Jared David Shaw • Barclays Capital

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Deputy CFO David Della Camera stated that while the bank is very comfortable with its current mid-12% CET1 ratio, it does not have a specific external target but has appropriate capital to consider various options. He also noted that DDA balances have stabilized in the 25-26% range of total deposits and are not expected to shift materially. CEO James Reuter addressed tariff risk, explaining that bankers are having robust conversations with customers, many of whom are better prepared for supply chain issues post-COVID, and he does not see an outsized concern in that area.

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President and CEO Jared Wolff acknowledged the optics but defended the underlying credit quality, highlighting a 1.43% coverage ratio on the core loan portfolio, excluding low-risk categories. He stated a preference to not let the ratio decline further and expressed hope that proactive risk-rating migrations would help stabilize or grow the ACL ratio in subsequent quarters.

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CEO Jared Wolff indicated that 11% CET1 is not a firm line in the sand and that capital actions could be considered below that level, depending on overall performance and peer comparisons. He noted that while there is some spread compression in permanent multifamily loans (repricing from low-4s to low-to-mid-6s), spreads in other commercial areas remain strong in the mid-7s and higher.

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Executive Travis Lan affirmed that they 'absolutely do' expect to reach a 3.10% NIM by year-end, driven by funding mix improvements and asset repricing. Chief Credit Officer Mark Saeger explained the allowance build was due to a loan mix shift towards C&I, which carries a higher reserve, not a change in the economic model. Both Travis Lan and CEO Ira Robbins stated they are comfortable with the current CRE portfolio and see no need for additional loan sales.

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Executive Travis Lan reported the yield on the sold portfolio was slightly above 7% and clarified the income statement line also included a ~$2 million gain from residential mortgage sales. He stated that more large CRE sales are not anticipated. CEO Ira Robbins added that core operating expenses have contracted year-over-year, with further efficiency opportunities available post-core conversion.

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Chief Risk Officer Lea Nakamura clarified that the reserve increase was driven by the quantitative component of their CECL model, not a qualitative overlay, making future ratio moves hard to predict. CEO Bob Harrison added that the dealer floor plan business is resilient, with strong operators who can pivot. He stated that while credit risk is not a major concern, the impact on loan balances from tariffs is uncertain and depends on manufacturer support and other unknown factors.

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CEO Bob Harrison attributed the payoffs to competitive pricing from a mainland lender on a few syndicated floorplan deals where the bank was a participant, not the lead. He clarified that future floorplan growth will come from a mix of new and existing customers without geographic expansion. Regarding capital, Harrison stated the bank expects to stick to its $40 million authorization for 2024 and will reassess for 2025, noting the bank is comfortably above its informal 12% CET1 minimum target.

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CEO Ignacio Alvarez and CFO Jorge Garcia confirmed that while incentives are broad, they are most impactful for high-margin sectors like pharma, medical devices, and aerospace. They also noted recent traction with technology and software development firms. Regarding construction, Jorge Garcia explained that while developers are currently accelerating projects, this could lead to future payoffs that slow net growth. CRO Lidio Soriano added that federal funds for low-income housing should provide a future boost to construction activity in Puerto Rico.

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Executive Jennifer Demba confirmed the charge-off was related to the nonperforming office loan, with a full resolution expected soon. CFO Andrew Gregory explained the adverse scenario weighting was as of March 31 and detailed the potential impact of a 100% adverse scenario. He added that share repurchases will be balanced against near-term loan growth opportunities, using strong earnings to maintain capital stability.

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CEO Kevin Blair expressed optimism for a return to growth in 2025, citing rising loan production and the near completion of the $1.8 billion non-relationship loan runoff. CFO Jamie Gregory detailed that $750 million in hedges with an average rate of 95 basis points will mature in Q4, and the effective rate on the hedge portfolio will increase in early 2025, diminishing its headwind over time.

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Chief Credit Officer Thomas Hung and CFO Hope Dmuchowski clarified the reserve build was due to both a worsening in Moody's baseline scenario and a qualitative overlay reflecting increased uncertainty. On fixed income, Dmuchowski noted the non-ADR revenue was elevated due to timing but not indicative of a new sustainable level. Chairman, President and CEO Bryan Jordan commented that April ADRs have been volatile. Regarding expenses, Dmuchowski and Jordan explained the Q1 drop in outside services was due to the completion of major tech projects (GL, Treasury) and that while the line will ebb and flow, it is built into their flexible expense guidance.

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CEO Bryan Jordan explained that the CET1 target is dynamic, influenced by economic capital models, stress tests, and portfolio mix, not just a fixed number. Regarding credit, he stated the NPL increase was driven by slower-than-anticipated lease-ups in multifamily projects. He expressed confidence, noting that over 60% of commercial NPLs remain current on payments. The allowance will depend on future economic outlooks.

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CFO Hope Dmuchowski detailed that promotional money market rates have dropped to 4.25% from 5.05% last quarter and the guarantee period was shortened to 45 days. She clarified that brokered deposits are used secondarily to client funds, often for match-funding mortgage warehouse loans. She also noted that the NII outlook depends heavily on mortgage activity.

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Harold Carpenter (Executive) confirmed the CECL baseline was unchanged but that the adverse scenario influences qualitative factors. He stated BHG has ample capacity through its bank channel for loan sales and plans for another ABS issuance later in the year. Carpenter also noted that underperformance in other equity investments was being offset by BHG's strength.

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Harold Carpenter (executive) stated that the midpoint of the guidance ranges aligns with a target incentive payout. He and M. Turner (executive) identified higher-than-expected loan growth, particularly from a pickup in broad economic demand beyond market share gains, as the key driver for potential NII upside. Regarding BHG, Harold Carpenter noted its focus is on strengthening its balance sheet and enhancing its production platform.

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CFO Dean Shigemura stated the current 57% fixed-rate asset mix is the near-term target. Both he and CEO Peter Ho expressed confidence in the office portfolio, clarifying that maturities are more spread out than suggested (39% by 2027) and credit remains stable. CEO Peter Ho explained that a clearer line of sight into credit, the economy, and interest rates is required before restarting buybacks, anticipating capital will continue to build via retained earnings.

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Chief Financial Officer Christopher Del Moral-Niles explained that investments are ongoing to support future growth and that revenue growth in dollar terms is expected to outpace expense growth, ensuring positive operating leverage. Regarding buybacks, he reiterated the bank's philosophy remains opportunistic, leveraging its strong capital position as a key differentiator, especially given its consistent 17% return on tangible capital.

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CFO Christopher Del Moral-Niles outlined capital priorities: 1) supporting customer loan growth, 2) a competitive dividend, 3) considering non-organic opportunities, and lastly, 4) share buybacks. Chairman and CEO Dominic Ng explained the strategy was to attract funds with a higher rate early in the year and then roll them over at lower rates, noting a successful 100 basis point drop in prospective CD pricing.

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CFO William Holland projected a 2025 NIM of 3.35% to 3.40%, with the repositioning adding about $18 million to 2025 NII. CEO John Ciulla added that while deploying capital for loan growth or strategic acquisitions is the priority, returning capital to shareholders via buybacks is anticipated in 2025, contingent on market conditions.

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CEO John Ciulla projected modest loan demand for 2025, forecasting around 5% growth, and noted that reduced CRE exposure creates capacity for new, attractive relationships. President and COO Luis Massiani expressed optimism for the HSA enrollment season, citing technology investments and expecting "similar to slightly more faster deposit growth in 2025" compared to 2024.

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CFO John Moran attributed the expected Q4 fee income decline to seasonality in mortgage, a particularly strong Q3 in capital markets that may not repeat, and other non-run-rate items. Regarding capital, he acknowledged the strong 11% CET1 ratio and rapid build rate, suggesting buybacks could be a consideration next year, though the company remains sensitive to the earn-back period.

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Chief Credit Officer Frank Namdar and EVP and CFO Ron Farnsworth explained the increase in residential non-performers was due to the expiration of COVID-era modification flags and did not require a meaningful provision. President of Consumer Banking Christopher Merrywell described the mortgage business as stable and consistent, with 80% of production being saleable. Ron Farnsworth clarified the incentive comp reversal was due to terminating certain programs as part of the expense initiative, and that a normalized Q2 operating expense run rate would be $270.2 million.

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