Jared Shaw

Jared Shaw asked about the dynamics of loan growth, specifically the observed decrease in losses due to pricing and an increase in losses due to structure, inquiring about spread compression and capital utilization strategies.

Answer

Phil Green, Chairman and CEO, and A.B. Mendez, SVP and Director of Investor Relations, explained that pricing is more competitive, especially in commercial real estate, leading to spread compression. They noted that increased losses due to structure reflect aggressive banking practices. Dan Geddes, Group Executive Vice President and CFO, and Phil Green stated that the priority is to build capital and protect the dividend, focusing on Tangible Common Equity (TCE) growth, and do not currently plan to utilize the share repurchase program.

Jared Shaw of Barclays Capital inquired about the dynamics of loan growth, specifically the competition on pricing versus structure, and also asked about the bank's capital management strategy given the high CET1 ratio.

Answer

CEO Phillip Green explained that while price competition is increasing, the bank is more concerned with competitors loosening structural standards, a practice Frost avoids. He noted Frost's low funding cost allows it to compete effectively on price. Regarding capital, CFO Dan Geddes and CEO Phillip Green stated their priority is protecting the dividend and building capital for future organic growth, with no immediate plans for share repurchases at the current stock price. They confirmed a focus on growing the Tangible Common Equity (TCE) ratio.

Jared Shaw of Barclays Capital inquired about the competitive landscape for loan growth, specifically the dynamics between pricing and structure, and also asked about the company's capital utilization strategy given its high CET1 ratio.

Answer

Chairman and CEO Phillip Green explained that Cullen/Frost is willing to compete aggressively on price but not on credit structure, which he sees as a sign of market aggression. CFO Dan Geddes stated that the primary focus for capital is protecting and growing the dividend and building the capital base, with no immediate plans for share repurchases at the current stock price. Phillip Green added that the focus is on growing Tangible Common Equity (TCE).

Jared Shaw asked about the physical footprint and hiring strategy in Colorado, specifically if the current network is sufficient or if further reinvestment in locations is expected. He also inquired whether growth in Colorado would initially lead with loan growth, with deposits following, or if full relationships are expected from the outset.

Answer

CEO James Reuter stated that the overall contiguous footprint is logical and in growth markets. For Colorado, he confirmed the current branch network is sufficient, supported by a strong team, but the company will continue to evaluate additional locations across its footprint. He explained that while the focus is on full relationships, he is not naive to expect everything on day one, anticipating a mix of leading with loans to build trust, with deposits and full relationships developing over time.

Jared Shaw asked about the company's physical footprint and hiring outlook in key markets like Colorado, including potential reinvestment into new locations, and whether the growth strategy in Colorado would prioritize full relationships or lead with loan growth.

Answer

CEO James Reuter expressed confidence in the overall contiguous footprint and growth prospects, particularly in Colorado, where they have the necessary branch network for now and a strong team, but will continue to evaluate additional locations. He stated that the focus is on building full relationships, acknowledging that sometimes it begins with a loan to establish trust, with the ultimate goal of securing deposits and comprehensive banking relationships over time.

Jared Shaw of Barclays Capital sought to confirm the all-in decline for year-end 2025 loan levels after accounting for all strategic actions. He also asked for clarification on whether the valuation allowance on loans moved to held for sale was driven by rate or credit factors.

Answer

EVP & CFO David Della Camera confirmed that after including the impact of the indirect portfolio runoff and the held-for-sale loans from the branch transaction, the total loan decline would be in the 10-12% range for the year. He explicitly stated that the valuation allowance taken on the held-for-sale loans was a rate mark and purely reflective of interest rate changes, not credit deterioration.

Jared Shaw of Barclays PLC questioned the net interest margin trajectory for Q4 and into 2025, the impact of any interest accrual reversals, the status of BTFP borrowings, and sought more color on the unique issues with the two charged-off metro office loans.

Answer

CFO Marcy Mutch projected continued margin expansion from the Q3 level of 2.97%, noting the September core margin was 3.03% and included any accrual reversals. She also stated no BTFP borrowings have been paid down, preserving flexibility. CEO Kevin Riley explained the office loan charge-offs were a proactive measure to write them down to realizable value and remove future earnings volatility from the portfolio.

Jared Shaw sought clarification on the non-interest-bearing (NIB) deposit discussion, asking if average DDA is expected to remain flat while end-of-period balances might decline due to seasonality. He also requested more color on the growth in C&I non-performing loans (NPLs).

Answer

Travis Lan, CFO, clarified that while Q4 saw strong NIB growth, he anticipated Q1 end-of-period NIB to be around the Q4 average ($11.9 billion), with average NIB generally flat. Mark Saeger, Chief Credit Officer, attributed the C&I NPL growth to one specific, larger, in-market syndicated credit with a unique business segment and long payback period, which was moved to non-accrual after a recent modification.

Jared Shaw asked for clarification on the seasonality of non-interest-bearing (NIB) deposits, specifically whether average DDA would stay flat while end-of-period (EOP) might decline, and requested more color on the growth in C&I non-performing loans (NPLs).

Answer

Travis Lan, Senior EVP and CFO, clarified that the Q4 2025 average NIB was $11.9 billion and EOP was $12.2 billion, expecting Q1 2026 EOP to be around $11.9 billion with the average generally flat. Mark Saeger, Chief Credit Officer, attributed the C&I NPL growth to one specific, long-standing syndicated credit that was moved to non-accrual due to its payback length and a recent modification.

Jared Shaw asked if Stellar Bancorp's pipeline allowed them to achieve better pricing and terms than Prosperity in other markets, and if this would lead Prosperity to reallocate resources. He also inquired about customer retention assumptions, given Stellar's potential name change and past mergers.

Answer

David Zalman (Senior Chairman and CEO, Prosperity Bancshares) acknowledged that Stellar's margin was higher due to a smaller bond portfolio and better loan-to-deposit ratio, but noted that pricing tends to normalize post-merger. Kevin Hanigan (President and COO, Prosperity Bancshares) attributed Stellar's higher margin to a more granular portfolio with smaller deals, which typically command higher pricing, and the drag from Prosperity's large securities and single-family mortgage portfolios. Bob Franklin (CEO, Stellar Bancorp) agreed on the granularity and competitive pricing in Houston. Regarding retention, Bob Franklin stated they focus on retaining customer-facing staff. David Zalman added that Prosperity has secured non-compete and retention agreements with key personnel, and believes retention will be strong due to their local presence and familiarity with the market, describing the combination as a 'marriage made in heaven'.

Jared Shaw asked if Stellar Bancorp is able to achieve better loan pricing and terms compared to Prosperity Bancshares, and if this would lead to reallocating Prosperity's internal resources to those markets. He also inquired about assumptions on customer retention, given Stellar's recent name changes.

Answer

David Zalman (Senior Chairman and CEO, Prosperity Bancshares) noted that while Stellar's margin is higher due to a more granular (smaller deals) loan portfolio and lower bond portfolio drag, combined bank pricing tends to normalize. Kevin Hanigan (President and COO, Prosperity Bancshares) attributed Stellar's higher margin to less drag from securities and single-family mortgages, and a more granular commercial lending portfolio. Bob Franklin (CEO, Stellar Bancorp) agreed on granularity and competitive pricing. On retention, David Zalman (Senior Chairman and CEO) highlighted 15 non-compete and 70 retention agreements, emphasizing the strong cultural fit and local familiarity, expecting good customer retention. Bob Franklin (CEO, Stellar Bancorp) added that retaining customer-facing staff is key.

Jared Shaw from Barclays Bank PLC asked for expectations regarding average DDA (demand deposit account) growth quarter-over-quarter, particularly for the first quarter, and whether there's an opportunity for continued growth. He also inquired about early trends in the HSA (Health Savings Account) business and the bank's appetite for HSA-specific acquisitions.

Answer

President and CEO of UMB Bank Jim Rine indicated a slight pickup in DDA growth historically between Q4 and Q1, driven by new client acquisition in corporate trust and public fund inflows, partially offset by tax payments. Chairman and CEO Mariner Kemper described HSA growth as steady, benefiting from the Heartland footprint, but not significantly elevated, and did not indicate a specific appetite for HSA-focused M&A.

Jared Shaw from Barclays Bank PLC asked about expectations for average DDA (Demand Deposit Account) growth quarter-over-quarter, particularly early in the year, and inquired about early trends in the HSA (Health Savings Account) business, including potential market impact from budget bill benefits and appetite for HSA-specific M&A.

Answer

President and CEO of UMB Bank, Jim Rine, indicated a slight pickup in DDA growth historically between Q4 and Q1, driven by new client acquisition in corporate trust and public fund inflows, with some outflows expected in late February due to tax payments. Chairman and CEO Mariner Kemper described HSA growth as "business as usual," with nice steady growth through enrollment season, expecting the Heartland footprint to be additive, but not seeing anything "elevated."

Jared Shaw from Barclays questioned UMB Financial's capital deployment strategy for M&A given its current CET1 ratio, inquired about the projected cash and securities portfolio mix for year-end, and asked about the potential impact of anticipated rate cuts on accelerated purchase accounting accretion.

Answer

Chairman and CEO Mariner Kemper expressed comfort with temporarily lowering the CET1 ratio for high-quality M&A, while CFO Ram Shankar projected reaching 11% CET1 within one to two quarters, ahead of schedule. Mr. Shankar also indicated the treasury managed portfolio would increase to approximately $24.5 billion by year-end and noted the difficulty in quantifying the exact impact of rate cuts on accelerated accretion, though outperformance of contractual accretion is expected.

Jared Shaw asked about UMB Financial's capital strategy, specifically if the current CET1 ratio would allow for capital deployment through a deal or if a higher target (e.g., above 11%) is desired. He also inquired about the securities portfolio growth and cash/securities mix, and the potential impact of anticipated rate cuts on accelerated accretion.

Answer

Mariner Kemper, Chairman and CEO, noted that M&A involves many variables, and UMB is comfortable with temporary capital drops for high-quality transactions. Ram Shankar, CFO, added that the CET1 ratio is expected to reach 11% within one to two quarters, ahead of schedule. Shankar also indicated the treasury managed portfolio could reach $24.5 billion and explained that predicting accelerated accretion from rate cuts is challenging due to various drivers beyond market rates, referring to contractual accretion projections.

Jared Shaw of Barclays Capital asked about the potential impact of legislative changes to Health Savings Accounts (HSAs) on UMB's long-term deposit and fee growth. He also inquired about the expected long-term expense growth rate for the combined company in 2026 after all merger-related cost savings are realized.

Answer

President Jim Rine characterized the HSA changes as a 'marginal' opportunity rather than a 'huge windfall,' noting the newly eligible population is smaller than first anticipated and will require significant education. On expenses, CFO Ram Shankar and CEO Mariner Kemper confirmed they are on track for targeted cost saves but declined to give a specific growth rate, emphasizing their focus on achieving positive operating leverage and funding only investments with clear ROI.

Jared Shaw inquired about deposit pricing actions related to the Heartland deal, drivers of DDA growth, the timing of future cost saves, and potential impacts from tariffs on the agriculture portfolio.

Answer

CEO J. Kemper and CFO Ram Shankar confirmed no major deposit repricing occurred, attributing DDA growth to typical institutional client volatility. They stated the next significant cost saves will materialize after the Q4 systems conversion. On tariffs, Kemper noted it's too early for a definitive impact, but clients are currently able to pass on costs and UMB's commercial focus provides insulation.

Jared David Shaw asked about the impact of Heartland's (HTLF) Q4 performance on UMB's initial credit marks for the acquisition, the status of the planned $2 billion securities sale from HTLF's portfolio, clarification on UMB's standalone expense run rate, and the drivers behind its targeted CRE growth.

Answer

Chairman and CEO J. Kemper confirmed that the core strategic and financial assumptions of the HTLF deal, including capital levels and deposit stability, remain intact despite some puts and takes. He noted that HTLF's customer deposits have actually grown. CFO Ram Shankar clarified that $250 million is a normalized quarterly expense run rate for standalone UMB, with a typical seasonal increase expected in Q1. J. Kemper added that UMB's interest in high-quality CRE remains consistent, not necessarily heightened.

Jared David Shaw inquired about the source of funds for paying down wholesale borrowings, the expected trend for DDA balances, the potential for double-digit organic loan growth in 2025, and any updates on accretion estimates for the Heartland acquisition.

Answer

CFO Ram Shankar confirmed that excess cash was used to pay down borrowings and that cash balances would subsequently trend down. He advised focusing on average DDA balances, which were at a seasonal low in Q3 near $9.5 billion, and expects a build in Q4 from organic growth and public fund inflows. Chairman and CEO J. Kemper stated that while the Q4 loan pipeline looks strong, the bank doesn't see any impediments to its historical market-share-driven growth in 2025. On accretion, Kemper noted there were no updates and the next analysis would be at the deal's close, but that lower rates since the announcement are a positive.

Jared Shaw requested an update on Dale Gibbons' deposit initiatives, specifically asking about potential margin tailwinds from the funding side. He also asked how Western Alliance plans to manage provisioning and the allowance for credit losses given expectations for higher charge-offs in the beginning of the year.

Answer

Dale Gibbons, Vice Chairman and CFO, detailed strong performance and growth expectations for HOA, Juris Banking, Digital Asset Group, Trust Company, and Business Escrow Services, projecting these to grow three times faster than the bank overall with notably lower costs. Vishal Idnani, CFO, explained that the allowance for funded loans (HFI) is 78 basis points and is expected to drift into the low 80s due to C&I loan growth remix and net charge-off replenishment, aligning with the 25-30 basis points full-year charge-off guidance.

Jared Shaw asked for an update on Dale Gibbons' deposit initiatives, inquiring about early progress and potential margin tailwinds from the funding side. He also followed up on the credit question, asking how provisioning and the allowance for credit losses should be considered given the expectations for higher charge-offs at the beginning of the year due to non-performing loan (NPL) resolution.

Answer

Vice Chairman and CFO Dale Gibbons detailed strong performance and future opportunities in HOA, Juris Banking (expecting to triple loan volume in 2026), digital asset group (24/7 service), trust company (doubled in 2025, expecting to double again in 2026), and Business Escrow Services. He projected these areas to grow about three times faster than the bank overall (north of 30%) with notably lower costs, leading to a lower deposit beta. CFO Vishal Idnani addressed provisioning, stating the allowance for funded loans (HFI) was 78 basis points, flat quarter-over-quarter, and expected to drift into the low 80s next year due to C&I-driven loan growth and net charge-off replenishment. He reiterated the full-year charge-off guidance of 25-30 basis points, around the midpoint.

Jared Shaw inquired about the drivers behind the reduction in classified loans, asking if it was due to credits leaving the bank, improving fundamentals, or reclassification of Canter Group 5 and First Brands. He also asked about the growth and momentum in corporate trust deposits.

Answer

President and CEO Ken Vecchione clarified that REO decreased due to property sales and transitions, while special mention and accruing substandard loans declined from resolutions and upgrades. The increase in non-accrual loans was solely due to Canter Group 5. CFO Dale Gibbons confirmed market share gains in corporate trust, noting Western Alliance Bancorporation is the 7th largest CLO trust depository, with strong expectations for 2026. Ken Vecchione highlighted the synergy with Corporate Finance and repeat business due to superior service.

Jared Shaw asked about the broader trends in Western Alliance Bancorporation's classified loans, the drivers behind the reduction, and if Canter or First Brands contributed to movements out of classified status.

Answer

President and CEO Ken Vecchione clarified that REO decreased due to one property sale and another transition. Special mention and accruing substandard loans declined due to credit resolutions and upgrades. The increase in non-accrual loans was solely due to the Canter Group 5 loan. In a follow-up on corporate trust deposits, CFO Dale Gibbons confirmed market share gains, noting the company is now the seventh-largest CLO trust depository globally and is expanding into municipal trusts, with strong expectations for 2026. Ken Vecchione added that the Corporate Finance and Corporate Trust teams work together to secure both lending and trust business, with superior service driving repeat business.

Jared Shaw asked about the assumptions behind the higher fee income guidance, particularly the sources of growth, and questioned the drivers of the increased expense forecast and the potential impact of regulatory relief.

Answer

CEO Ken Vecchione clarified that fee income growth will be driven by commercial banking activities, as the mortgage business is expected to remain flat year-over-year. CFO Dale Gibbons suggested postponed mortgage demand might surface later in 2025. On expenses, Vecchione noted the guide includes a back-end loaded $35 million spend in 2025 for LFI readiness. He explained that while the bank favors raising the LFI threshold, it must continue this spending to be prepared for crossing $100 billion in early 2027.

Jared Shaw inquired about the primary sources of the recent C&I loan growth and the outlook for its sustainability into 2025. He also asked about capital management strategy, particularly whether the bank intends to grow its CET1 ratio further from the current 11.2%.

Answer

CEO Ken Vecchione detailed that Q3 loan growth was driven by regional banking, mortgage warehouse, and leveraged finance. He expressed confidence in achieving $1 billion in quarterly loan growth in 2025, citing strong pipelines in non-financing MSR lending and warehouse lending. Regarding capital, Vecchione stated the plan is to maintain the CET1 ratio at or modestly above 11% to retain "dry powder" for potential loan growth opportunities beyond the current forecast.

Jared Shaw asked about potential softness in fee income growth for 2026 and Popular's M&A strategy given its strong capital position and willingness to reduce capital ratios. He also inquired about spot deposit costs and asset yields at year-end.

Answer

Jorge García, EVP and CFO, clarified that the 2025 fee income included approximately $10 million in unusual items, implying more underlying growth in the 2026 guidance. Javier Ferrer, President and CEO, outlined Popular's M&A criteria, emphasizing a focus on niche businesses, core deposits, commercial-led strategy, geographic consistency, right-sizing, and cultural fit, while prioritizing the ongoing transformation program. Mr. García stated that spot rates are not typically provided.

Jared Shaw asked about potential softness in Popular's fee income growth, the company's M&A strategy given its strong capital position and buyback commentary, and requested spot deposit costs and asset yields at year-end.

Answer

Jorge García, EVP and CFO, Popular, clarified that the 2025 fee income included approximately $10 million in unusual items, implying more underlying growth in the 2026 guidance. Javier Ferrer, President and CEO, Popular, outlined a high-threshold M&A strategy focused on complementing the U.S. business, strengthening deposit franchises, being commercial-led, geographically consistent, right-sized, and culturally aligned, while prioritizing internal transformation. Mr. García stated that Popular does not typically provide spot rates for deposits and asset yields.

Jared Shaw (Barclays) inquired about the company's net interest margin (NIM) and asset yields, specifically asking if the trend of securities purchases would continue, the yields on new purchases, and the potential for net yield expansion given anticipated rate cuts. He also asked about new loan yields and broader credit trends in auto and consumer portfolios, including delinquency.

Answer

Jorge García, EVP and CFO, confirmed expectations for continued NIM expansion due to strong tailwinds from investment portfolio maturities repricing at higher spreads, even with potential rate cuts impacting public deposit costs. He noted that new loan yields, particularly in personal and auto lending, still showed some pickup but might slow due to competitive pricing. Lidio Soriano, EVP and CRO, stated that auto portfolio variations were within seasonality, expressing optimism for consumer credit given Puerto Rico's economic trends, with auto losses below last year.

Jared Shaw asked about the net interest margin (NIM) and asset yields, specifically inquiring if the trend of securities purchases would continue, the yields on new purchases, and the potential for net yield expansion given anticipated rate cuts. He also questioned new loan yields, particularly in auto and consumer segments, and the credit trends within auto and broader consumer portfolios, noting an increase in delinquency.

Answer

Jorge García, EVP and CFO, explained that strong tailwinds from upcoming investment portfolio maturities and public deposits benefiting from lower rates are expected to drive NIM expansion in Q4 and beyond. He noted continued yield pickup in personal and auto loans, though competitive pricing might slow auto volumes. Lidio Soriano, EVP and CRO, attributed the auto portfolio's delinquency variation to seasonality and expressed optimism about consumer trends in Puerto Rico, confirming comfort with the portfolio's outlook.

Jared Shaw inquired if the large infrastructure deal signals accelerating deployment of federal funds and what to expect for similar large deals. He also asked for clarity on the fee income guide and the company's comfort with the current pace of share buybacks.

Answer

President and CEO Javier Ferrer stated that while federal fund deployment is increasing, a pipeline of similar large-scale public-private partnership financings should not be expected in the immediate future. CFO Jorge García added that fee income has seasonal strength in Q2 and Q4 and reiterated confidence in the updated guidance. He also confirmed that the current pace of share repurchases is considered reasonable, given the stock's attractive valuation.

Jared Shaw of Barclays asked if the recent large infrastructure loan indicates growing momentum from federal fund deployment, inquired about the outlook for fee income, and questioned the sustainability of the current share buyback pace.

Answer

President and CEO Javier Ferrer confirmed that federal funds are being deployed and more projects are expected, though he cautioned against expecting a near-term pipeline of similar large P3 financings. Executive VP & CFO Jorge García added that the updated fee income guidance reflects strong transactional activity, which is typically higher in Q2 and Q4. He also affirmed that the current share repurchase pace is "reasonable" and that the stock remains attractive.

On behalf of Jared Shaw, an analyst asked if recent infrastructure investments led to improved power outage response times. The analyst also questioned the loan growth trajectory for 2025, asking if there was a pull-forward of loans into Q4, and inquired about the yield of securities that are maturing and rolling off the books.

Answer

CEO Ignacio Alvarez stated that while there may be some improvement, the electrical grid requires significant further investment before radical changes are seen, calling it a 7-10 year project. He and CFO Jorge Garcia confirmed the strong Q4 likely pulled some loan closings forward but that this benefits the full-year outlook. Alvarez also noted that maturing securities are rolling off at yields under 2%, around 1.5%.

Jared Shaw asked about the capital level assumptions supporting the new ROTCE target and whether current credit charge-off levels represent a new normal or are expected to rise.

Answer

CFO Jorge Garcia stated that NII growth, not a specific capital target, remains the primary driver for ROTCE, though buybacks will be a contributing lever. On credit, CRO Lidio Soriano indicated that he does not expect charge-offs to return to higher historical levels in the short to medium term, citing the strong performance of the commercial and mortgage portfolios.

Jared Shaw asked about the drivers of demand deposit account (DDA) growth, distinguishing between market share gains and an improving economic backdrop, and whether there's a natural ceiling for Bank of Hawaii's market share. He also sought color on commercial loan pipelines and the residential mortgage market outlook.

Answer

Chairman and CEO Peter Ho expressed belief that historical market share performance indicates future potential, attributing DDA growth to focused efforts rather than a significantly growing market. President and Chief Banking Officer Jim Polk noted a strong commercial pipeline, particularly in commercial real estate and middle market, and a solid Q4 for residential mortgages, expecting overall loan activity to improve to mid-single digits.

Jared Shaw asked about the drivers of demand deposit account (DDA) growth, specifically distinguishing between market share gains and an improving customer backdrop. He also questioned if there's a natural ceiling for Bank of Hawaii's market share growth and sought color on commercial and residential mortgage pipelines.

Answer

Chairman and CEO Peter Ho expressed confidence that historical market share performance indicates future potential, driven by continuous efforts to serve clients better. He noted that DDA growth reflects the bank's emphasis on deposits, rather than a significantly growing market. President and Chief Banking Officer Jim Polk reported improved commercial pipelines, particularly in commercial real estate and middle market, and a solid residential mortgage quarter, anticipating a move towards mid-single-digit loan growth throughout 2026.

Jared Shaw asked about the reduction in Central Business District (CBD) office loans from 24% to 17% of the credit portfolio and inquired if the Net Interest Income (NII) impact from swaps assumes the notional swap amount remains at $1.4 billion.

Answer

Chairman and CEO Peter Ho explained that the reduction in CBD office loans was due to an opportunistic exit of a relationship SNCC credit that was not core to their strategy. CFO Brad Satenberg confirmed that the NII impact assumes the notional swaps remain at $1.4 billion, with additional forward-starting swaps scheduled to become active in October and mid-to-late 2026.

Jared Shaw from Barclays inquired about the specific reasons behind the reduction in Bank of Hawaii's Central Business District (CBD) office loans, noting a shift from 24% to 17% of the credit portfolio. He also asked for clarification on the notional swap assumptions used in the Net Interest Income (NII) impact calculations.

Answer

Chairman and CEO Peter Ho attributed the reduction in CBD office loans to an opportunistic exit of a non-core relationship SNC credit. CFO Brad Satenberg confirmed that the NII impact calculations assume the notional swaps will remain at $1.4 billion, incorporating forward-starting swaps scheduled for October 2025 and mid-to-late 2026.

Jared Shaw of Barclays Capital asked about the underlying trends in C&I lending, commercial customer sentiment, and the stability of DDA as a percentage of total deposits, which is holding around 26%.

Answer

CEO Peter Ho acknowledged a disappointing quarter for commercial loan growth, which was flat on a linked-quarter basis. President & Chief Banking Officer James Polk attributed this to market uncertainty and unusually high prepayments but noted that pipelines are building for a return to modest growth. Regarding deposits, Ho stated that while growing DDAs is a key focus, it remains highly competitive. He was encouraged by a 1% linked-quarter increase in average non-interest-bearing deposits.

Jared Shaw of Barclays Capital asked about the underlying trends in Commercial & Industrial (C&I) loans, seeking insight into commercial customer sentiment and the loan pipeline. He also questioned the outlook for noninterest-bearing deposits (DDAs) as a percentage of total deposits.

Answer

Chairman & CEO Peter Ho acknowledged a disappointing quarter for commercial loan growth, attributing it to market uncertainty. President & Chief Banking Officer James Polk added that while unusually high prepayments impacted C&I balances, pipelines are building for a return to modest growth. Regarding deposits, Ho stated that while DDA growth is a key focus, the environment is competitive, but he was encouraged by a 1% linked-quarter increase in average noninterest-bearing deposits.

Jared David Shaw inquired about the feasibility of reaching the 2.50% net interest margin (NIM) target by year-end and the key drivers, including the potential for lower deposit costs. He also asked for the end-of-period deposit cost and if any qualitative assumptions for the ACL were changed.

Answer

Chairman and CEO Peter Ho confirmed the 2.50% NIM target is attainable, contingent on stable low-cost deposits and continued fixed-asset turnover, noting that potential rate cuts would be accretive. CFO Dean Shigemura provided the average March deposit cost at 1.6%, with the exit rate slightly higher. Chief Risk Officer Bradley Shairson stated that no significant qualitative factors for the allowance for credit losses (ACL) were changed during the quarter.

Jared Shaw from Barclays asked about the significant difference between end-of-period and average deposit balances, whether current DDA levels represent a stable base for future growth, and the total dollar exposure of the lodging portfolio subset that is most dependent on international visitors.

Answer

President and Chief Banking Officer James Polk attributed the end-of-period deposit growth to unexpected large public and commercial deposits, which he expects to moderate in Q4. Chairman and CEO Peter Ho stated that while the decline in noninterest-bearing deposits has slowed, the bank is not ready to declare an end to the negative trend. Regarding lodging, CFO Dean Shigemura and CEO Peter Ho explained it's difficult to isolate the exact exposure but it's a fraction of the total $700 million lodging portfolio, which is well-supported by strong sponsors and low LTVs.

Jared Shaw inquired about the dynamics of the office credit portfolio, specifically the increase in non-performing loans (NPLs) despite a decrease in criticized and classified assets, and the rise in criticized and classified maturities for 2026. He also asked about deposit betas in the context of potential Fed rate cuts and the outlook for M&A given growing capital and past deal success.

Answer

Mark Ruggiero, CFO and Head of Consumer Lending, explained that the NPL increase was primarily due to one specific loan maturing in Q1 2026, which is expected to be resolved with a small, already reserved loss. He also detailed the deposit beta expectations, noting a 20% all-in beta for non-time deposits and 70%-80% for higher-rate, sensitive buckets. Jeffrey Tengel, President and CEO, stated that the company is not currently focused on M&A, prioritizing organic growth, expense management, and a core systems conversion.

Jared Shaw asked about the dynamics of the office portfolio, specifically the increase in non-performing loans despite a decrease in criticized classified assets, and the outlook for deposit betas given potential Fed rate cuts. He also inquired about the company's M&A strategy and market sentiment among potential sellers.

Answer

CFO Mark Ruggiero explained that the increase in NPLs was due to one specific $18.1 million loan maturing in Q1 2026, which is expected to be resolved with a small reserved loss. He affirmed confidence in achieving 20% non-CD beta and 70-80% CD beta with Fed cuts, leveraging the bank's deposit franchise structure. President and CEO Jeffrey Tengel stated that the company is not focused on M&A, prioritizing organic growth, expense management, and the upcoming core system conversion.

Jared Shaw asked about planned investments beyond hiring, specifically on the technology side for correspondent banking or other business areas. He also inquired if the deposit beta is expected to migrate lower with further rate cuts and if the 1.75% starting deposit cost will decrease throughout the year. Additionally, he asked for color on an increase in substandard loans.

Answer

COO Stephen Young detailed investments in a commercial loan servicing platform, AI, and the FX platform, emphasizing a focus on revenue producers. He stated that the deposit beta is expected to start around 27% and potentially move towards 30% over time, depending on growth pace, with a lag due to CD pricing. Regarding substandard loans, Stephen Young clarified that while there was an increase, 99% are current, primarily due to a handful of multifamily properties in lease with strong equity, and the credit team is not concerned.

Jared Shaw (via John Rowan) from Barclays asked about SouthState Bank's planned investments beyond hiring, specifically inquiring about tech projects in correspondent banking or other business areas for the current year. He also sought clarification on the trajectory of deposit pricing, asking if the 1.75% starting rate for the year is expected to migrate lower and if the deposit beta would decrease with further rate cuts. Finally, he asked for color on the increase in substandard loans observed in Q4.

Answer

Stephen Young, COO, outlined planned investments in a commercial loan servicing platform for syndication, AI, and the FX platform, all included in the expense guidance. He emphasized an intentional focus on investing in revenue producers. Regarding deposit pricing, Stephen Young stated that the deposit beta is expected to start around 27%, similar to 2018-2019, with a potential to move towards 30% over time if growth is slower. He noted a lag due to CD pricing. For substandard loans, Stephen Young clarified that while there was an increase, 99% of these were current, and the increase was due to a handful of multifamily properties in lease-up, with a low weighted average loan-to-value of 52%, indicating no significant credit concern.

Jared Shaw inquired about the large charge-off in the quarter, specifically asking if it was related to First Brands, if there was a prior reserve, and how management views the rest of the credit portfolio. He also asked about the optimal CET1 ratio, the company's stance on share buybacks, and overall capital management strategy given strong capital growth and opportunities.

Answer

CEO John Corbett confirmed the charge-off was related to First Brands, noting it was the company's only supply chain finance credit and that there was no prior reserve. He stated that the company would use it as a learning lesson and that the rest of the portfolio does not have similar lending. CFO Will Matthews clarified that a reserve release would have occurred before the charge-off based on underlying economic loss drivers, and the full amount was charged off in Q3. Regarding capital, Will Matthews stated that while there isn't a specific target, the company is comfortable with the 11%-12% CET1 range and values the optionality provided by strong ratios and capital formation for both growth initiatives and share repurchases.

Jared Shaw asked for clarification on the large charge-off, specifically if it was related to First Brands and if there was a prior reserve or charge. He also inquired about the health of the remaining loan portfolio and the company's capital management strategy, including the optimal CET1 ratio and considerations for share buybacks given strong capital formation.

Answer

CEO John Corbett confirmed the charge-off was related to First Brands, noting it was their only supply chain finance credit and there was no prior reserve. He stated that credit metrics in the rest of the portfolio are stable. CFO Will Matthews clarified that the full amount of the balance was charged off in Q3 and that CET1 is healthy at 11.5% (10.8% with AOC). He indicated a preference for the 11-12% CET1 range, highlighting capital optionality for organic growth and share repurchases, with decisions made quarter-to-quarter.

Jared Shaw from Barclays Capital asked about the company's perspective on its position within the '$60B to $80B regulatory sweet spot' and how management sees this evolving, especially with potential regulatory changes for banks over $100 billion.

Answer

CEO John Corbett responded that at $66 billion in assets, the company is a long way from the $100 billion threshold and has significant time to continue building its infrastructure. He expressed confidence in the bank's risk management team and their ability to manage evolving regulatory expectations.

Jared Shaw sought further clarity on the quarterly dollar amount of accretion to use for modeling purposes and asked about the allowance for credit losses, including sensitivity to economic forecasts and future provisioning.

Answer

Executive Stephen Young reiterated that focusing on the total loan yield, modeled in the $6.15 to $6.25 range, is the best approach, but agreed that a baseline quarterly accretion figure around $50 million, excluding accelerated payoffs, was a reasonable starting point. Executive William Matthews explained that the CECL model's scenario weightings are held constant but a qualitative factor for tariff uncertainty was added. He noted that absent this factor, the provision would have been negative, and future provisions will depend on changes in the economic outlook.

Jared Shaw inquired about the impact of the Marathon partnership on loan growth and the nature of investments in systems and the bronze opportunity for HSA Bank.

Answer

CEO John Ciulla stated that the Marathon partnership is live and operational but has not yet materially impacted loan growth, expecting a conservative $2 million positive income in 2026. President and COO Luis Massiani clarified that investments for the bronze opportunity are primarily for marketing and client outreach, with technology largely in place.

Jared Shaw asked about the influence of the Marathon partnership on Webster Financial's loan growth outlook and the nature of investments in HSA Bank's Bronze opportunity, specifically if they are marketing or system-related.

Answer

CEO John Ciulla stated that the Marathon partnership is live and operational, leading to more competitive bids in the sponsor business, but its material impact on loan growth and financials for 2026 is conservatively estimated at $2 million in positive income. Luis Massiani, President and COO, clarified that HSA Bank investments are primarily for marketing and identifying new direct-to-consumer HSA holders, with technology investments largely complete.

Jared Shaw asked about the early success and future growth outlook for Webster Financial's joint venture with Marathon Asset Management for 2025 and 2026, and the trajectory of deposit growth from Amitros and InterSync compared to broker deposits.

Answer

Luis Massiani (President and COO) reported positive early returns from the Marathon Asset Management JV, noting a growing pipeline and expanded product offerings for sponsor clients, with expectations for increased on-balance sheet business and other opportunities by 2026. Neal Holland (CFO) emphasized prioritizing growth in HSA, Amitros, and InterSync deposits over broker deposits due to their attractive characteristics, explaining that broker deposits are primarily used seasonally to manage public deposit swings.

Jared Shaw from Barclays Capital inquired about the potential need for new investments to capture the expanding HSA market and sought clarity on the outlook for the credit loss allowance and provision.

Answer

COO & President Luis Massiani explained that no material change to HSA's expense trajectory is anticipated, as a direct-to-consumer channel already exists. Chairman & CEO John Ciulla stated that the CECL provision will be driven by loan growth and credit performance, expressing comfort with the current conservative coverage ratio.

Jared David Shaw from Barclays questioned the provisioning methodology, asking why the growth in non-performers and classified loans did not drive a specific provision beyond the increase attributed to macro-economic model changes. He also asked about the strategy for resolving these troubled assets.

Answer

CEO John Ciulla and CFO William Holland explained that the CECL process is complex and includes individual loss assessments and qualitative factors that offset the impact of higher non-performers. Holland clarified that without the change in economic scenario weighting, the reserve build would have been approximately $20 million lower. Ciulla added that resolving non-performers will involve a combination of natural resolutions, charge-offs, and opportunistic sales, with a full-year charge-off target in the 25 to 35 basis point range.

Jared Shaw questioned the classification and accounting impact of the $45 million loan sales, and the company's appetite for additional loan sales. He also asked about the outlook for deposit pricing and costs in the first half of the year.

Answer

Chris Merrywell (Co-President) clarified the $45 million loan sales were Pac Premier adversely rated loans, resulting in a $1 million hit to goodwill, effectively sold at carrying value. Ivan Seda (EVP and CEO) indicated limited appetite for bulk sales due to potential capital hits, preferring surgical opportunities. Ivan Seda and Chris Merrywell discussed deposit pricing, noting a 50%+ beta, market-driven adjustments, and regional pricing strategies.

Jared Shaw asked about the recent $45 million loan sale, specifically if they were classified as PCD loans, their carrying value, and the associated gain/loss. He also questioned the bank's appetite for future loan sales and sought insight into deposit pricing and costs, including the spot rate at 12/31 and expectations for the first half of the year.

Answer

Chris Merrywell, Co-President, clarified that the $45 million loan sale involved Pac Premier adversely rated loans, resulting in a $1 million hit to goodwill, effectively sold at carrying value. Ivan Seda, EVP and CFO, stated that future bulk sales of the transactional portfolio are unlikely due to potential capital hits, but surgical opportunities will be evaluated. Regarding deposits, Ivan Seda noted a decline in interest-bearing deposit costs and a through-the-cycle beta over 50%, while Chris Merrywell, Co-President, explained that deposit pricing is market-driven and actively managed.

Jared Shaw from Barclays Capital inquired about the capital markets business's contribution to fee income guidance and the expected timeline for integrating various fee income lines. He also asked how quickly higher loan hold limits would impact growth and if this is factored into legacy market contributions.

Answer

Kevin Blair (President and CEO, Synovus Financial) highlighted capital markets as a significant opportunity, expecting double-digit growth in 2026, driven by existing swap delivery, lead arranger fees, and new M&A advisory capabilities from Pinnacle. He stated that new hold limits are effective immediately, allowing for slightly larger loan sizes on the balance sheet, and this capacity is included in the revenue synergies and general hiring growth, serving as a tailwind.

Jared Shaw from Barclays Capital asked about the capital markets business's contribution to the fee income guidance and the expected timeline for integrating various fee income lines. He also inquired about the impact and speed of higher hold limits on loan growth, specifically if they primarily contribute to existing legacy market growth.

Answer

Kevin Blair, President and CEO, Synovus Financial, highlighted capital markets as a significant opportunity, noting double-digit growth in swap fees and the potential for M&A advisory from Pinnacle's side. He expects strong double-digit growth in capital markets fees for 2026. He confirmed that higher hold limits can take effect immediately, allowing for slightly larger loan sizes to be kept on the balance sheet, contributing to legacy market growth and serving as a tailwind, though not a major individual driver.

Jared Shaw inquired about Pinnacle's revenue producer hiring strategy, including the feasibility of adding 300 relationship managers, and the expected acceleration of hiring pace into 2026 and 2027 following the Synovus merger. He also asked how the larger pro forma balance sheet might influence the utilization of BHG, specifically regarding holding more BHG loans.

Answer

CEO Terry Turner addressed the talent pool, emphasizing the firm's unique, referral-based recruitment model and its proven success in a competitive landscape, projecting an acceleration to approximately 80 relationship managers per year in the Synovus footprint. CFO Harold Carpenter stated BHG's growth would remain consistent, with the new Pinnacle leadership maintaining a similar approach, while Terry Turner highlighted increased optionality for BHG, including potential liquidity events.

Jared Shaw from Barclays Capital inquired about Pinnacle Financial Partners' ability to recruit 300 relationship managers (RMs) post-merger, the expected pace of hiring in 2026-2027, and how the pro forma balance sheet might influence the strategy for BHG, including potentially holding more BHG loans.

Answer

President and CEO Terry Turner affirmed confidence in finding talent over time, highlighting Pinnacle's unique recruitment model and the potential to accelerate RM hiring in the Synovus footprint from 45 to 80 per year. CFO Harold Carpenter noted BHG's consistent growth and positive opportunities for the combined entity, with Terry Turner adding that BHG's optionality remains high and partners are increasingly interested in a liquidity event.

Jared Shaw from Barclays Capital inquired about the loan growth appetite among existing customers, separate from new hire activity, and asked for an update on the bank's strategy and concentration targets for Commercial Real Estate (CRE) lending.

Answer

CFO Harold Carpenter explained that a recent survey of over 1,100 clients showed they are currently cautious and not taking on significant additional risk due to macro uncertainty. President & CEO Terry Turner added that while there is underlying optimism, clients are waiting for more clarity. On CRE, Carpenter noted they have resumed lending in the space, focusing on multifamily and industrial, while aiming to maintain targets of ~70% of capital for construction and under 225% for total CRE.

Jared Shaw from Barclays Capital inquired about the growth appetite among existing customers versus new hires and asked for an update on the bank's strategy and concentration targets for Commercial Real Estate (CRE) lending.

Answer

CFO Harold Carpenter revealed that a recent client survey indicated a cautious sentiment, with existing customers not currently seeking to take on significant additional risk. CEO Terry Turner added that business owners are waiting for more clarity on macro issues like tariffs. On CRE, Carpenter stated that they resumed new lending 3-4 months ago, focusing on multifamily and industrial projects, while aiming to manage CRE exposure within their established capital targets.

Jared Shaw from Barclays Capital asked about the growth appetite among existing customers versus the growth driven by new relationship managers. He also inquired about the bank's strategy for increasing its Commercial Real Estate (CRE) exposure.

Answer

CFO Harold Carpenter explained that existing clients are currently cautious due to macroeconomic uncertainties like tariffs and are not taking on significant new risk. President & CEO Terry Turner added that while there is underlying optimism, clients are waiting for more clarity. Regarding CRE, Carpenter stated that the bank began re-engaging in new CRE lending three to four months ago, focusing on multifamily and industrial projects, while aiming to stay within its target capital levels.

Jared Shaw of Barclays asked about the competitive landscape for hiring incremental revenue producers and its impact on compensation, as well as the outlook for construction lending given a linked-quarter decline.

Answer

President and CEO Tim Crane stated that there hasn't been a hugely material change in competition for top-tier producers, and Wintrust continuously seeks to add talented individuals. Vice Chairman and COO David Dykstra noted that Chicago hasn't been a huge construction market but sees more upside, particularly in multifamily, and feels optimistic about construction activity for the coming year.

Jared Shaw asked about the competitive environment for hiring incremental revenue producers at Wintrust Financial Corporation, including any impact on compensation and drivers of talent movement. He also inquired about the outlook for construction lending, given a linked-quarter decline.

Answer

President and CEO Tim Crane stated there hasn't been a hugely material change in competition for top-tier producers, which can be expensive, and that adding talent is a normal part of their business. Vice Chairman and COO David Dykstra noted that while Chicago hasn't been a massive construction market, he sees more upside, particularly in multifamily, and feels positive about construction activity for the coming year.

Jared Shaw of Barclays Capital asked about Wintrust's capital targets for the rest of the year, specifically for the CET1 ratio, and whether the company would be comfortable with it dipping below 10% for an acquisition.

Answer

EVP & CFO David Stoehr stated that the CET1 ratio is expected to grow by about 10 basis points per quarter. He affirmed that the company views the 10% CET1 level as a floor and would prefer to grow it from there, even when considering M&A.

Jared Shaw of Barclays sought further detail on the credit reserve's qualitative overlay, trends in wealth management client acquisition, and the company's current M&A appetite.

Answer

CFO David Dykstra clarified the reserve's qualitative overlay was a response to specific market factor deterioration at quarter-end, not a change in the baseline forecast. Executive Timothy Crane attributed Q1 softness in wealth management to a platform upgrade, which is expected to drive future momentum. Crane also affirmed Wintrust's continued interest and financial capacity for disciplined M&A, citing the recent Macatawa deal as a positive example.

Jared Shaw asked about the outlook for DDA growth as a percentage of funding, trends in commercial line utilization, and requested the specific purchase accounting accretion figures from the Macatawa acquisition.

Answer

Executive Timothy Crane stated that while DDA balances can be episodic, they have been steady around 21% of deposits and the absolute dollar amount is expected to continue growing. Executive Richard Murphy noted that commercial line utilization rates dipped in Q4 but remain historically low, representing a potential tailwind. CFO David Dykstra directed the question on accretion to the prior quarter's materials, stating they remain a good guide.

Jared Shaw of Barclays asked about the expected future impact of Wintrust's interest rate hedges on its net interest margin, following the 17 basis point impact in the current quarter.

Answer

David Stoehr, CFO, provided a rule of thumb, stating that for every 25 basis point reduction in SOFR, the company's net interest margin should benefit by approximately 2.5 basis points from its hedges, though timing differences can cause slight variations.

Jared Shaw asked about the target Common Equity Tier 1 (CET1) ratio for 2026, considering capital generation and buybacks. He also sought clarification on the deposit outlook, specifically if the 'stable' non-interest-bearing deposit balance refers to a percentage of deposits or absolute dollar amounts, and any expected seasonality.

Answer

Jim Ryan, Chairman and CEO, and John Moran, CFO, expressed comfort with the current CET1 ratio, prioritizing organic growth but not letting capital grow unchecked. They do not currently target a reduction to 10.5%. Mr. Ryan clarified that 'stable' non-interest-bearing deposits refer to a percentage, noting some seasonality in public funds but nothing significant otherwise.

Jared Shaw asked about Old National Bancorp's target Common Equity Tier 1 (CET1) ratio for 2026, considering the planned buyback activity, and sought clarification on the expectation for stable non-interest-bearing deposits (DDA) in 2026, specifically if it refers to a percentage or dollar amount.

Answer

Jim Ryan, Chairman and CEO, and John Moran, CFO, expressed comfort with the current CET1 ratio, prioritizing organic growth but not allowing capital to grow unchecked. They do not target a reduction to 10.5% and view capital growth and return as mutually inclusive. Mr. Ryan clarified that stable DDA refers to a percentage, with some seasonality expected in public funds.

Jared Shaw inquired about the dynamics of acquired Bremer loans, specifically if there were loan sales or just organic runoff, and the expectation for additional flow from acquired loans in Q4. He also asked about the drivers behind the incremental weakness in provision and charge-offs on PCD loans, for an update on the systems conversion process, and about plans for increasing hiring to support organic growth.

Answer

CEO Jim Ryan explained that the decline in Bremer balances was due to normal attrition of national-related businesses not continued by Old National. CFO John Moran noted that the PCD loan weakness was normal post-acquisition. Jim Ryan described the systems conversion as their best to date. John Moran added that Q3 merger charges were in line with expectations ($70 million), with about $50 million more expected in Q4. Jim Ryan confirmed plans to hire new team members, particularly in commercial banking, to capitalize on market opportunities.

Jared Shaw asked about the dynamics of acquired Bremer Bank loans, specifically if loan sales contributed to the decline in balances and the expectation for future runoff from these acquired portfolios. He also questioned the drivers behind the incremental weakness in provision and charge-offs on PCD loans and sought an update on the systems conversion process, including whether accelerated merger charges were due to pulling forward integration efforts. Finally, he inquired about plans for increasing hiring to capitalize on organic growth opportunities.

Answer

CEO Jim Ryan explained that the decline in Bremer loan balances was due to normal attrition from lines of business Old National Bancorp does not plan to continue, not large swings or planned loan sales. CFO John Moran noted that PCD loan weakness was a normal post-acquisition trend as they get their arms around credit. Jim Ryan reported that the systems conversion was the best to date, with high client sentiment and successful integration, while John Moran confirmed that $70 million in merger charges were in line with expectations, with about $50 million more anticipated in Q4. Jim Ryan stated they have a great team but are actively looking to hire new talent, particularly in revenue-generating roles, to take advantage of market disruptions.

Jared Shaw inquired about the drivers for the increased fee income guidance and which business lines were showing particular strength.

Answer

CFO John Moran attributed the strong fee income performance to solid results in mortgage and wealth management. He also highlighted that the capital markets business, while small, performed well during the quarter, contributing to the positive outlook.

Jared Shaw from Barclays followed up on capital, asking about the target CET1 ratio for the bank's model. He also inquired about the expected trajectory of deposit betas, the NII sensitivity to the long end of the curve, and the purchase accretion outlook for 2025.

Answer

Executive James Ryan stated that while there isn't a definitive target for the CET1 ratio yet, capital levels are running ahead of expectations, which provides flexibility. Executive John Moran suggested modeling the deposit beta progression as linear throughout the year is a reasonable estimate. He clarified that NII sensitivity is primarily to the belly of the curve (3-5 year), not the long end, and projected purchase accounting accretion would be about $10.5 million in Q1 and Q2.

Jared Shaw followed up on deposit beta assumptions, asking for the percentage of non-DDA deposits that are indexed or brokered and how the 80% beta can be maintained. Shaw also inquired about the strategy for Commercial Real Estate (CRE) growth within capital concentration limits and the competitive landscape. Finally, Shaw asked for details on a specific fraud-related charge-off and the assumptions for the Allowance for Loan Losses (ALL) ratio in the provision guidance.

Answer

Chairman, President, and CEO Raj Singh and COO Tom Cornish confirmed brokered deposits were 16.6% and noted the difficulty in disclosing indexed deposits, expressing confidence in maintaining the 80% beta. Raj Singh and Tom Cornish explained CRE growth is not capital-constrained but focused on specific asset classes (excluding office/hospitality) for diversification, targeting mid-single-digit growth balanced across asset classes, acknowledging increased competition. Raj Singh detailed the fraud as a $10 million write-off from a New York contractor, and both executives indicated the ALL ratio is expected to remain consistent, with no broad systemic credit risks.

Jared Shaw (Barclays) questioned the sustainability of the 80% deposit beta assumption, asking for the percentage of indexed or brokered non-DDA deposits. He also inquired about BankUnited's capacity for commercial real estate (CRE) growth, its target as a percentage of overall growth, and the competitive landscape in the CRE market. Additionally, he sought more details on the fraud-related charge-off and its impact on the allowance for credit losses (ALL) ratio.

Answer

Raj Singh (Chairman, President, and CEO) noted brokered deposits were around 16.6% and explained that indexed deposits are hard to quantify precisely but expressed confidence in achieving the 80% beta. Tom Cornish (COO) stated that CRE growth is not constrained by capital buckets but by risk assessment, targeting mid-single-digit growth balanced across asset classes, with increased competition expected. Raj Singh clarified the fraud was a $10 million complete write-off from a New York contractor, and the allowance for credit losses (ACL) ratio is expected to remain fairly consistent.

Jared Shaw of Barclays Capital inquired about the process for office loans moving to non-performer status, including appraisal timing and charge-down methodology. He also asked about the drivers and seasonality of the strong DDA growth and the strategy behind the new $100 million stock buyback program.

Answer

CFO Leslie Lunak explained that properties are reappraised when they move to substandard, and LTVs and DSCRs are updated based on current NOI and market data. She detailed the specific reserves and charge-offs related to office loans. Regarding deposits, she noted seasonality would be a headwind later in the year. CEO Rajinder Singh added that year-over-year growth is a better metric and stated the board felt the $100 million buyback was a good start, with no specific CET1 target disclosed.

Speaking on behalf of Jared Shaw, an analyst asked for the dollar amount of the noncore commercial portfolio and inquired about capital management priorities, including the potential for share buybacks given the current CET1 level.

Answer

CFO Leslie Lunak directed the analyst to the press release, which details the noncore portfolios. CEO Raj Singh explained that while the 12% CET1 ratio is solid, it's in line with peers, and a significant buyback is unlikely in the near term due to market uncertainties. He noted a dividend increase would be considered, consistent with past cadence.

Jared Shaw of Barclays Capital asked about First Horizon's appetite for utilizing the remaining $1 billion buyback authorization over 2026, and whether capital ratios are expected to continue moving lower. He also inquired about C&I loan growth, specifically the flat utilization rates over the past year, customer appetite for increased utilization, and whether higher utilization is baked into the guidance.

Answer

Bryan Jordan, CEO, stated that the board has provided substantial authorization, and while the company prioritizes organic, profitable growth, it will be opportunistic with buybacks, reaffirming a long-term CET1 target of 10%-10.5%. He noted that customers are generally optimistic, and C&I utilization is expected to improve, also mentioning the rebalancing of the balance sheet mix for more sustainable growth. Thomas Hung, Chief Credit Officer, added that while utilization rates are watched closely, the underlying drivers are more telling. He highlighted increased momentum in the C&I pipeline, coming from a diverse set of businesses and regions.

Jared Shaw asked about First Horizon's capital deployment strategy, specifically the appetite for utilizing the $1 billion buyback authorization in 2026 and the expectation for capital ratios. He also inquired about C&I loan growth, flat utilization rates, and customer appetite for increasing line utilization.

Answer

Bryan Jordan, CEO, stated that while capital deployment is a board topic, the company has substantial authorization and reaffirms a long-term CET1 target of 10-10.5%. He emphasized prioritizing organic growth but being opportunistic with buybacks. Regarding C&I, Mr. Jordan expects utilization to improve due to customer optimism, while Thomas Hung, CCO, highlighted broad-based pipeline momentum across diverse businesses and regions, focusing on the underlying drivers of utilization changes.

Jared Shaw with Barclays Capital asked about the drivers behind the improvement in criticized and classified loans, specifically if it was due to changes in CECL macro assumptions or fundamental loan-by-loan improvements. He also inquired about when First Horizon expects to see net growth in CRE given construction paydowns, and the specific drivers of the outsized Main Street accretion this quarter.

Answer

Chief Credit Officer Thomas Hung attributed the decrease in ACL to both updated Moody's Analytics outlook and individual loan-driven improvements, noting a 9% decline in criticized assets. Chairman, President, and CEO Bryan Jordan indicated that while construction paydowns will continue for another quarter or two, lower rates are building pipelines, suggesting a turn towards equilibrium. CFO Hope Dmuchowski clarified that the Main Street accretion was due to the program ending and the bank repurchasing those loans for existing clients, with no expected tail into Q4.

Jared Shaw asked about the drivers behind the improvement in criticized and classified loans, specifically if it was due to changes in macroeconomic assumptions or fundamental loan-by-loan improvement. He also inquired about the expected timing for net growth in Commercial Real Estate (CRE) and the specific driver of the outsized Main Street lending program accretion this quarter.

Answer

Chief Credit Officer Thomas Hung attributed the ACL decrease to both updated Moody's Analytics outlook and fundamental grade migration, with criticized assets down 9%. Chairman, President, and CEO Bryan Jordan noted that CRE pipelines are building with lower rates, expecting another quarter or two of paydowns before net growth. CFO Hope Dmuchowski clarified that Main Street accretion was due to the program ending and the bank repurchasing loans for existing clients, with no expected tail into Q4.

Jared Shaw asked about the long-term contribution of federal government spending in Hawaii, specifically if it remains heavily defense-focused and immune to re-shifting priorities. He also inquired about floor plan dealers' expectations for auto sale volumes next year, the impact of tariffs, and whether slower demand would benefit the bank. Lastly, he asked if there have been any changes in pricing behavior from Hawaii competitors following recent ownership changes.

Answer

Bob Harrison, Chairman, President, and CEO, affirmed that the long-term trend for federal spending in Hawaii is strong and defense-focused, with significant projects underway in Guam and a stable core federal employee workforce. Regarding auto sales, Harrison noted dealer discussions focused on tariffs and their potential impact on consumer demand and pricing, suggesting slower demand could benefit the bank. He concluded that there has been no observable change in competitive dynamics or pricing from Hawaii competitors.

Jared Shaw from Barclays Bank PLC asked about the long-term impact of federal spending in Hawaii, specifically if First Hawaiian is concerned about a reshifting of federal priorities beyond military spending, or if the defense-focused contribution remains stable. He also inquired about floor plan dealers' expectations for auto sale volumes in the next year, considering the potential for a slowdown in purchase activity and how this might affect floor plan balances. Finally, Shaw asked if there had been any observable changes in pricing behavior from other Hawaii competitors following recent changes in ownership.

Answer

Chairman, President, and CEO Bob Harrison affirmed that the long-term trend for federal spending in Hawaii remains strong and defense-focused, citing significant projects in Guam and stable core federal employee workforce, particularly at Pearl Harbor Naval Shipyard. Regarding floor plan dealers, Harrison noted that discussions are more focused on tariffs and their potential impact on higher price points and consumer demand, rather than next year's sales volume. He suggested that a slowdown in demand due to tariffs could potentially benefit floor plan balances by keeping inventories longer. Harrison concluded by stating that First Hawaiian has not observed any changes in competitive dynamics or pricing behavior from other Hawaii competitors.

Jared Shaw from Barclays Capital asked about the current spreads on new C&I loans, the reinvestment strategy for the securities portfolio, and the underlying reasons for the growth in residential mortgage non-performers.

Answer

CFO James Moses stated that C&I spreads are stable, with new loans coming on in the mid-to-upper 6% range. He also detailed the securities strategy, which involves reinvesting cash flows from 2% yielding assets into similar-duration mortgage securities yielding around 4-4.25%. CEO Robert Harrison and CRO Lea Nakamura explained that the rise in residential non-performers stems from stress on lower-end consumers but emphasized the loans have low LTVs and minimal expected loss content.

Jared David Shaw from Barclays questioned the outlook for interest-bearing deposit betas with potential rate cuts, the securities portfolio yield after the recent restructuring, and the sustainability of the strong DDA growth.

Answer

CEO Bob Harrison suggested that deposit betas would likely decline with subsequent rate cuts due to the already low deposit costs. CFO Jamie Moses clarified the restructured securities had a yield around 5% versus 2% for those sold, with the total portfolio yield at 2.10%. Harrison attributed the DDA growth primarily to strong execution by their teams rather than a significant shift in the competitive landscape.

Jared Shaw asked about the expected trend for CRE non-performing loans (NPLs) given the runoff in multifamily and CRE, and whether the current marks are adequate to avoid corresponding provision growth. He also sought clarification on the total asset and loan growth outlook for year-end 2026 and 2027.

Answer

Joseph Otting, Chairman, President, and CEO, indicated an expected downward trend in non-performing assets (NPAs), with line of sight on $400 million-$500 million in reductions for Q4 2025. Lee Smith, Chief Financial Officer, added that a $500 million non-accrual loan tied to a bankruptcy is expected to resolve in early 2026, contributing to a total expected reduction of up to $1 billion in non-accruals in 2026. Both executives expressed confidence in the adequacy of current marks, noting that the bank was deliberately punitive in its 2024 credit review. Lee Smith projected total assets to be around $96 billion-$97 billion by the end of 2026 and $108 billion-$109 billion by the end of 2027.

Jared Shaw from Barclays asked about the future trend of Flagstar Bank N.A.'s credit metrics, specifically if the runoff of multifamily and CRE loans would lead to continued growth in CRE non-performing loans (NPLs) without a corresponding increase in provision, assuming current marks are adequate. He also sought clarification on the expected total asset and total loan growth for year-end 2026 and 2027.

Answer

CEO Joseph Otting stated that there was a strong reduction in NPLs in Q2 2025, and Q4 2025 is expected to see a further $400-$500 million reduction in NPLs, driven by a dedicated team focusing on performing NPLs. He emphasized that 42-43% of NPLs are still paying. CFO Lee Smith added that a $500 million non-accrual loan tied to a borrower in bankruptcy is expected to resolve in early 2026, contributing to a projected $1 billion reduction in non-accruals in 2026. For growth, Lee Smith projected total assets to be $90-$91 billion at year-end 2025, around $96-$97 billion at year-end 2026, and about $108-$109 billion at year-end 2027.

Jared Shaw of Barclays Capital inquired about the specifics of the Q2 securities purchase and whether the June exit net interest margin (NIM) of 1.88% already reflects the benefit from the recent FHLB payoff.

Answer

Senior Executive Vice President & CFO Lee Smith clarified that Flagstar accelerated $2 billion in agency CMO purchases with a weighted average coupon of 5.25% to optimize NIM. He confirmed that while the June exit NIM does not include the FHLB payoff benefit, it is factored into the company's forward-looking guidance for the remainder of the year.

Jared Shaw asked for details about a new deposit system or system upgrade mentioned by Andy Harmening, and whether it was already factored into the expense structure.

Answer

President and CEO Andy Harmening confirmed that the product enhancement is baked into the expense structure. He explained it's a substantial wealth-side product enhancement launching by November-end, and an HOA title business capability launching by year-end or early January, with additional pieces in Q2 and Q3 2026. He noted these would be prioritized over other less significant opportunities.

Jared Shaw asked about the expected cumulative deposit beta through the cycle, assuming two additional rate cuts. He also inquired about the sustainability of personnel expenses, particularly incentive compensation, for Q4 2025 and into 2026, and requested details on a new deposit system or upgrade aimed at driving incremental growth.

Answer

President and CEO Andy Harmening estimated the cumulative deposit beta to be in the range of 55% to 58%, indicating a slightly better potential. He clarified that deferred compensation is market-tied, and CFO Derek Meyer added that incentive compensation should remain at similar levels if guidance is met, with plans for less than a 2% expense increase in 2026. Andy Harmening detailed the new initiatives as a wealth management product enhancement launching by November-end and an HOA title business capability launching by year-end or early January, both baked into current expenses.

Jared Shaw of Barclays inquired about the drivers behind the growth in investor commercial real estate (CRE) loans and sought details on the geographic sources and competitive dynamics of the commercial & industrial (C&I) loan growth.

Answer

Executive Andrew Harmening and Chief Credit Officer Pat Ahern clarified that the investor CRE growth was primarily from construction projects successfully transitioning to income-producing properties, not new origination. CFO Derek Meyer added that the overall CRE portfolio has been relatively flat year-over-year. Harmening stated that C&I growth is broad-based across the footprint, not concentrated in one market, and is driven by new, tenured bankers whose non-solicitations are rolling off. He noted some spread compression in CRE but said the C&I business is bringing in valuable corresponding deposits.

Jared David Shaw questioned the slower-than-expected auto loan growth, asked about cash flows from the securities portfolio, and inquired about the 2025 expense outlook and the potential for positive operating leverage.

Answer

CEO Andrew Harmening explained that auto growth is deliberately managed to maintain high credit quality (796 average FICO) and avoid over-concentration, as the primary focus is on ramping up the commercial business. An executive detailed that the securities portfolio has ~$400M in quarterly runoff with a 25-50 bps positive reinvestment spread. Regarding 2025, Harmening declined to give specific guidance but noted that while expense plans are set, achieving positive operating leverage is highly dependent on the unknown pace of future rate cuts.

Jared Shaw asked about BOK Financial's internal comfort level with its loan-to-deposit ratio, which is currently low, potentially increasing as the company funds its growth.

Answer

Marty Grunst, EVP and CFO, stated that BOK Financial has a very strong loan-to-deposit ratio and is comfortable with it drifting up. He clarified that while the central expectation is continued growth in both loans and deposits, loans might grow slightly faster, leading to a higher ratio. Grunst emphasized BOK Financial's significant balance sheet flexibility, positioning them well for the next few years.

Jared Shaw asked if the high end of BOK Financial's loan growth range was primarily driven by the potential of mortgage warehouse finance, and for an outlook on energy loan payoff activity. He also questioned if stronger mortgage growth would impact expected loan yields due to tighter spreads, and inquired about BOK Financial's comfort with its loan-to-deposit ratio potentially increasing to fund growth.

Answer

President and CEO Stacy Kymes stated that BOK Financial achieved 10% annualized loan growth in the last two quarters without significant mortgage finance contribution, indicating strong momentum and pipelines. He anticipated energy balances to stabilize or grow slightly, having likely 'hit the bottom' on material payoff activity. Kymes noted that while mortgage warehouse spreads are tighter, commercial real estate spreads are wider, so the overall impact on loan yields depends on the mix. CFO Marty Grunst confirmed comfort with the loan-to-deposit ratio drifting up, given its current strength and balance sheet flexibility, expecting continued growth in both loans and deposits.

Jared Shaw inquired about the expected trajectory for net interest margin (NIM), the outlook for the securities portfolio size, and the trend for FHLB borrowings.

Answer

EVP & CFO Martin Grunst responded, stating that margin expansion is expected to continue, driven by fixed asset repricing and deposit pricing optimization. He advised viewing the securities portfolio as steady for the rest of the year and explained that the recent increase in FHLB borrowings was a temporary result of higher average balances in the trading account.

Jared David Shaw inquired about the dynamics of trading revenue, specifically the decline in total trading income and normalized levels. He also asked about balance pressures in the energy and healthcare loan portfolios and the outlook for the provision and allowance for credit losses (ACL) ratio.

Answer

CFO Martin Grunst and EVP of Wealth Management Scott Grauer explained that the decline in trading revenue was entirely volume-driven due to market uncertainty in February and March, but they expect a rebound. CEO Stacy Kymes stated that headwinds from energy and healthcare loan payoffs are expected to moderate. Regarding credit, Martin Grunst noted that the ACL coverage ratio is not expected to grow, as the Q1 calculation already included a judgmental overlay despite suggesting a potential reserve release.

Jared Shah asked about the decline in Cadence Bank's DDA mix this quarter and expectations for non-interest-bearing deposits for the rest of the year, excluding the Industry acquisition. He also questioned the target capital level after recent deals and improved purchase accounting marks, and the bank's thoughts on share buybacks versus additional M&A.

Answer

CEO Dan Rollins clarified that the DDA percentage of 20.6% in Q3 is consistent with historical run rates, with Q2 being an anomaly due to a large customer's temporary balances and First Chatham Bank's higher DDA mix. CFO Valerie Toalson provided detailed figures on the impact of temporary customer deposits and acquisitions on NIB balances. Mr. Rollins stated that the bank aims to be good stewards of capital, noting that strong Q3 results put them back in the buyback game sooner than expected, while also continuing to seek organic and inorganic growth opportunities.

Jared Shaw inquired about the target capital level the bank is managing to and the strategic considerations for capital deployment, specifically regarding buybacks versus additional M&A, given the strong capital position post-acquisition adjustments.

Answer

CEO Dan Rollins stated the company aims to be good stewards of capital and has built capital faster than anticipated, putting them back in the buyback game sooner. He emphasized that core organic growth is the primary capital priority, followed by inorganic opportunities.

Jared Shaw asked about the sustainability of the strong core deposit growth, particularly in non-interest-bearing accounts, and whether there was more room for CD costs to decline. He also requested color on the drivers behind the migration in criticized and classified loans.

Answer

CEO Dan Rollins noted that while the DDA growth was positive, one quarter does not establish a trend. CFO Valerie Toalson confirmed there is an opportunity for CD costs to decline as maturing CDs at around 4% are replaced by new originations below 3.6%. President & Chief Credit Officer Chris Bagley attributed the increase in criticized loans to a few specific credits and the First Chatham merger, stating the levels remain within normal historical ranges.

Jared Shaw of Barclays inquired about the sustainability of the strong core deposit and DDA growth seen in the quarter. He also asked if there was more room for CD costs to decline and sought color on the migration in criticized and classified loans.

Answer

Chairman and CEO Dan Rollins was cautious about calling one quarter's DDA growth a new trend. CFO Valerie Toalson confirmed there is an opportunity for CD costs to compress further, as maturing CDs have a higher rate than new originations. President & Chief Credit Officer Chris Bagley explained the increase in criticized loans was partly due to the First Chatham merger and a few select credits, remaining within normal ranges.

Jared Shaw from Barclays questioned if the low-to-mid-single-digit loan growth guidance was overly conservative and whether it included the First Chatham acquisition. He also asked if this smaller M&A deal signals a new strategic preference and if it would preclude larger transactions.

Answer

CEO James Rollins clarified the guidance is for organic growth only and excludes the deal. An executive added that potential paydowns in construction lending are a wildcard. Rollins emphasized that the First Chatham deal was a strategic opportunity in a key market and does not represent a shift in M&A preference, nor does a transaction of its size slow them down from pursuing other, potentially larger, opportunities.

Jared Shaw asked about the tone of conversations with prospective hires given Synovus's accelerated talent acquisition, and what hiring trends to expect beyond the fourth quarter. He also questioned the drivers behind the positive credit trends, specifically the reduction in non-performers and classified assets, and what to anticipate as credit trends continue to season.

Answer

CEO Kevin Blair described the hiring environment as one of general excitement, noting that internal team members' comfort and excitement about the combined company's larger scale and enhanced capabilities make it easier to attract external talent. Chief Credit Officer Anne Fortner explained that the reduction in non-performing loans (NPLs) was driven by $30 million in C&I portfolio outflows (payoffs/paydowns) and the foreclosure of Atlanta office NPLs. Mr. Blair added that Q3 2025 marked the lowest net charge-off quarter in almost three years and the lowest criticized/classified ratios in two years, indicating stability.

Jared Shaw asked for color on the expected trajectory for capital markets fees throughout the year and whether a potentially more industry-friendly administration alters the company's perspective on M&A.

Answer

CEO Kevin Blair stated that while capital markets fees can be lumpy, he anticipates another year of double-digit growth driven by increased product diversification and its correlation with higher loan production. Regarding M&A, he affirmed that the company's view is unchanged, with the primary focus remaining on its organic growth plan, which they believe is the best investment. M&A is not considered a 'front burner' strategy at this time.

Jared Shaw from Barclays Capital sought clarification on deposit cost trends, noting a discrepancy between average and end-of-period costs, and asked about the drivers for the implied increase in core expenses for the second half of the year.

Answer

EVP & CFO Christopher Del Moral-Niles clarified that deposit costs were indeed trending down, pointing to end-of-period data. He explained that the expected expense growth is due to programmatic investments in personnel and systems to enhance capabilities in areas like cyber, fraud, and regulatory compliance as the bank continues to scale.

Jared Shaw inquired about the strategy for growing the wealth management business, including M&A potential, and asked for an update on the bank's hedging strategy and the rates on its existing swap book.

Answer

CFO Christopher Del Moral-Niles said the bank will continue its organic growth in wealth management while selectively exploring expansion opportunities. Regarding hedges, he highlighted that $1 billion of forward-starting swaps with a receive-fixed rate of around 4% will become active in the second half of 2025, positioning the bank for potential rate cuts.

Jared David Shaw from Barclays inquired about the pace of reaching the 11% CET1 level, sought the specific Q1 hedge cost, and asked whether the 1.10% ROA target is calculated before or after preferred dividends.

Answer

CFO Matt Scurlock clarified that 11% CET1 should be viewed as a floor, not a target to manage down to, as the firm sees operating with excess capital as a competitive advantage. He confirmed the Q1 hedge cost was around $8 million. Regarding the ROA target, Scurlock stated it is an 'as reported' 1.10% ROAA, and specified that this calculation is before the payment of preferred dividends, consistent with the firm's historical reporting method.

Jared Shaw asked for an outlook on the net interest margin (NIM) in the context of the firm's ROAA goal, the role of share buybacks in the capital plan, and the sensitivity of the fee income guidance if fewer or zero rate cuts occur.

Answer

CFO Matt Scurlock projected that NIM should expand above 3% in Q1, despite some seasonal NII pressure, due to a lag in mortgage finance yield adjustments. Regarding capital, he stated the buyback approach is unchanged, emphasizing the competitive advantage of high tangible common equity, and noted the potential for increased regulatory capital from enhanced mortgage warehouse structures. Both Scurlock and CEO Rob Holmes expressed high confidence in achieving the $270 million fee income target regardless of the rate outlook, driven by strong client onboarding and treasury fee growth.

Jared Shaw of Barclays PLC questioned the timing of the Q3 balance sheet restructuring to gauge the flow-through benefit to Q4 margin. He also asked about the potential margin impact of two rate cuts versus the one assumed in guidance, and whether the current FDIC expense is a good run rate.

Answer

CFO Joe Kauder clarified that restructuring actions occurred throughout Q3, ensuring a full-quarter benefit in Q4. He estimated an additional rate cut could add approximately $0.01 to EPS, though CEO Jared Wolff noted the benefit would largely materialize in Q1. Regarding expenses, Kauder explained that while Q3 included a non-repeatable FDIC benefit, the current level is a 'pretty good run rate' going forward when considering other core improvements.

Jared David Shaw of Barclays asked for guidance on year-end 2024 earning asset levels, the strategy for re-growing the lender finance business, the long-term outlook for deposit growth, and the potential for positive operating leverage in 2025.

Answer

CFO Joe Kauder projected year-end earning assets to be in the $30.5 billion to $32 billion range. CEO Jared Wolff expressed confidence in restarting the lender finance business, citing a strong existing base and positive market reception. Wolff stated that deposit growth would track loan growth to maintain a stable loan-to-deposit ratio. He also affirmed the bank is positioned for positive operating leverage in 2025 and is focused on setting achievable expectations to build a sustainably profitable company.

Jared Shaw of Wells Fargo requested a breakdown of the $150 million in deferred expenses across categories like hiring, technology, and marketing. He also asked for an update on securities portfolio reinvestment rates and the target ratio for securities and cash to total assets.

Answer

CEO and President Michael Roffler described the expense deferrals as "broad-based," resulting from efficiencies from the new core system, slower hiring in areas like mortgage, natural adjustments to compensation, and a team approach to optimizing spending across all departments while continuing to hire opportunistically in areas like wealth management. Chief Accounting Officer and Deputy CFO Olga Tsokova stated that Q4 reinvestment yields were in the low 5% range for HQLA and low 6% range for municipal bonds, with current yields slightly lower for munis. Roffler added that the bank expects to maintain its cash level as a percentage of total assets.

Jared Shaw from Wells Fargo inquired about the potential peak for CDs as a percentage of total deposits during this rate cycle. He also asked about the strategy behind offering shorter-duration CD specials and whether the bank could maintain its efficiency ratio within the 62% to 64% range in 2023.

Answer

CEO and President Mike Roffler suggested that the previous peak of 15% of deposits in CDs is a "good rule of thumb" for this cycle. Founder and Executive Chairman Jim Herbert explained that the strategy for shorter-duration CDs is to avoid locking in high funding costs, as he believes the steep rate run-up is a temporary issue. Roffler confirmed that the 62% to 64% range for the 2023 efficiency ratio is a reasonable expectation based on current knowledge.

Jared Shaw requested the average origination yields for the full quarter across various loan categories, clarification on whether the spot deposit rate was for total or interest-bearing deposits, and an update on the bank's asset sensitivity profile.

Answer

Chief Banking Officer Mike Selfridge provided average Q2 origination yields: ~3.20% for all loans and slightly over 3% for single-family residential. Acting CFO Olga Tsokova confirmed the 21 basis point spot rate was for total deposits. CEO Mike Roffler stated that the bank's preliminary view is that it remains slightly asset sensitive.