit cost expense growth is indeed tied to potential changes in the LFI (Large Financial Institution) guidance, as the current outlook includes full expenses for the $100 billion asset threshold. CFO Vishal Idnani indicated that the commercial banking fee line is expected to fade from Q4 numbers in Q1 2026, as the Q4 results included a very large, lumpy settlement, but noted a good pipeline for future transactions.

Gary Tenner sought clarification on whether flexibility in non-deposit cost expense growth is primarily tied to the Category IV threshold rather than revenue. He also asked for a first-quarter sense of the commercial banking fee line, specifically if a blend of Q3 and Q4 results would be a more reasonable expectation than Q4 alone.

Answer

Ken Vecchione, President and CEO, confirmed that flexibility in non-deposit cost expense growth is indeed more related to the Category IV threshold. Vishal Idnani, CFO, indicated that the commercial banking fee line would likely fade from Q4 numbers in Q1, acknowledging its lumpiness, but noted a good pipeline for future disbursement transactions. He emphasized that Q4 included the largest case in U.S. history, implying diminished results in Q1/Q2.

Gary Tenner from D.A. Davidson followed up on shareholder returns, asking about the potential for a share buyback, and inquired about the expected timing of loan growth in the second quarter.

Answer

President and CEO Kenneth Vecchione stated that the bank prefers to deploy excess capital into loan growth, which they believe provides better long-term value than buybacks, and noted a strong CET1 ratio is a competitive advantage. He also mentioned that Q2 loan growth would likely materialize in the middle to back half of the quarter.

Gary Tenner sought clarification on the ECR rate structure for non-mortgage warehouse deposits and asked about the assumptions for equity investment gains within the 2025 fee income guidance, trying to identify the sources of growth.

Answer

Interim CEO and CFO Dale Gibbons clarified that the fee income growth is not dependent on equity gains. The growth is expected to come from two main sources: increased service charges in the regional banking division and growing payment revenue from the digital disbursements and settlement services businesses. He also noted most ECR arrangements are binary, though some unique cases exist.

Gary Tenner requested a more precise timeline for when the bank expects its GAAP Net Interest Income (NII) in dollar terms to bottom out and begin growing again in 2025, based on the company's rate forecast.

Answer

CEO Ken Vecchione declined to provide a specific quarter for the GAAP NII trough in 2025. He stated that the company had already provided significant clarity on its 2025 outlook, particularly regarding the growth of its adjusted NII (net of ECR costs), and would offer more detailed full-year 2025 guidance during the Q4 earnings call.

Gary Tenner asked about the 25% payments revenue growth for 2026, confirming if J.B. Hunt's revenue impact was embedded in the guidance and seeking specifics on its contribution. He also requested the TPay/payment-specific expense run rate for Q1 to understand its movement relative to the consolidated expense guide.

Answer

Aaron Graft, Founder, Vice Chairman, and CEO, confirmed J.B. Hunt's impact is embedded but Todd Ritterbusch, President of Payment and Banking, stated they cannot disclose client-specific pricing. Todd Ritterbusch explained that the core payments business (29.5% EBITDA margin last quarter) will see continued revenue growth from repricing and new clients, while expenses will remain relatively flat, driving higher EBITDA margins. Aaron Graft clarified the distinction between 'core payments' and the broader 'payment segment' which includes LoadPay investment.

Gary Tenner asked about the 25% transportation growth in payments revenue for 2026, confirming if the revenue impact from the J.B. Hunt relationship was already embedded in the guidance. He also inquired about the specific revenue contribution expected from J.B. Hunt and the TPay/payment-specific expense run rate for the first quarter, seeking clarity on how it moves relative to the consolidated expense guide.

Answer

Kim Fisk, Chief Operating Officer, TriumphPay, confirmed that J.B. Hunt's impact is embedded in the guidance but stated that specifics of individual client pricing or revenue cannot be disclosed. She explained that within the core payments business, continued revenue growth from repricing and new clients will be met with relatively flat expenses, driving higher EBITDA margins. Aaron Graft, Founder, Vice Chairman, and CEO, further clarified the distinction between 'core payments' (trending at 30% EBITDA margin) and the overall payments segment, which includes investment in LoadPay, reiterating the long-term goal of 50%+ EBITDA margin for the combined segment.

Gary Tenner of D.A. Davidson & Co. asked for commentary on the competitive impact of DAT's acquisition of the Alco payment platform. He also requested a breakdown of the USPS fee collection between interest income and fees.

Answer

Aaron Graft, Founder, Vice Chairman & CEO, acknowledged that DAT's acquisition positions them as a competitor in the factoring space but expressed confidence in Triumph's ability to compete. W. Brad Voss, CFO, clarified that the entire USPS fee collection was recognized as interest income.

Gary Tenner of D.A. Davidson & Co. asked for commentary on the competitive threat from DAT's acquisition of a payment platform and requested a breakdown of the recovered USPS fees.

Answer

CEO Aaron Graft acknowledged that DAT's acquisition positions them more directly in the factoring space, viewing it as another competitor among hundreds that sharpens their execution. CFO W. Brad Voss clarified that the entire USPS recovery amount was recognized as interest income.

Gary Tenner sought to confirm if the new Intelligence segment was driven by client demand rather than a push from Triumph, and asked if the rollout of LoadPay would follow a similar, measured pace as Factoring-as-a-Service.

Answer

CEO Aaron Graft confirmed the Intelligence segment was a "pull from clients," shaped by their specific pain points and needs. Regarding LoadPay, Executive Todd Ritterbusch explained that while it is sold alongside FaaS for maximum value, it also has parallel sales channels. Graft elaborated that these channels include over 8,000 existing factoring clients and over 20,000 active select carriers on TriumphPay, giving LoadPay a significant distribution advantage and a high chance of success.

Gary Tenner of D.A. Davidson & Co. asked for details on Triumph's existing relationships within the 200,000 owner-operator market targeted by LoadPay and the unit economics of the service. He also requested color on the previously mentioned loss of a network factor.

Answer

CEO Aaron Graft detailed the LoadPay distribution strategy, targeting 8,500 existing factoring clients, 20,000+ select carriers, and partners like C.H. Robinson. He explained that while it's too early for precise net margin data, the revenue is primarily from interchange fees and expenses are already being carried. President of TriumphPay Melissa Forman clarified that the lost network factor simply moved its relationship off the network.

Gary Tenner of D.A. Davidson & Co. inquired about the primary drivers for revenue growth for the remainder of the year, highlighting Load Pay and a new integration. He also asked if the disparity between modest invoice volume growth and strong fee growth in the Payments segment was a key indicator of improved monetization.

Answer

Executive Aaron Graft confirmed several revenue drivers beyond those mentioned, including monetizing legacy payment clients (like C.H. Robinson), returning trucking companies to the factoring market, and new revenue from the 'green screens' platform. He noted Q2 would be 'noisy' and the back half of the year would offer a clearer view. An unnamed executive and Graft clarified that payment fees are charged on all transactions, not just network ones, allowing fee income to grow independently of volume as they reprice clients and demonstrate enhanced value.

Gary Tenner asked for details on Q4 2025 loan production, specifically the amount from Texas and Colorado and how it compared to Q3 levels. He also inquired about the mix of production in that footprint, asking if it remains real estate heavy or is shifting towards more traditional C&I.

Answer

COO Stephen Young reported that Texas and Colorado combined for $888 million in loan production in Q4 2025, a 15% increase from Q3, with full-year 2025 production up 10% over 2024. He noted that 17 of the 26 commercial RMs added in Q4 were in Texas and Colorado. Stephen Young explained that while they historically excel in CRE lending, SouthState is leveraging its tech and treasury management platforms to layer on C&I bankers, aiming to diversify the mix without stopping their strong CRE business.

Gary Tenner from D.A. Davidson & Co. asked for details on SouthState Bank's Q4 loan production, specifically the amount originating from Texas and Colorado, and how it compared to Q3 levels for those markets. He also inquired about the mix of production within that footprint, asking if it remains real estate-heavy or is shifting towards more traditional Commercial & Industrial (C&I) loans.

Answer

Stephen Young, COO, reported that Q4 loan production in Texas and Colorado combined was $888 million, a 15% increase from Q3's $775 million. He noted that full-year 2025 production in these markets was up 10% versus 2024, with 17 of the 26 commercial RMs added in Q4 being in Texas and Colorado. Regarding the mix, Stephen Young stated that while they want the Texas and Colorado teams to continue their strong historical CRE lending, SouthState is leveraging its tech, treasury management, and capital market platforms to layer on C&I bankers, with much of the recruiting activity focused on this shift.

Gary Tenner inquired about the dynamics driving the 11 basis point increase in the cost of transaction and money market accounts quarter-over-quarter, and whether it was related to new deposit acquisition efforts. He also sought clarification on the 27-30% deposit beta guidance (if it was incremental or cumulative) and asked for an updated outlook on non-interest expense for Q4 and 2026.

Answer

Steve Young, Chief Strategy Officer, attributed the higher deposit costs to expectations and the funding of loan growth, particularly in the CD book, noting the challenging deposit environment. He clarified that the 27-30% deposit beta is incremental for the next phase of easing. CFO Will Matthews reiterated Q4 non-interest expense guidance of $345-$350 million, noting that cost saves from the Independent acquisition are largely realized. For 2026, he suggested a mid-single-digit expense growth, around 3% for inflation plus additional investment in organic growth initiatives.

Gary Tenner questioned the dynamics behind the 11 basis point increase in the cost of transaction and money market accounts quarter-over-quarter, asking if it was an effort to attract new deposits for anticipated growth. He also sought clarification on the deposit beta, confirming if the 27%-30% range refers to the next phase of easing incrementally, rather than cumulatively. Finally, he asked for an update on the non-interest expense outlook for Q4 and 2026, given prior guidance for a step down.

Answer

Chief Strategy Officer Steve Young explained that the higher cost of deposits (1.91% vs. expected 1.85%-1.90%) was driven by the CD book, which transacted at higher rates to fund loan growth and balance sheet needs. He confirmed that the 27%-30% deposit beta refers to the next incremental phase of easing, not cumulative, and that the company hopes to outperform this. CFO Will Matthews reiterated the Q4 non-interest expense guidance of $345M-$350M, noting that cost saves from the Independent acquisition are largely realized. For 2026, he suggested a mid-single-digit growth, around 3% for inflation plus additional investment in organic growth initiatives.

Gary Tenner from D.A. Davidson asked about deposit rate dynamics, specifically the notable growth in CDs and the pricing environment for them. He also sought to understand the drivers of the 7 basis point expansion in core loan yields, excluding accretion.

Answer

Chief Strategy Officer Stephen Young explained that CD growth is directly tied to funding the bank's loan growth, and incremental deposits will naturally come at higher market rates. He attributed the core loan yield expansion to the ongoing repricing of the loan portfolio and reiterated that yields should continue to increase in a flat rate environment.

Gary Tenner of D.A. Davidson & Co. questioned the cause of the loan decline at IBTX post-announcement and sought clarity on the potential impact of a bond trade related to the sale-leaseback.

Answer

CEO John Corbett attributed the IBTX loan decline to the planned wind-down of its mortgage warehouse business, which was factored into the deal model, along with some Q4 CRE paydowns. President William Matthews clarified that while no decision has been made on a securities restructure, a reasonable approach would be to neutralize the incremental lease expense from the sale-leaseback.

Gary Tenner of D.A. Davidson & Co. asked if the larger-than-expected September rate cut would delay NIM expansion in Q4. He also requested a target for the expense-to-average-assets ratio for the end of 2025, once the IBTX merger is integrated.

Answer

Executive Stephen Young clarified that the Q3 NIM of 3.40% serves as a new baseline, and with deposit rates cut on October 1, he expects NIM to expand by 4-5 basis points in Q4. Regarding expenses, Executive William Matthews noted they are still finalizing 2025 plans but are confident in achieving stated cost saves. Stephen Young provided a more specific target, estimating the pro forma expense run rate would be around 2% of assets by the end of 2025.

Gary Tenner asked about the expected trend and opportunities for the swap business in a more steady-state interest rate environment, and how the company plans to leverage its correspondent banking network for cross-selling swap products.

Answer

CFO Greg Robertson stated that even in a challenging rate environment, the swap business offers opportunities as bankers become more accustomed to managing rate risk on longer-duration fixed-rate loans through swaps. CEO Jude Melville added that swaps provide clients with more options and help the bank manage interest rate risk without guessing on rates. He emphasized the significant opportunity in cross-selling swap products to the 175-180 community bank clients in their correspondent network, many of whom currently only use one product.

Gary Tenner asked about the expected trend of the swap business in a more steady-state interest rate environment. He also inquired about the opportunities within correspondent banking, particularly regarding cross-selling products to existing clients and other banks.

Answer

Chairman and CEO Jude Melville and CFO Greg Robertson explained that while lower rates might reduce swap activity, the bank's strategy involves integrating the swap vehicle to manage rate risk on longer-duration fixed-rate loans, offering clients more options, and managing interest rate risk. Jude Melville highlighted the opportunity to grow swap volume by educating banker partners and cross-selling to other banks within their community bank network, noting recent closures for other institutions. He also emphasized the significant opportunity in correspondent banking to increase "share of wallet" by cross-selling multiple products (SBA, swaps, investment portfolio management via SSW) to their 175-180 clients, most of whom currently use only one service.

Gary Tenner asked for an update on CD maturities in the first quarter, including their weighted average rate and the expected repricing rates. He also followed up on previous expectations for CD repricing in Q4 and inquired about the impact of fourth-quarter rate cuts on the floating-rate loan portfolio's floors.

Answer

CFO Edward J. Czajka reported approximately $1.3 billion in CDs maturing in Q1 at a weighted average rate of 3.96%, currently repricing around 3.70-3.80%. He confirmed that Q4 CD repricing was towards the upper end of expectations due to market competition. He also noted that rate cuts affected only about $150-$200 million of the loan book, with 45% of floors in the 0-100 basis point bucket.

Gary Tenner asked for an update on Preferred Bank's CD maturities in Q1 2026, including the weighted average rate of maturing CDs and the expected rates for new CDs. He also followed up on whether Q4 2025 CD repricing met earlier expectations and inquired about the impact of Q4 rate cuts on the bank's floating-rate loan portfolio floors.

Answer

Edward J. Czajka, CFO, stated that approximately $1.3 billion in CDs are maturing in Q1 2026 at a weighted average rate of 3.96%, with new CDs currently coming on at around 3.70-3.80%. He confirmed that Q4 repricing was at the upper end of expectations due to stronger-than-anticipated competition. Mr. Czajka also noted that Q4 rate cuts affected about $150-$200 million of the loan book, with 45% of floors now in the 0-100 basis point protection effectiveness bucket.

Gary Tenner of D.A. Davidson & Co. asked for color on the drivers behind the strong Q2 loan growth, especially in C&I and construction, and inquired about the outlook for Q3. He also questioned the strategy behind using borrowings to expand the bond portfolio.

Answer

EVP & Deputy COO Johnny Hsu attributed the C&I growth to increased line usage and new customers after a slow Q1, while noting construction growth was mainly from funding existing commitments. Chairman & CEO Li Yu added that new construction requests are increasing. Regarding the bond portfolio, an unnamed executive explained it was an opportunistic move to increase EPS, funding the investment at a rate 80 basis points cheaper than the yield on the ten-year assets purchased.

Gary Tenner from D.A. Davidson & Co. questioned the commentary on low activity levels given the 7.5% annual loan growth and asked about potential hiring plans to stimulate further activity.

Answer

Executive Wellington Chen attributed the dynamic to high churn in the bank's short-term and C&I loan portfolios. CFO Edward Czajka added that payoff activity has been elevated. Regarding growth initiatives, Czajka confirmed the bank has budgeted for new relationship and business development officers and is also opening a new branch in Manhattan, which will add to expenses.

Gary Tenner inquired about the loan growth pipeline following recent rate cuts, the strategy for funding loan growth while maintaining deposit pricing discipline, and the operating expense outlook for the fourth quarter.

Answer

Executives Wellington Chen, Johnny Hsu, and Li Yu confirmed that loan demand increased after the Fed's rate cut but highlighted the ongoing challenge of defending the existing portfolio from competition. Li Yu expressed confidence in the bank's ability to attract the necessary deposits to fund growth. Executive Edward Czajka projected Q4 operating expenses to be in the range of $20.5 million to $21.0 million.

Gary Tenner questioned if the primary risk to the $200 million trade finance portfolio was line paydowns and sought to understand the components of the $10 million sequential drop in loan interest revenue.

Answer

Chairman and CEO Li Yu stated that the trade finance portfolio is not showing abnormal activity, as customers are managing inventory and supply chains. Executive Edward Czajka confirmed the decline in loan interest revenue was driven by $3 million in interest reversals, a lower day count, and the full-quarter impact of loans renewing at lower yields.

Gary Tenner asked for clarification on the 7 basis point increase in loan yields, excluding the interest recovery, specifically if it was driven exclusively by increased C&I and ag portfolio outstandings. He also inquired about any day-one balance sheet restructuring plans for the Heritage Bank of Commerce transaction beyond what has already been announced.

Answer

President and CEO David A. Brager explained that the loan yield increase was not due to any single factor, with dairy borrowing mix contributing about 1 basis point, but primarily driven by the slow repricing of the commercial real estate book and replacing payoffs with higher-yielding new production. Regarding the Heritage deal, Mr. Brager confirmed the plan to sell approximately $400 million of non-customer single-family loans with long durations and low coupons, to be reinvested in shorter-duration securities, but stated that nothing else is currently contemplated for day-one restructuring.

Gary Tenner asked for clarification on the drivers behind the 7 basis point increase in loan yields (excluding the interest recovery), specifically if it was primarily due to increased C&I and agricultural loan outstandings. He also inquired about any day-one balance sheet restructuring plans related to the upcoming Heritage Bank of Commerce transaction.

Answer

E. Allen Nicholson, EVP and CFO, stated that while dairy borrowing mix contributed about a basis point, the primary driver of the loan yield increase was the slow repricing of the commercial real estate backbook and replacing payoffs with higher-yielding new production. David A. Brager, President and CEO, confirmed that the only announced balance sheet restructuring for the Heritage deal is the planned sale of approximately $400 million of non-customer-related, long-duration single-family loans, with no other plans contemplated at this point.

Gary Tenner inquired about the earlier-than-typical increase in dairy and livestock line utilization and whether this would mute the usual Q4 spike. He also asked about the company's plans for its $700 million interest rate swap arrangement, considering the outlook for lower short-term rates.

Answer

President and CEO David Brager clarified that the increase in dairy loans was primarily due to new relationships, not early utilization, and a normal Q4 increase is still expected. EVP and CFO Allen Nicholson stated that the interest rate swaps serve as a fair value hedge for equity and the AFS portfolio, with no plans for changes despite potential negative impacts from future rate cuts.

Gary Tenner asked about the earlier-than-typical increase in dairy and livestock line utilization and whether this would mute the usual large spike in the fourth quarter. He also questioned the company's thoughts on the $700 million interest rate swap arrangement, given the outlook for lower short-term rates.

Answer

President and CEO David Brager explained that the Q3 increase in dairy and livestock utilization was partly due to two new relationships, and despite milk price changes, a normal Q4 increase is still expected. EVP and CFO Allen Nicholson clarified that the interest rate swaps are viewed as a fair value hedge for equity and the AFS portfolio, and there are no plans to change the arrangement, which was extended last quarter to align with the AFS portfolio's duration.

Gary Tenner of D.A. Davidson & Co. asked about the headwinds from C&I line utilization, questioning if it was a customer-specific trend or indicative of broader regional weakness in California. He also inquired about the expected interest-bearing deposit beta for future rate cuts, given the bank's already low funding costs.

Answer

CEO David Brager attributed the lower C&I line utilization to the bank's high-quality customers using their abundant cash instead of borrowing at higher rates, viewing it as a temporary, customer-specific issue rather than a regional economic problem. Regarding deposit betas, Brager stated he expects a better beta on future rate cuts than the previous 30%, as the bank will be able to pass on 100% of the cuts to most special-priced money market accounts.

Gary Tenner of D.A. Davidson & Co. asked about the headwinds from C&I loan utilization, questioning if it was a customer-specific issue or a broader regional trend in California. He also sought the outlook for deposit betas during the next cycle of potential rate cuts.

Answer

CEO David Brager explained that lower C&I line utilization is a customer-specific trend, as high-quality clients with excess cash are choosing to pay down debt rather than a sign of regional economic weakness. He expressed optimism for a turnaround, citing strong underlying transactional activity. Regarding deposit costs, Brager projected that the bank's deposit beta would be more favorable than the previous 30% in future rate cuts, as they can now pass through 100% of the cuts to a larger portion of accounts.

Gary Tenner of D.A. Davidson & Co. asked for clarification on C&I loan headwinds, questioning if the trend was customer-specific or indicative of broader regional challenges in California. He also sought an outlook on deposit betas for future rate cuts, given the bank's already low funding costs.

Answer

President & CEO David Brager stated the C&I headwind is customer-specific, as their high-quality clients possess significant cash reserves, making it more economical to use their own funds than to borrow. He views this as a temporary situation. Regarding deposit betas, Brager expressed confidence that the bank would achieve a better beta on future rate cuts than the previous 30%, aiming for a 100% pass-through on certain accounts, which should improve the overall beta.

Gary Tenner from D.A. Davidson asked for clarification on C&I loan headwinds, questioning if the trend was customer-specific or indicative of broader regional weakness in California. He also sought the outlook for interest-bearing deposit betas in a potential future rate-cut environment.

Answer

President & CEO David Brager clarified that the C&I loan trend is customer-specific, not a regional issue. He stated that the bank's high-quality customers have significant cash reserves, making it more economical for them to pay down debt than to borrow at current rates. Regarding deposit costs, Brager expressed confidence that the bank's deposit beta on future rate cuts would be more favorable than the 30% experienced previously, as they would be able to reprice a larger portion of accounts with a 100% pass-through on cuts.

Gary Tenner inquired about the potential impact of tariff policies on the bank's agriculture portfolio and the current pace of commercial real estate (CRE) payoffs relative to new loan production.

Answer

President and CEO David Brager stated that while it's too early to determine the full impact of tariffs, the markets and customers have not yet shown significant negative effects. Regarding CRE, Mr. Brager noted that loan pipelines are strong, with April loan closings being the highest in 14 months, and he expressed confidence that new production would soon outpace payoffs. Executive E. Nicholson also directed attention to a slide detailing maturing CRE loans.

Gary Tenner asked about the intended use of proceeds from potential future sale-leaseback transactions, such as reinvestment or reducing wholesale funding. He also inquired if there was any 'noise' in the third-quarter loan yield expansion and asked about the expected impact of the recent 50 basis point rate cut on loan yields.

Answer

CEO David Brager explained that proceeds from future sale-leasebacks could be used for reinvestment, unwinding some hedges, or addressing a portion of their brokered CDs. He confirmed there was no unusual noise in the Q3 loan yield expansion. Regarding the Fed's rate cut, he noted that only about 10% of loans reset immediately, so the full impact of the 50 basis point cut would 'bleed out over time' rather than being felt all at once.

Gary Tenner inquired about Simmons First National Corporation's target or anchor for its loan-to-deposit ratio, given it has been in the mid-80s recently. He also asked about the company's funding strategy if loan growth were to outpace deposit growth over the year.

Answer

President and CEO James Brogdon stated that core customer deposits are the primary constraining factor for growth. He explained that if loan growth outpaces deposit growth, funding would first come from balance sheet cash flows (e.g., securities portfolio runoff), then potentially from more aggressive customer-side funding like promotional CD rates, with wholesale funding being the last resort.

Gary Tenner at DA Davidson inquired about the interplay between loan and deposit growth, specifically asking if there's an anchor for the loan-to-deposit ratio, which has been in the mid-80s. He also asked how Simmons First National Corporation plans to fund loan growth if it outstrips deposit growth over the year, considering options like securities portfolio runoff.

Answer

President and CEO James Brogdon confirmed that core customer deposit growth is currently the constraining factor for business growth. He stated that if loan growth outpaces deposit growth, the primary funding source would be cash flows from the balance sheet (e.g., securities portfolio runoff). Other options include becoming more aggressive with customer-side funding like promotional CD rates, with wholesale funding as a last resort.

Gary Tenner, Managing Director and Senior Research Analyst at D.A. Davidson, asked for the September 30 spot rate for deposits, given the quarter's various moving parts and reductions in indexed deposits. He also sought insights into the repricing dynamics of customer CDs maturing in the fourth quarter, including current rates and expected repricing benefits.

Answer

President Jay Brogdon indicated that a precise spot rate for deposits was not immediately available but directed to September margin disclosures and interest rate sensitivity slides for context. CFO Daniel Hobbs detailed that customer CDs maturing in the last 90 days repriced from an average of 3.77% to 3.53%. He expects this repricing benefit to moderate but anticipates potential tailwinds from future rate cuts. Hobbs also highlighted that approximately 75% of maturing CDs are retained, with a portion remixing into core deposits, providing additional pricing and mix benefits. Brogdon noted that deposit behavior was favorable during previous rate cuts, expressing hope for a continuation of this trend.

Gary Tenner of D.A. Davidson sought clarification on the modest decline in the loan pipeline from Q1 and inquired about the current hiring environment and opportunities arising from M&A disruption in markets like Texas.

Answer

President Jay Brogdon explained the lower pipeline was due to a significant "pull forward" of deals into Q1 and normal seasonality in the agri-business. He affirmed the company is actively investing in talent, viewing the competitive hiring environment and recent market disruption as a prime opportunity to attract high-quality bankers and customers.

Gary Tenner asked about the bank's long-term profitability goals, specifically questioning what rate environment is necessary to achieve a Return on Assets (ROA) above 1%.

Answer

President Jay Brogdon stated that a steeper yield curve is a key factor. He outlined a long-term operating model that could achieve a 1.25% ROA, based on a Net Interest Margin (NIM) around 3.50% and an efficiency ratio in the low 50s. He noted that reaching these targets depends on time, the rate environment, and potential balance sheet restructures to manage asset duration.

Gary Tenner of D.A. Davidson & Co. asked about the competitive lending environment and whether other banks were becoming more active. He also sought clarification on whether the recent increase in brokered deposits was intended to pre-fund maturing FHLB advances.

Answer

President Jay Brogdon acknowledged more willingness to lend across the industry but stated that a significant increase in loan demand has not yet materialized due to macro uncertainty. Regarding funding, Brogdon confirmed there is active management between FHLB advances and brokered deposits, and that the bank chose to utilize brokered funds over retaining certain high-cost customer CDs, while emphasizing a core focus on growing customer operating accounts.

Gary Tenner asked about Avidbank Holdings Inc.'s longer-term balance sheet management strategy, specifically the target size for the securities portfolio as a percentage of assets post-IPO. He also inquired about the specific lending segments driving the loan pipeline for Q4 2025 and early 2026, the current state of pricing competition, and whether the construction loan portfolio had effectively bottomed out after a significant year of payoffs.

Answer

CEO Mark Mordell indicated that the securities portfolio would be a smaller percentage of earning assets, likely managed between 10% and 15%, with plans to add $50 million to $75 million in securities in Q4 2025 to reach the 10% mark. He identified fund finance, commercial real estate (CRE), and specialty/asset-based lending (ABL) as the segments with robust pipelines expected to drive significant loan growth. Mordell described pricing as competitive, with some larger banks in CRE going into the fives, and stiff competition in transactional sponsor finance and fund finance, with most new business being prime plus. He confirmed that the majority of construction loan payoffs were likely through, implying that while some payoffs would continue, they would not be at the same amount and size as seen in 2024.

Gary Tenner from DA Davidson inquired about Avidbank Holdings, Inc.'s longer-term balance sheet management strategy, specifically the target size for the securities portfolio as a percentage of assets post-IPO. He also asked about the loan pipeline's growth opportunities across different segments for Q4 2025 and early 2026, the current state of pricing competition within those segments, and whether the construction loan portfolio's Q2 2025 balance marked its bottom after significant payoffs.

Answer

CEO and Chairman Mark Mordell stated that the securities portfolio is expected to be a smaller percentage of earning assets, targeting 10-15%, with plans to add $50-75 million in Q4 2025 to reach the 10% mark. He identified fund finance, commercial real estate, and specialty/asset-based lending as key growth segments with robust pipelines. Mr. Mordell noted competitive pricing, particularly in commercial real estate and transactional finance, with most deals at prime plus. He also indicated that the significant construction loan payoffs experienced in 2024 are largely complete, suggesting that the mid-year balance likely represented the bottom for that portfolio.

Gary Tenner asked about United Community Banks' capital deployment strategy, specifically regarding share buybacks following recent capital actions like preferred redemption. He also inquired about the notable increase in service charge income during the quarter.

Answer

Jefferson Harralson, EVP and CFO, outlined capital priorities: 1) organic growth, 2) dividend (recently raised 4%), 3) M&A opportunities, and 4) opportunistic buybacks. He stated that buybacks are lower on the priority list. Regarding service charge income, he noted there was nothing unusual, just better volume.

Gary Tenner asked about United Community Banks' capital deployment strategy, specifically regarding the prioritization of share buybacks following recent capital actions, and sought clarification on the notable increase in service charge income.

Answer

EVP and CFO Jefferson Harralson outlined capital priorities: organic growth, dividend, M&A, and then buybacks, noting the bank's opportunistic approach to buybacks. Regarding service charge income, he attributed the increase from $10.1 million to $11.4 million to better volume without any unusual changes in fee structure.

Gary Tenner asked about the assumptions behind Synovus's fourth-quarter loan growth outlook, specifically how much of the projected 4.5% year-end growth relies on a normalization of payoffs closer to Q2 2025 levels. He also inquired about the drivers of the pipeline build over the last quarter, distinguishing between increased customer comfort with the economy and other growth dynamics.

Answer

CEO Kevin Blair stated that the Q4 model assumes elevated production, continued strength, and payoffs remaining elevated but slightly below Q3 2025 levels, leading to 1-2% loan growth for the quarter. CFO Jamie Gregory noted that client surveys indicate general optimism, with more clients expecting business activity to increase in the next 12 months compared to the start of 2025. He suggested that while raw input prices are increasing for many, the overall sentiment is constructive, and expectations of declining interest rates may stimulate the economy, contributing to normal, steady pipeline growth.

Gary Tenner of D.A. Davidson asked about the competitive dynamics for recruiting talent in the Southeast and Synovus's differentiating value proposition, and also requested details on the Q2 share buyback.

Answer

CEO Kevin Blair highlighted Synovus's strong culture, its position of offering large-bank capabilities with small-bank service, and a supportive credit process as key differentiators for attracting talent. EVP & CFO Jamie Gregory provided the buyback details: 500,000 shares repurchased at an average price of $44.64.

Gary Tenner requested more specific details on the proportion of the customer base exposed to recent D.C. policy changes and asked for the average price of share repurchases during the quarter.

Answer

CEO Kevin Blair explained that while it's hard to isolate, direct client outreach and surveys suggest about 15-20% of clients feel they will have a meaningful direct impact, primarily through input costs. He emphasized that the bank's diversified balance sheet is the best mitigant. CFO Andrew Gregory provided the average share repurchase price as $49.41.

Gary Tenner asked whether loan balances could stabilize in the first quarter or if another quarter of contraction was more probable before growth resumes later in the year.

Answer

CEO Kevin Blair stated that the company expects to achieve modest loan growth in the first quarter. This outlook is based on current production pipelines and anticipated loan payoff activity.

Gary Tenner from D.A. Davidson & Co. followed up on the deposit strategy, asking if the plan was to keep the core time deposit book short-term for future repricing. He also requested more detail on the office loan relationship that moved to nonperforming status.

Answer

CFO Jamie Gregory confirmed the strategy is to maintain a short duration on the time deposit book to facilitate further downward repricing as the easing cycle progresses. An executive, Bob Derrick, provided color on the NPL, describing it as a relationship with two suburban office properties in different cities for which the bank has a resolution plan.

Gary Tenner asked for Hancock Whitney Corporation's spot rate for deposits as of September 30 and sought details on the quarter-over-quarter increase in non-accrual loans, specifically whether it was due to a single large credit or multiple downgrades.

Answer

CFO Mike Achary provided the spot rate for deposits as 1.63% at the end of September, with the Q3 average at 1.64% and cost of funds at 1.59%. Chief Credit Officer Chris Ziluca explained that the increase in non-accrual loans was a mix of transactions, primarily in the CNI (Commercial & Industrial) space, not consumer or CRI (Commercial Real Estate). He noted that companies are experiencing higher operating costs and normalizing performance, leading some to have issues that are processed through accrual/non-accrual and reserved accordingly, while expressing confidence in the consumer loan portfolio.

Gary Tenner from D.A. Davidson sought clarification on the share buyback plan, asking if it's based on a fixed dollar amount or number of shares, and questioned the dynamics of deposit growth, including CD retention and the role of public funds.

Answer

CFO Michael Achary clarified that the buyback plan is guided by a dollar amount, approximately $40 million per quarter, rather than a fixed number of shares. He also noted that CD retention is expected to remain strong and that seasonal public fund inflows of $200-300 million are a key driver for deposit growth in the fourth quarter.

Gary Tenner from D.A. Davidson asked for specifics on expected CD maturities and their repricing benefit in the second quarter. He also sought to confirm if the full-year deposit growth guidance implies a mix shift away from CDs.

Answer

CFO Michael Achary provided details, stating that for Q2, approximately $2.3 billion of CDs are maturing at a rate of 3.88% and are expected to reprice around 3.50% or lower. He confirmed that the low single-digit deposit growth guidance for the year is unchanged and accounts for seasonal public fund flows and the expected partial runoff of maturing CDs, which will result in a continued mix shift.

Gary Tenner of D.A. Davidson & Co. requested specifics on CD repricing for Q1 2025 and asked for context on how the planned 35 new banker hires would increase the existing production workforce.

Answer

CFO Michael Achary provided details that in Q1, $2.5 billion in CDs are maturing at 4.34% and are expected to renew around 3.74%. CEO John Hairston contextualized the hiring plan, stating it would result in a 15-20% increase in business bankers, a 10% increase in wealth advisors, and a 10% increase in commercial bankers by the end of 2026, with the financial impact being more significant in 2026 than 2025.

Gary Tenner asked for clarification on the updated PPNR guidance, noting it implied lower NII than previously expected, and also inquired about the scale and focus of the bank's new recruiting efforts.

Answer

CFO Michael Achary attributed the updated PPNR outlook to a flatter balance sheet than anticipated, which impacts NII, combined with non-repeatable specialty fee income from Q3 and a likely modest expense increase in Q4. President and CEO John Hairston stated that recruiting efforts are focused on higher-growth markets like Texas and Florida for commercial, business banking, SBA, and wealth advisors, but deferred providing specific hiring numbers until the January 2025 guidance call.

Gary Tenner from D.A. Davidson & Co. asked for guidance on when the company's balance sheet is expected to reach its lowest point and sought clarification on whether the remaining HFS loan dispositions would occur in a single securitization or multiple transactions.

Answer

CFO James Britton projected that the balance sheet would likely trough at the end of 2025, with a potential slight contraction in Q3 before growth resumes into Q4 and 2026. CEO Thomas Shafer added that he anticipates one additional securitization in the second half of the year, likely closer to the fourth quarter, supplemented by natural portfolio runoff.

Gary Tenner from D.A. Davidson & Co. asked for clarity on the interest rate assumptions underpinning the net interest margin (NIM) outlook and sought additional context on balance sheet size and mix. He also questioned the potential expense impact from remediating internal control issues.

Answer

CEO Thomas Shafer clarified that the NIM outlook conservatively assumes only two Fed rate cuts in 2025. He explained that the primary driver of balance sheet reduction will be the disposition of held-for-sale loans. Regarding expenses, Shafer acknowledged there will be periodic professional service costs to accelerate the remediation of internal controls, but he does not expect them to be significant.

Gary Tenner from D.A. Davidson & Co. asked for background on the significant commercial charge-offs, the strategy for managing customer service-related deposits, and the expected trajectory of compensation expenses following a Q4 spike.

Answer

CEO Thomas Shafer explained that the charge-offs were related to a few long-monitored, high-risk credits where performance deteriorated, making it the appropriate time to take action. Executive Jamie Britton addressed deposits, stating that while the company values its customer service-related deposit clients, it may reduce concentrations in certain relationships to improve the bank's risk profile, balancing this with client needs. Regarding expenses, Britton noted the Q4 compensation increase was driven by year-end non-executive bonuses and expects the level to be lower in Q1, with future increases tied to revenue growth.

Gary Tenner asked for clarification on the Allowance for Credit Losses (ACL), questioning if the increase would be a gradual bleed-up over time rather than a large one-time adjustment. He also asked about the specific yield on the loans that were reclassified to held-for-sale.

Answer

Executive Christopher Naghibi confirmed that the approach to increasing the ACL will be a pragmatic and gradual process over time, rather than a single large step-up, balancing regulatory and accounting considerations. Executive Jamie Britton addressed the loan yield question, advising that the best assumption for the held-for-sale loans is the weighted average of the overall multifamily portfolio, suggesting a range of 3.70% to 3.75%.

Gary Tenner of D.A. Davidson & Co. inquired about the financial impact of a recent California tax law change on the Q2 income tax rate and asked for clarification on the drivers for the Allowance for Credit Losses (ACL) refill, questioning if it was due to economic model changes or specific portfolio issues.

Answer

EVP & CFO Heng Chen explained that a $3.4 million write-off of a deferred tax asset, due to a lower California state apportionment, impacted the tax rate. He also confirmed the ACL provision was primarily driven by a 40 basis point increase in the unemployment factor within the Moody's economic forecast, rather than specific credit deterioration within the loan portfolio.

Gary Tenner of D.A. Davidson & Co. inquired about the financial impact of a recent California state tax change on the current quarter's income taxes and asked for the primary drivers behind the replenishment of the Allowance for Credit Losses (ACL).

Answer

Heng Chen, EVP & CFO, explained that the tax change resulted in a $3.4 million write-off of a deferred tax asset. He clarified that the ACL increase was primarily driven by updated Moody's economic forecasts, specifically a higher unemployment factor, and loan growth, which offset reductions in other specific reserves.

Gary Tenner of D.A. Davidson & Co. inquired about the impact of a recent California state tax change on the Q2 income tax rate and questioned the primary drivers for the increase in the allowance for credit losses (ACL) during the quarter.

Answer

EVP, CFO & Treasurer Heng Chen explained that a $3.4 million write-off of a deferred tax asset, due to lower state apportionment, impacted the tax rate. He further clarified that the ACL increase was mainly driven by updated, more pessimistic economic forecasts from Moody's, specifically higher unemployment projections, rather than specific portfolio issues.

Gary Tenner asked for details behind the revised 2025 loan growth guidance, which was lowered to 1-4%, questioning what management is observing in their loan pipeline and from C&I customers regarding investment plans.

Answer

President and CEO Chang Liu attributed the revised guidance to economic uncertainty, particularly the impact of tariffs on C&I clients who are pausing expansion to manage balance sheets. EVP and CFO Heng Chen added that the wider range also accounts for potential loan paydowns from importers who may halt business until conditions improve.

Gary Tenner of D.A. Davidson & Co. inquired about the potential credit impact from the recent Los Angeles wildfires and the bank's process for assessing exposure. He also asked about the reasons for the declining securities yield and the outlook for it going forward.

Answer

President & CEO Chang Liu stated that after assessing affected areas by ZIP code, the bank had no reported losses in its commercial real estate, business banking, or SBA portfolios, with only minimal impact on a few C&I and residential loans. EVP & CFO Heng Chen explained the securities yield decline was due to maturing high-yield debt being replaced by lower-rate treasuries, and the bank does not plan to expand the securities portfolio.

Gary Tenner inquired about the drivers behind the $10 million increase in the loan loss reserve and requested details on the maturity schedule for fixed-rate and hybrid loans heading into 2025.

Answer

EVP and CFO Heng Chen clarified that the increased provision was a general bolstering of reserves rather than a specific provision for the new $38 million nonaccrual loan relationship. Regarding the loan maturity schedule, Mr. Chen stated he would provide the specific data later, noting that most hybrid loans are residential mortgages.

Gary Tenner from D.A. Davidson questioned the low volume of share buybacks during the second quarter, especially when the stock price was lower, and inquired about the company's repurchase strategy going forward.

Answer

EVP & CFO Christopher Del Moral-Niles explained that the timing of the stock's price drop coincided with a self-imposed blackout period ahead of earnings. He stated that the bank was unable to capitalize on the lower prices but will continue to deploy its remaining $241 million authorization on an opportunistic basis.

In a follow-up question, Gary Tenner asked about the bank's plans for its $3.5 billion in Federal Home Loan Bank (FHLB) advances, specifically whether they would be rolled over or paid down.

Answer

CFO Christopher Del Moral-Niles described the FHLB advances as a flexible part of the balance sheet. He indicated the bank will continuously evaluate its options, which include paying them down with excess deposits or redeploying the funds into higher-returning securities, depending on market conditions.

Gary Tenner asked about the strategy for overall balance sheet growth and how the bank would prioritize the use of funds from its successful Lunar New Year CD special, specifically in relation to maturing FHLB advances.

Answer

CFO Christopher Del Moral-Niles explained the priority is first to support customer borrowing needs, then manage liquidity, and finally pay down higher-cost borrowings. He confirmed they strategically timed a $1 billion FHLB maturity to coincide with the CD campaign, providing flexibility to either roll it over or pay it down depending on deposit inflows.

Gary Tenner of D.A. Davidson asked about the potential for a stock buyback given the bank's capital position, the timing for the Territorial systems conversion, and whether this timeline would delay expected cost savings. He also inquired about the average yield on new loan production during the quarter.

Answer

Chairman, President & CEO Kevin Kim stated that the company is continuously evaluating capital deployment strategies. He also indicated the Territorial systems conversion is planned for completion by the end of the following year. EVP & CFO Juliana Balicka clarified that this timeline does not significantly delay cost savings, as the largest component was related to executive compensation, not IT. She also reported the average yield on new loan production was approximately 6.76%.

Gary Tenner from D.A. Davidson asked about the possibility of a stock buyback given the bank's strong CET1 ratio and stock price below tangible book value. He also inquired about the timing for the systems conversion of Territorial Bancorp.

Answer

Chairman, President & CEO Kevin Kim responded that the company is actively evaluating capital deployment strategies, including the recent securities repositioning. Regarding the systems conversion, Kim stated it is expected to be completed by the end of the following year (2026). EVP & CFO Julianna Balicka added that the largest component of cost savings, executive compensation, has already been realized and was not dependent on the IT conversion.

Gary Tenner of D.A. Davidson & Co. asked about the potential for a stock buyback given the bank's capital position, the timing for the Territorial systems conversion, and whether the conversion timeline would delay expected cost savings. He also followed up to ask for the average yield on new loan production during the quarter.

Answer

Chairman, President & CEO Kevin Kim stated that the bank is continuously evaluating capital efficiency and noted the system conversion for Territorial is planned for the end of the following year. EVP & CFO Julianna Balicka clarified that the conversion timing does not necessarily delay major cost savings, as those were primarily from executive compensation, not IT. She also reported the average yield on new loan production was approximately 6.76%.

Gary Tenner from D.A. Davidson asked about the potential for a stock buyback, the timing of the Territorial systems conversion, whether the conversion delay impacts cost-saving timelines, and the average yield on new loan production.

Answer

CEO Kevin Kim stated that the company is evaluating capital efficiencies, including opportunities beyond the recent securities repositioning, and that the Territorial system conversion is planned for the end of 2026. CFO Julianna Balicka clarified that the conversion delay does not significantly push out cost savings, as the largest savings from executive compensation have already been realized. Balicka also reported that the average yield on new loan production in the quarter was approximately 6.76%.

Gary Tenner asked about the potential for a share buyback given the bank's strong capital position, the timing for the Territorial systems conversion, whether the conversion delay impacts cost-saving timelines, and the average yield on new loan production for the quarter.

Answer

Chairman, President & CEO Kevin Kim stated that the company is evaluating capital efficiencies beyond the recent securities repositioning and that the Territorial systems conversion is planned for the end of 2026. EVP & CFO Julianna Balicka clarified that the conversion delay does not significantly impact cost savings, as the largest savings were from executive compensation. Balicka also provided the average yield on new loan production as approximately 6.76%.

An analyst on behalf of Gary Tenner asked for more specifics on the loan segments driving the second-half growth guidance, the precise Net Interest Margin (NIM) impact of a 25 basis point rate cut, and for color on credit quality, including any emerging points of stress.

Answer

Chief Financial Officer Julianna Balicka reiterated that loan growth momentum is coming from Korean subsidiary sectors and specialized C&I teams like healthcare and project finance. She stated the NIM impact of a rate cut would largely wash out and declined to give a specific basis point figure. Chief Operating Officer Peter Koh addressed credit, stating that asset quality remains stable and healthy, and while monitoring the tariff environment, the bank sees borrowers proactively diversifying supply chains.

Gary Tenner questioned the deposit trends during the quarter, particularly the mix shift and the competitive pricing environment in the Korean-American banking space. He also sought to clarify if the Q4 gain on SBA loan sales represents a good quarterly run rate for the 2025 fee income guidance.

Answer

CFO Julianna Balicka explained that the Q4 deposit outflows were typical seasonal fluctuations related to commercial depositors in the mortgage industry. She acknowledged the market remains competitive but highlighted the company's success in achieving a 42% beta on interest-bearing deposit costs. Chairman, President and CEO Kevin Kim confirmed that the fourth quarter's gain on SBA loan sales is a good run rate to assume for 2025.

Gary Tenner of D.A. Davidson & Co. inquired about Hope Bancorp's loan portfolio, specifically the percentage of floating-rate loans and the volume of fixed-rate loans set to reprice in 2025. He also asked about deposit pricing, including the impact of the recent rate cut and current offer rates for maturing CDs.

Answer

CFO Julianna Balicka detailed the loan portfolio, stating that 45% of loans are variable-rate, with $760 million of fixed-rate loans scheduled to reprice in 2025. Regarding deposits, Balicka noted that costs for money market, savings, and CD accounts have been reduced, with a beta of approximately 60% on the adjusted accounts. She added that new CDs are being originated at a blended rate of about 4.25%.

Gary Tenner highlighted a discrepancy between the press release, which attributed the ACL decline to an improved forecast, and management's cautious commentary. He also requested an update on accretion income expectations and the bank's comfort level with its CET1 ratio in relation to buybacks.

Answer

President and CEO Jared Wolff conceded the press release wording was a "misstatement" and the ACL decline was driven by loan mix changes. CFO Joseph Kauder clarified that Q1 accretion was low on prepayments and the NIM guide is based on baseline accretion. Wolff added that the bank aims to keep its CET1 ratio at 10% or above and will be opportunistic with buybacks.

Gary Tenner sought clarification on the quarterly cadence of the 2025 expense guidance, the seasonality of the HOA deposit business, and the realized deposit beta from the recent Fed rate cut.

Answer

CFO Joseph Kauder clarified the expense guidance is a range for the year, with Q1 typically being the peak for compensation expense. CEO Jared Wolff explained that HOA deposit balances tend to see outflows at year-end and month-end. Wolff also confirmed the bank achieved an approximate 54% beta on the most recent rate cut, demonstrating effective deposit cost management.

Gary Tenner of D.A. Davidson & Co. asked for clarification on loan yields, seeking to understand the core impact of new production on a quarter-over-quarter basis, adjusted for the Civic loan sale. He also inquired about the bank's expense-to-average-assets target.

Answer

CFO Joe Kauder noted the 6.18% loan yield would have been higher absent the Civic sale and highlighted new production yields around 8.3%. CEO Jared Wolff added that while floating rates will decline, new loan yields remain significantly higher than payoffs, which should incrementally grow the portfolio yield. Wolff also reaffirmed the long-term target for expense-to-average-assets is around 2%, excluding customer-related deposit costs.

Gary Tenner of D.A. Davidson & Co. asked for the yield on the sold CIVIC loan portfolio, sought to confirm if the Q4 NIM guidance includes a potential balance sheet repositioning, and requested more detail on the elevated FDIC expenses.

Answer

CEO Jared Wolff and CFO Joe Kauder reported the yield on the sold CIVIC loans was approximately 6.0% to 6.25%. Kauder confirmed the Q4 NIM guidance is inclusive of an assumed repositioning, though the guidance remains cautious. The executives explained that the quarterly FDIC expense was noisy due to true-ups and a special assessment, which is why they are guiding to a normalized run-rate of $10-$12 million by Q4.

Gary Tenner asked if securities portfolio cash flows are being reinvested, whether the fee income run-rate could exceed the $60 million annual baseline, and for clarification on the change in CECL model weighting.

Answer

Executive William Holford stated that cash flows are currently paying down wholesale funding but will be reinvested once loan growth resumes. CFO Terry Earley and CEO Malcolm Holland expressed high confidence in the fee income outlook, citing broad-based momentum across multiple areas. Terry Earley clarified that while the overall 65% downside weighting in the CECL model was unchanged, weight was shifted from a moderate downside scenario to the most pessimistic scenario.

Gary Tenner asked about the reinvestment strategy for the securities portfolio's cash flows, whether fee income momentum could lead to a higher full-year baseline, and for clarification on the change in the CECL model's downside scenario weighting.

Answer

Executive William Holford explained that due to muted loan growth, securities cash flows have been used to reduce wholesale funding, but the bank will reinvest more actively once loan growth resumes. CFO Terry Earley and CEO Malcolm Holland expressed confidence that broad-based momentum across all fee income categories supports their full-year target. Terry Earley clarified that while the total downside weighting in the CECL model remained at 65%, a portion was shifted from a less severe scenario to the most pessimistic scenario out of caution.

Gary Tenner of D.A. Davidson inquired about the reinvestment strategy for the securities portfolio's cash flows, the outlook for achieving a fee income run rate in the '$60 million handle' for the year, and the specific changes to the downside scenario weighting in the CECL model.

Answer

Executive William Holford explained that due to muted loan growth, securities cash flows are currently being used to pay down wholesale funding, but the bank will reinvest more actively once earning asset growth resumes. CFO Terry Earley and CEO Malcolm Holland expressed confidence in reaching the fee income target, citing broad-based momentum across customer swaps, card services, treasury, and syndications. Regarding the CECL model, Terry Earley clarified that while the total downside weighting remained at 65%, some of that weight was shifted from a less severe scenario to the most pessimistic scenario (Scenario 4) out of caution.

Gary Tenner inquired about whether the bank's view on Commercial Real Estate (CRE) has changed with its concentration ratio now below 300%, the potential for tangible growth from wildfire rebuilding efforts, and asked for the total ACL including unfunded commitments.

Answer

CEO Steven Gardner responded that while their view on CRE hasn't materially changed, they are more constructive and willing to add slightly to the portfolio given abated uncertainties. He also expressed optimism about the bank's unique position to support rebuilding efforts after the wildfires. CFO Ronald Nicolas noted he would follow up with the specific ACL figure.

Gary Tenner inquired if the bank's view on Commercial Real Estate (CRE) has changed with its concentration ratio dropping below 300%, and asked about the potential for tangible growth from wildfire rebuilding efforts.

Answer

CEO Steven Gardner explained that while the lower CRE concentration doesn't materially change their view, they are more constructive on the segment as some uncertainties have abated, though they do not plan to grow it significantly. Regarding wildfire recovery, he noted that while cleanup will be a major effort, political leaders seem committed to reducing red tape, and the bank is well-positioned with capital and expertise to support rebuilding efforts in its communities.

Gary Tenner questioned the timing for Net Interest Income (NII) stabilization, asking if it would occur in Q1 2025, and sought reasons for the delayed balance sheet stabilization previously expected in late 2024.

Answer

CFO Ronald Nicolas stated they are cautiously optimistic that the net interest margin will stabilize in late Q4 2024 or early Q1 2025, driven by managing deposit costs down. CEO Steven Gardner added that the timing also depends on converting the growing loan pipeline into funded loans. Gardner attributed the delayed stabilization to surprisingly strong loan payoffs in Q3 and the managed exit of a large credit relationship in early Q4, combined with previously muted loan demand.

Gary Tenner of D.A. Davidson pressed for the counterargument against executing a bond portfolio repositioning, given the bank's strong CET1 capital levels and muted loan growth outlook. He also asked whether management expects deposit betas in an easing cycle to mirror those from the recent tightening cycle.

Answer

CEO Steven Gardner explained that arguments against a repositioning include the sizable immediate hit to earnings and tangible book value, uncertainty in the future interest rate environment, and questions around where to redeploy the cash. Regarding deposit betas, Gardner stated it's hard to predict but reiterated that their client relationships are based on service and trust, not price, and they have avoided aggressively repricing to retain all outflows.

Gary Tenner asked for management's perspective on the competitive environment in California, including lending appetite from competitors, opportunities for talent acquisition, and the current M&A landscape.

Answer

Executive Steven Gardner described a competitive landscape where some lenders are surprisingly aggressive on terms and deposit pricing, which he views as short-term thinking. He stated that while the bank is always looking to upgrade talent, it historically avoids team lift-outs. On M&A, Gardner cited significant headwinds, including valuations, market volatility, and major regulatory uncertainty regarding the timing of deal approvals, which has muted activity.

Gary Tenner of D.A. Davidson sought to clarify if the revenue guidance range was more sensitive to loan volume or interest rates. He also asked about the state of pricing competition on the lending side of the business.

Answer

CFO Valerie Toalson confirmed that based on current rate forecasts, volume is the more significant variable, though rate volatility could alter that. Executives Chris Bagley and Edward Braddock described a competitive lending environment, noting spread compression on the highest-quality corporate loans, while community bank lending also remains competitive.

Gary Tenner of D.A. Davidson asked about the bank's deposit pricing strategy following the September rate cut and the subsequent customer reaction. He also requested the interest-bearing deposit spot rate as of September 30.

Answer

Chairman and CEO James Rollins and President Chris Bagley stated that the bank moved aggressively to lower rates on its products immediately following the Fed's decision. Bagley acknowledged the market remains competitive but noted Cadence is well-equipped to retain and grow deposits. Management did not provide a specific September 30 spot rate but indicated it was dropped significantly from the quarter's average of approximately 3.30%.