Jeff Rulis

Jeff Rulis sought clarification on the fee income base for 10% growth, asking if $33 million was a fair starting point. He then inquired about the timeline for resolution of the larger problem loan (CRE), asking about expectations for the balance of the year and if smaller, incremental resolutions could be expected. Rulis also asked for an update on the balance of the transportation segment of the equipment finance portfolio at year-end and prior year, and expectations for its future size. Finally, he asked CEO Corey Chambas about revisiting the long-term strategic goals on slide 15, given that several targets (ROE, efficiency ratio) were achieved ahead of the 2028 schedule.

Answer

CFO Brian Spielmann confirmed that $33 million was a good starting point for the fee income base for 2025. CEO Corey Chambas stated that full resolution of the CRE problem loan might take until the end of the year, but he expects to see 'smaller wins' and progress on different pieces every quarter. Brian Spielmann and Corey Chambas clarified that the transportation segment of the equipment finance portfolio was $21 million at year-end, down from $61 million when issues began, and about $20 million lower than the prior year. Corey Chambas acknowledged hitting ROE and efficiency ratio goals early, stating the aim is to maintain the ROE over 15% and continue improving the efficiency ratio annually, focusing on positive operating leverage rather than recasting the 2028 goal.

Jeff Rulis sought clarification on the fee income base for 10% growth and asked for an expected timeline for the resolution of the larger problem loan. He also requested an update on the balance and future expectations for the Equipment Finance transportation portfolio. Finally, he inquired if the bank plans to revisit its long-term strategic goals (ROE, efficiency ratio) given their early achievement.

Answer

CEO Corey Chambas confirmed a $33 million base for 2025 fee income. He stated that while full resolution of the problem loan might take until year-end due to the foreclosure process, smaller progress on individual real estate pieces is expected quarterly. Corey Chambas noted the Equipment Finance transportation segment is down to $20 million from $61 million, with expectations that remaining borrowers are more stable. Regarding strategic goals, he indicated the bank will aim to maintain the achieved ROE and continue improving the efficiency ratio annually, focusing on positive operating leverage rather than recasting the 2028 targets.

Jeff Rulis followed up to inquire about initial thoughts on 2027 trends concerning net interest margin, loan growth, and share buyback activity, seeking insights into the momentum building in these areas.

Answer

CFO David Della Camera expects sequential margin improvement to continue into 2027 due to the cash flow profile and favorable loan/investment cash flow, and reiterated that capital allocation, including buybacks, is an ongoing conversation to enhance shareholder value. CEO James Reuter expressed hope to build on 2026 loan growth into 2027, assuming projections hold, but acknowledged economic uncertainties.

Jeff Rulis inquired about the underlying drivers of loan balance declines in 2025, beyond branch sales and indirect runoff, and the company's strategy to course-correct production issues and motivate organic growth. He also asked for clarification on the pace of net interest margin expansion towards the 3.5% target by year-end 2026, particularly after Q1.

Answer

CEO James Reuter explained that a significant portion of loan declines stemmed from payoffs of criticized loans and larger transactional loans intended for the secondary market, noting that deposits increased net of sales, indicating non-significant relationships. He highlighted improved December production, the banking organization redesign as a growth catalyst, and new team members in Colorado, acknowledging short-term impacts on production from credit culture adjustments. CFO David Della Camera confirmed the expectation of reaching north of 3.5% NIM by year-end 2026, projecting sequential margin improvement of approximately 5 basis points per quarter, with Q1 NII lower due to accrual days and balances, but NIM still higher.