Jon Arfstrom

Jon Arfstrom inquired about the general health of multifamily loans maturing over the next two years and whether non-performing balances could see a larger step down due to these maturities. He also asked about the biggest risks to the 2026 and 2027 guidance, assuming credit is not the primary concern.

Answer

Lee Smith, Senior Executive Vice President and Chief Financial Officer, expects to reduce non-accruals by $1 billion in 2026, including $450 million from bankruptcy loans. He stated that loans hitting reset/maturity dates have similar quality characteristics to prior resets, and the bank conducts deep-dive analyses on 18-month look-forward loans, which are incorporated into the Allowance for Credit Losses (ACL). Joseph Otting, Chairman, President, and CEO, added that payoff tracking shows consistent percentages of substandard and rent-regulated loans, reflecting a good assessment of portfolio risk. Lee Smith identified execution on the growth side as the biggest risk to guidance, emphasizing the management team's proven ability to deliver on commitments.

Jon Arfstrom asked about the general health and characteristics of the multifamily loans maturing over the next two years, and whether there's a chance for a larger step-down in non-performing balances based on these maturities. He also inquired about the biggest risks to Flagstar Bank's 2026 and 2027 guidance, suggesting it might not be credit-related.

Answer

Lee Smith, Senior Executive Vice President and CFO, stated that the bank expects to reduce non-accruals by $1 billion in 2026, including $450 million from the bankruptcy resolution. He confirmed that there are no unique characteristics about the upcoming multifamily maturities compared to prior resets, and the bank performs an 18-month deep dive analysis on all resetting/maturing loans. Joseph Otting, Chairman, President, and CEO, added that the consistent percentage of substandard and rent-regulated loans in payoffs reflects a good assessment of portfolio risk. Lee Smith concluded that the biggest risk to guidance is the bank's ability to execute on its growth strategy, emphasizing the team's proven track record.

Jon Arfstrom asked about Flagstar Bank N.A.'s CRE pricing on renewals, specifically if it's market-driven or acceptable pricing, and whether the bank is losing deals due to its pricing strategy. He also inquired if there was anything new or unexpected in the legacy credit book compared to a quarter ago, or if issues were known and just a matter of timing for resolution.

Answer

Lee Smith, Chief Financial Officer, explained that the bank maintains a rigid stance on CRE renewal pricing (5-year FHLB + $300 or Prime + $275), which leads to significant payoffs as borrowers find better deals elsewhere. This strategy aligns with the bank's goal to reduce CRE concentration. Joseph Otting, Chairman, President, and CEO, confirmed there is nothing new in the legacy credit book, with perceived risk concentrated in the greater than 50% rent-regulated multifamily portfolio, and the bank is on a structured path to resolve these known credit problems.

John Arfstrom from RBC Capital Markets asked about Flagstar Bank N.A.'s CRE pricing on renewals, specifically if the bank was losing deals due to its pricing strategy. He also inquired if there was anything new or unexpected in the legacy credit book compared to the previous quarter, or if the current credit stats (flat to down) were simply a matter of timing for known issues to resolve.

Answer

CFO Lee Smith explained that Flagstar Bank N.A. is being rigid with its CRE renewal pricing (five-year floor plus 300 or prime plus 275) because it aims to reduce CRE concentration. This rigidity leads to significant payoffs as borrowers find better deals elsewhere, which the bank is "okay with" as it aids diversification. CEO Joseph Otting confirmed there is "nothing new" in the legacy credit book, and the bank has a clear understanding of its perceived risks, particularly in the rent-regulated multifamily portfolio, indicating that current credit trends are part of a structured cleanup process.

Jon Arfstrom of RBC Capital Markets inquired about the C&I hiring strategy, asking why the bank might miss on a potential hire and what obstacles new bankers face when trying to bring clients over to Flagstar.

Answer

Executive Chairman, President & CEO Joseph Otting explained that they rarely 'miss' on hires due to personal connections, with the main obstacle being aggressive counteroffers from current employers. He identified Treasury Management as an area for future investment to better support new client acquisition, noting they will focus on it after current technology consolidations are complete.

Jon Arfstrom asked about the sources of lending competition, the impact of a 25 basis point Fed rate cut on Net Interest Income (NII) and margin, and the timeline for the expansion project to reach average returns of legacy branches, including its current aggregate breakeven status.

Answer

Phil Green, Chairman and CEO, and Dan Geddes, Group Executive Vice President and CFO, indicated that lending competition comes from all types of banks, with particular intensity from smaller banks and for larger, high-quality loan opportunities. Dan Geddes stated that a single 25 bps rate cut impacts NII by about $1.8 million per month, and a full year without cuts could bump NIM by 2-4 basis points. He explained that expansion branches typically reach breakeven in years 1-4, with accretion starting in years 5 and beyond, confirming the project is currently breaking even in aggregate through the first two quarters, with a significant shift to accretion expected in three to four years as more branches mature.

Jon Arfstrom from RBC Capital Markets asked about the sources of lending competition, the quantitative impact of a rate cut on NII, and the timeline for the branch expansion initiative to achieve returns comparable to legacy branches.

Answer

CEO Phillip Green identified lending competition as broad-based but noted recent aggression from smaller banks on underwriting. CFO Dan Geddes quantified the impact of a 25 basis point rate cut at approximately $1.8 million per month. He explained that the overall expansion project is currently at breakeven, with mature Houston branches funding newer ones in Dallas and Austin. He estimated it would be another three to four years before the portfolio of branches matures enough to significantly lift overall returns.

Jon Arfstrom from RBC Capital Markets asked about the source of lending competition, the specific quantitative impact of a 25 basis point rate cut on NII, and the timeline for the branch expansion project to reach the company's average profitability levels.

Answer

CEO Phillip Green stated that lending competition comes from all bank sizes but noted an increase in aggressiveness from smaller banks. CFO Dan Geddes quantified the impact of a single 25 basis point rate cut at approximately $1.8 million per month to NII. He also explained that the expansion project is currently at breakeven in aggregate, detailing how mature branches in Houston are funding newer ones in Dallas and Austin, with overall accretion expected in 2026 as more locations mature.

Jon Arfstrom from RBC Capital Markets asked for the rationale behind adding more rate cuts to guidance, whether management's loan growth outlook has improved, and what factors might be constraining the noninterest income forecast.

Answer

CFO Dan Geddes explained that the inclusion of four rate cuts in the guidance reflects a conservative stance relative to the market. CEO Phillip Green stated his view on loan growth is largely unchanged, balancing economic uncertainty with strong execution by his bankers. Geddes suggested potential upside to noninterest income could come from volume-driven fees like interchange as the bank continues to add new customer relationships through its expansion.

Jon Arfstrom sought clarity on the loan growth guidance, asking what factors would drive results to the high or low end of the range and confirming the basis for the guidance. He also questioned if the noninterest income growth forecast was conservative.

Answer

CEO Phillip Green stated that higher-than-expected CRE payoffs could push loan growth to the low end of the range, while a pickup in economic activity could drive it to the high end. CFO Dan Geddes confirmed the guidance is for full-year average growth. Geddes explained the conservative noninterest income guide reflects not expecting a repeat of 2024's exceptional Capital Markets performance and uncertainty around potential fee regulation.

Jon Arfstrom from RBC Capital Markets inquired about the typical seasonal deposit changes in Q4, whether incremental funding costs are declining, potential changes to balance sheet hedging strategy, and if service charge revenue growth is accelerating.

Answer

Incoming CFO Dan Geddes confirmed that Q4 deposit trends appear similar to past seasonal patterns and that the cost of incremental interest-bearing deposits is declining. CEO Phillip Green stated there are no plans to change the balance sheet strategy, as using their ample cash liquidity is more efficient than paying premiums for hedging instruments. Dan Geddes noted that service charge growth is driven by new customer volume from the expansion, but the recent 5% non-annualized pace may be high to sustain.

Jon Arfstrom asked what changed to drive CRE growth for the first time in a while, inquiring if it was less runoff or stronger originations. He also asked about the aggressiveness of commercial banker recruiting efforts and the extent of branding investments.

Answer

Ira Robbins, CEO, clarified that it was stronger originations, with the CRE engine turning back on in 2025, expecting $1.5 billion in new Tier 1 and Tier 2 CRE offset by $500 million in runoff. He discussed the strong market for recruiting bankers due to Valley's unique value proposition and capabilities, emphasizing managing the P&L and leveraging technology/AI for efficiency. He described the 'That's How' branding campaign as a long-term, holistic effort to enhance consumer and small business growth, complementing Patrick Smith's leadership.

Jon Arfstrom asked about the recent CRE growth, the first in a long time, inquiring if it was due to less runoff or stronger originations and pipelines. He also sought details on the aggressiveness of commercial banker recruiting efforts and the extent and nature of branding investments.

Answer

Ira Robbins, CEO, and Andrew Giannetti, Head of Investor Relations, confirmed stronger originations, noting the disciplined re-activation of the CRE engine in 2025. Ira Robbins, CEO, highlighted significant opportunities for commercial banker recruiting due to Valley's unique value proposition and product set, emphasizing managing expenses through technology and cost-to-serve focus. He described branding as a long-term, holistic 'That's How' campaign aimed at enhancing consumer and small business growth, complemented by the hiring of Patrick Smith.

Jon Arfstrom from RBC Capital Markets asked Chief Credit Officer Mark Saeger about the anticipated timeline for non-accrual balances to begin declining. He also inquired if the current quarter's EPS represents a new floor for Valley National Bancorp and if the provision level is now normalized for future periods.

Answer

Chief Credit Officer Mark Saeger indicated that while a precise timeline for non-accrual resolution is difficult, positive trends in the CRE market and reductions in criticized assets suggest future resolution, especially for the 50% of non-accruals that are current on payment. CEO Ira Robbins affirmed that the current EPS is a new floor, citing rectified funding, a significant fixed-rate asset repricing tailwind, normalized charge-off rates (around 15 basis points), and a generally stable reserve, making the current provision level sustainable.

Jon Arfstrom asked for a timeline on when non-accrual balances are expected to start declining. He also inquired if the current EPS represents a new floor for the company and if the current provision level is normalized and sustainable going forward.

Answer

Mark Saeger, Chief Credit Officer, indicated that while a specific timeline for non-accrual resolution is difficult, he pointed to strength in the C&I market, reduced criticized assets, and 50% of non-accruals continuing to pay current. Ira Robbins, CEO, confirmed that the current EPS is a new floor, citing rectified funding, fixed-rate asset repricing tailwinds, and anticipated normalized charge-off rates (around 15 bps) and a stable reserve in 2026, making the provision level sustainable.

Jon Arfstrom asked for an update on the loan pipeline, how it has changed recently, and whether borrower uncertainty is fading. He also inquired about the key drivers for the noninterest income outlook and the prospects for wealth management growth.

Answer

CEO Ira Robbins stated that while borrower sentiment is mixed, the loan pipeline remains fundamentally strong, and he believes their entrepreneurial clients are resilient. Executive Travis Lan outlined the drivers for noninterest income, citing a strong outlook for tax credit advisory revenue, continued growth in FX services, and anticipated swap activity from a pickup in CRE originations. He also noted the full-year benefit from repriced deposit service charges.

Jon Arfstrom of Piper Sandler & Co. asked for clarification on the guidance for "normalizing" credit costs in 2025 and questioned if the ongoing reserve build is primarily due to the loan portfolio's mix shift towards C&I rather than issues with existing loans.

Answer

CEO Ira Robbins confirmed that 2025 net charge-offs are expected to be significantly lower, aligning with historical norms. He and another executive elaborated that the reserve build is a mandatory consequence of the strategic growth in higher-reserve C&I loans, not a reflection of deteriorating credit quality in the current portfolio.

Jon Arfstrom asked about Prosperity Bancshares' level of confidence in the $7.34 EPS estimate for 2027, noting it seemed to primarily rely on cost savings. He also inquired whether larger regional banks frequently express interest in acquiring Prosperity, implying a potential bid.

Answer

David Zalman (Senior Chairman and CEO, Prosperity Bancshares) expressed high confidence in the $7.34 EPS estimate for 2027, noting potential revenue triggers beyond cost savings. He stated that larger regional banks frequently show interest in acquiring Prosperity, especially given its strategic position in Texas, and believes the bank is 'truly, truly undervalued in a takeout' at current market prices, suggesting a much higher valuation than 15 times earnings.

Jon Arfstrom asked about the level of confidence in the $7.34 EPS estimate for 2027, noting it seemed to rely primarily on cost savings. He also followed up on David Zalman's earlier comment about a potential 15x earnings valuation, asking if larger regional banks frequently call on Prosperity and if there's a standing bid for the company.

Answer

David Zalman (Senior Chairman and CEO, Prosperity Bancshares) expressed high confidence in the $7.34 EPS estimate for 2027, citing potential revenue triggers beyond cost savings, such as changes in NSF charges and a higher cost of money for Stellar. He reiterated that this projection makes Prosperity significantly undervalued at its current trading price. Regarding potential acquisition, Zalman confirmed that larger regional banks frequently express interest, and he believes Prosperity would command a premium well above 15x earnings due to its unique franchise value and strategic position for any bank looking to enter or expand significantly in the Texas market.

Jon Arfstrom from RBC Capital Markets inquired about the M&A environment, asking if there was any evidence of easing regulatory pressures on deal closing timelines. He also asked about the bank's branch density in major Texas markets and their suburbs. Lastly, he asked for more detail on the recent decline in revolver utilization and the outlook for that trend.

Answer

David Zalman, Senior Chairman & CEO, expressed optimism that regulatory approval timelines are returning to a more normal three to four months. He noted the focus is on building density in San Antonio and acquiring number-one market share in second-tier Texas cities. Kevin Hanigan, President and COO, addressed the revolver question, stating that after internal analysis and client discussions, he expects utilization not only to stabilize but to increase going forward.

Jon Arfstrom asked if there was any evidence of easing regulatory pressures on M&A approvals compared to their last deal. He also inquired about branch density in major Texas markets and their fast-growing suburbs. Finally, he asked for more detail on the decline in revolver utilization and the outlook for its stabilization.

Answer

Senior Chairman & CEO David Zalman expressed hope for a smoother regulatory process, citing recent faster approvals elsewhere and a sense that regulators are now more focused on substance over form, suggesting a clearer path forward. He confirmed the bank is focused on building density, particularly in San Antonio. President and COO Kevin Hanigan addressed the revolver question, stating that after analysis, he expects utilization not only to stabilize but likely to increase, and that the turn is already beginning.

Jon Arfstrom from RBC Capital Markets asked for an update on the M&A regulatory environment, inquired about branch density in key Texas markets, and sought more detail on the recent decline in commercial revolver usage.

Answer

Senior Chairman & CEO David Zalman expressed optimism for a smoother, 3-4 month M&A approval process, noting regulators seem focused on "substance instead of form." He identified San Antonio as a growth market. President and COO Kevin Hanigan stated that revolver usage is not only expected to stabilize but is already starting to turn and likely "go the other way."

Jon Arfstrom from RBC Capital Markets asked about the current regulatory environment for M&A and whether deal approval timelines were improving. He also inquired about branch density in major Texas markets and fast-growing suburbs. Finally, he asked for more detail on the recent decline in revolver utilization among corporate clients.

Answer

Senior Chairman and CEO David Zalman expressed optimism that regulatory approval timelines are returning to a more normal three to four months. He identified San Antonio as a market where they would like to increase density. President and COO Kevin Hanigan addressed revolver usage, stating that after analysis, he expects the trend not only to stabilize but likely to reverse and increase going forward.

Jon Arfstrom of RBC Capital Markets inquired about the profile of new securities being purchased, including yield and duration, and asked about management's view on the optimal tangible common equity (TCE) ratio, noting the current level is very high.

Answer

CFO Asylbek Osmonov explained they are replacing maturing 15-year mortgage-backed securities with new ones yielding around 5.25% to 5.50% with a duration of 4 to 5 years. Senior Chairman and CEO David Zalman added that much of the recent cash flow went to pay down borrowings. On capital, Zalman acknowledged the 11.2% TCE ratio is high but stated he has no doubt the capital will be deployed through M&A or buybacks. He considers a minimum TCE of 8% to be a comfortable target, though he would accept a temporary dip below that for the right large deal.

Jon Arfstrom inquired about the outlook for the securities portfolio yield, the company's appetite for stock repurchases versus M&A, and whether management is seeing more willing sellers in the M&A market.

Answer

CFO Asylbek Osmonov explained that of the $1.9 billion in annual securities cash flow, a portion will pay down borrowings while the rest will be reinvested at higher yields, boosting the portfolio's return. Senior Chairman and CEO David Zalman stated a clear preference for preserving capital for M&A over buybacks, citing a more favorable regulatory environment and increased inbound interest from potential sellers post-election, including three calls he received.

Jon Arfstrom from RBC Capital Markets inquired about the specific drivers behind the strong commercial loan growth in the quarter and sought more details on the contributions from the Heartland acquisition post-conversion. He also asked about the increase in non-performing loans (NPLs) and the timeline for working through acquired credits.

Answer

Chairman and CEO Mariner Kemper stated that loan growth was broad-based across all markets and verticals, with 50% from new customer acquisition and market share gains, highlighting energy and M&A family office transactional work. President and CEO of UMB Bank Jim Rine added that the HTLF acquisition brought additive growth from franchise lending and California ag business. Chief Credit Officer Tom Terry clarified that the NPL increase was due to one fully secured credit with no anticipated loss, and the process for acquired NPLs and watch list items is ongoing, with expectations to trend towards historical net charge-off norms.

Jon Arfstrom asked about the drivers behind UMB Financial's strong loan production trends, inquiring if the improvement stems from borrower sentiment, specific company initiatives, or the Heartland acquisition, and questioned the sustainability of this growth.

Answer

Mariner Kemper, Chairman and CEO, explained that loan growth is driven by 'runway and penetration' across all categories and regions, including contributions from both legacy UMB and acquired Heartland markets. He highlighted early success in the new footprint and the significant opportunity for penetration. Tom Terry, Chief Credit Officer, added that credit quality remains strong, with identified Heartland credits being managed with existing reserves, and reiterated confidence in charge-off levels remaining near or below historical averages.

Jon Arfstrom from RBC Capital inquired about the drivers and sustainability of UMB Financial's strong loan production trends, including the impact of the Heartland acquisition, and sought an update on credit quality, particularly regarding Heartland-driven balance changes.

Answer

Chairman and CEO Mariner Kemper attributed robust loan growth to broad 'runway and penetration' across all regions and categories, including early positive signs from the Heartland footprint. Chief Credit Officer Tom Terry confirmed satisfaction with managing Heartland credits, noting identified issues were reserved for, and reiterated expectations for charge-offs to remain near or below historical averages.

Jon Arfstrom from RBC Capital Markets inquired about the drivers behind the strong $1.9 billion in gross loan production, asking for a breakdown between legacy UMB and the newly acquired Heartland operations, and questioned the outlook for this growth. He also asked for an update on the progress of aligning Heartland's loan portfolio and whether payoff activity remains elevated.

Answer

Chairman & CEO Mariner Kemper and President Jim Rine explained that the loan production was in line with expectations and is expected to remain strong in the next quarter. They noted that growth is broad-based and that the Heartland team is contributing significantly, driven by pent-up demand and higher lending limits. Regarding portfolio alignment, Mariner Kemper stated that while some adjustments are ongoing, any resulting payoffs are expected to be immaterial to the combined balance sheet.

John Arfstrom asked for an outlook on noninterest income, particularly the card business, the timeline for Heartland's full integration, and whether the current environment makes bank M&A more attractive to UMB.

Answer

CEO J. Kemper and President James Rine highlighted strong underlying fee income trends and significant synergy opportunities in the card business. Kemper stated that cultural integration is immediate, while systems conversion is set for October. Regarding M&A, he said the focus is 100% on executing the Heartland integration, though relationship-building for future deals continues.

Jon Arfstrom inquired about UMB's immediate priorities upon closing the HTLF deal, the timeline for implementing UMB's lending processes in the new footprint, and the key takeaway from the interest rate sensitivity slide.

Answer

Chairman and CEO J. Kemper identified cultural assimilation and instilling UMB's risk management philosophy as the top priority. He stated that the deployment of UMB's lending process would be 'immediate' through the placement of experienced regional credit officers into the new territories. CFO Ram Shankar explained the sensitivity slide shows a well-matched balance sheet, resulting in a neutral rate position, with hedges in place as a conservative measure against falling rates.

Jon Arfstrom asked about the expected slope of expenses for 2026, reasons for lower loan payoff activity in Q4, and the trends in commercial and commercial real estate originations.

Answer

CFO Neal Holland projected a few percentage points increase in Q1 expenses due to seasonal factors, followed by relatively stable expenses for the rest of the year. President and COO Luis Massiani attributed lower Q4 payoffs to market dynamics and slightly later rate moves, noting that while Q4 saw strong CRE and C&I originations, the same growth trajectory is unlikely for early 2026, though pipelines remain strong.

Jon Arfstrom asked about the expected slope of expenses for the year, given the Q4 run rate, and the reasons behind lower loan payoff activity and increased originations in commercial and commercial real estate.

Answer

CFO Neal Holland projected a few percentage points increase in Q1 expenses due to seasonal factors, followed by a relatively stable to slight increase in subsequent quarters. President and COO Luis Massiani attributed lower loan payoffs to market dynamics and some seasonality, noting strong pipeline building in CRE and C&I, which could lead to higher-end growth if economic conditions remain favorable.

Jon Arfstrom asked about the drivers and expectations for non-interest income, and whether the potential New York City mayoral election is a legitimate concern for the bank or its investors.

Answer

Neal Holland (CFO) noted a positive increase in non-interest income driven by a legal settlement and client activity, including swap and syndication income. He acknowledged fee income as an area for improvement, with opportunities in HSA and the JV, expecting similar growth until new streams materialize. John Ciulla (CEO) stated that the mayoral election is not a significant concern for credit performance in the medium term due to strong underwriting, but acknowledged longer-term risks related to economic growth and quality of life in the city, though no material financial impact is expected on their three-year plan. Luis Massiani (President and COO) added that much of Webster's future growth is not connected to New York City.

Jon Arfstrom from RBC Capital Markets asked for CEO John Ciulla's perspective on whether the market is overly focused on credit. He also inquired about what a more normalized level of non-performing assets (NPAs) would be for Webster and the bank's willingness to be active with buybacks and potentially dip below its 11% CET1 target.

Answer

CEO John Ciulla acknowledged the external focus on credit but expressed confidence in the bank's position, stating that normalized NPAs should be 'materially below 1%.' He emphasized that the bank is not under credit stress and can deliver high returns despite current credit costs. Regarding capital, Ciulla confirmed a willingness to buy back more shares given the stock's valuation and a stable economy. While 11% CET1 is the right current target, he said the bank would be willing to go below it quarter-to-quarter under the right circumstances.

Jon Arfstrom of RBC Capital Markets asked for specific examples of the "green shoots" in the office CRE portfolio and inquired about Webster's regulatory "wish list" for the new administration beyond changes to the Category 4 threshold.

Answer

CEO John Ciulla cited more natural resolutions, loan restructurings where borrowers contribute equity, and an increase in payoffs as positive signs, leading to a stronger remaining portfolio. For his regulatory wish list, he advocated for a return to more "tailored supervision" based on a bank's actual risk profile and activities, rather than on artificial asset-size thresholds.

Jon Arfstrom asked about the visibility of the strong EPS growth potential for 2027, projected at high teens to low 20s, and whether this clarity extends beyond 2027.

Answer

CEO Jon Witter stated that visibility is primarily driven by the realization of the Total Addressable Market (TAM) opportunity, successful efficiency ratio management, and strategic decisions regarding bank balance sheet growth versus partnerships. He acknowledged macroeconomic uncertainties beyond a 12-month timeframe but expressed confidence in the company's ability to manage the internal drivers of performance.

Jon Arfstrom with RBC Capital Markets asked about Sallie Mae's visibility on the projected strong EPS growth potential for 2027, estimated at high teens to low 20s, and whether this visibility extends clearly beyond 2027.

Answer

CEO Jon Witter explained that while broad macroeconomic factors impacting credit are difficult to predict beyond 12 months, the company's confidence in 2027 and beyond stems from several key areas: realizing the significant Total Addressable Market (TAM) opportunity from PLUS reforms, regaining efficiency ratio targets, and strategic choices regarding the balance sheet growth of the bank versus private credit partnerships. He emphasized the disciplined work done to understand the TAM opportunity and the company's track record of expense management.

Jon Arfstrom asked about the company's current buyback appetite and authorization, and for clarity on the 4% delinquency rate, specifically if it's expected to trend upwards. He also sought a broader perspective on whether the market is overly pessimistic about the credit outlook, consumer health, and students entering the job market.

Answer

CEO Jon Witter expressed satisfaction with the buyback program's performance and commitment to aggressive repurchases, but noted specific plans would be finalized after the partnership deal. CFO Pete Graham clarified that the 4% delinquency rate is a seasonal peak, with focus on stable late-stage delinquencies and roll rates. Jon Witter added that while the economic environment is ambiguous, the company has not observed material changes in borrowers' ability to meet obligations, and early graduate unemployment rates show only de minimis year-over-year change.

Jon Arfstrom asked about the company's current buyback appetite and authorization, given recent market activity. He also sought clarification on the 4% delinquency rate, questioning if it is expected to trend up or if it's not the right metric to focus on. Finally, he asked for a broader perspective on whether the market is overly pessimistic about the credit outlook, particularly concerning consumer health and students entering the job market.

Answer

CEO Jon Witter expressed satisfaction with the buyback program's performance, noting active participation during market dislocation at attractive prices. He stated that the company would assess its appetite for additional buybacks after the partnership deal is finalized but remains committed to aggressive share repurchases. CFO Pete Graham indicated that the 4% delinquency rate for the quarter is a seasonal peak and is expected to be the high point for the year, emphasizing that the company is more concerned with late-stage delinquency levels and roll rates, which are performing well due to designed programs. CEO Jon Witter added that while the economic environment is ambiguous, the company has not observed it translating into borrowers' inability to meet obligations, noting that early college grad unemployment rates have seen only a de minimis change year-over-year and that post-graduation financial distress is a known, managed challenge.

Jon Arfstrom from RBC Capital Markets asked for confirmation on the expected 2025 share buyback amount relative to the Investor Forum plan and questioned if any part of that strategic framework needed to be altered a year later.

Answer

CFO Pete Graham confirmed the framework is a good reference point for buybacks, which remain a key part of the strategy, funded by capital generated from loan sales. CEO Jon Witter strongly reaffirmed the entire framework, emphasizing the goals of predictable balance sheet growth, strong EPS/ROE performance, meaningful capital return, and manageable risk, stating the past year has proven its power.

Jon Arfstrom sought confirmation that delinquency trends should be viewed year-over-year, asked for clues on the pace of reserve rate decline, and inquired about interest rates on new deposit funding.

Answer

CEO Jon Witter and CFO Pete Graham both confirmed that year-over-year is the correct way to analyze delinquencies due to seasonality. Graham declined to give a specific reserve rate target but pointed to the recent downward trend as indicative. On deposits, he noted market rates have fallen and Sallie Mae's rates will move accordingly, without providing a specific new money rate.

Jon Arfstrom asked about the performance and contributions of the Pac Premier acquisition, specifically regarding its integration, excitement among new team members, and initial growth drivers.

Answer

Clint Stein (Chair, CEO, and President) highlighted the widespread excitement and seamless cultural integration of Pac Premier, noting the experienced teams handling systems conversion. Tory Nixon (Co-President) provided examples of new business wins, including larger credit facilities and deposits from law firms, environmental companies, and surgery centers. Chris Merrywell (Co-President) added that the deposit portfolio has performed as expected and mentioned upcoming retail campaigns.

Jon Arfstrom inquired about the integration and performance of the Pac Premier acquisition, specifically its contributions to growth and overall operational success. He also asked for clarification on the projected 'modest step down' in earning assets.

Answer

Clint Stein, Chair, CEO, and President, highlighted the strong cultural integration and excitement from Pac Premier team members, emphasizing their ability to leverage Columbia's broader footprint. Tory Nixon and Chris Merrywell, Co-Presidents, provided specific examples of new business generation and positive customer behavior. Ivan Seda, EVP and CFO, clarified that a modest step down in earning assets for Q1 means a range of $60.5-$61 billion, driven by flat to slightly down HFI loans and reduced cash balances.

Jon Arfstrom of Jefferies asked for clarification on the net interest margin (NIM) outlook for early 2025 and inquired about upcoming deposit repricing opportunities.

Answer

CFO Ron Farnsworth confirmed that the NIM is expected to move toward the lower half of the range seen in recent quarters (Q2/Q3 2024 levels) due to seasonal deposit outflows in Q1 requiring an increase in higher-cost wholesale funding. For repricing, Farnsworth highlighted a significant opportunity with over $8 billion in CDs and borrowings maturing in the next six months, as detailed in the investor presentation.

Jon Arfstrom followed up on the size of the transactional loan portfolio being reduced, the drivers of loan prepayments, the key takeaway from the balance sheet optimization slide, and the pricing offered on new deposits from recent campaigns.

Answer

EVP & Chief Commercial Banking Officer Christopher Merrywell estimated the non-relationship loan pool at approximately $6 billion. President Torran Nixon added that a single large C&I loan payoff was an anomaly contributing to prepayments. CFO Ron Farnsworth explained the optimization slide highlights a current headwind that offers future optionality. Nixon clarified that new deposits are priced at standard posted rates, not special promotional rates.

Jon Arfstrom from Jefferies inquired about the net interest margin (NIM) outlook, the potential impact of Fed rate cuts, and the key drivers behind the success of recent deposit initiatives.

Answer

EVP and CFO Ron Farnsworth stated the NIM outlook remains unchanged and is contingent on deposit flows, but noted Q2's higher discount accretion is not expected to recur. He confirmed that rate cuts would be beneficial due to the bank's liability-sensitive position. President of Commercial Banking Torran Nixon and President of Consumer Banking Christopher Merrywell attributed deposit success to outbound efforts by the small business group, disciplined pricing without promotional gimmicks, and a calmer competitive environment, leading to stabilized costs.

Jon Arfstrom asked about the expected changes in the deposit mix over time as Relationship Managers (RMs) gain traction, including the role of Treasury, and what the deposit mix might look like in a year. He also inquired about the materiality of seasonal flows referenced by Derek Meyer.

Answer

Derek Meyer, CFO, explained that the second half of the year typically sees more seasonality in non-maturity deposit buckets, which helps the margin, and that RM focus on C&I and relationships drives growth in commercial non-maturity buckets. Pat Ahern, Chief Credit Officer, added that the strategy is to reverse historical household leakage, aiming for 2% growth, which will positively shift the deposit mix towards demand deposit accounts. He also mentioned a new deposit vertical launching next quarter with a positive margin view. Jon Arfstrom then asked about the Chicago growth story, its outlook, opportunity, and if the company would size its Chicago portfolio. Pat Ahern stated they don't disclose at that level but emphasized Chicago and Milwaukee as proof of a sustainable growth model in major metro markets, attributing success to hiring high-quality RMs.

Jon Arfstrom inquired about the outlook and opportunities in Chicago, a legacy market that has shown significant growth, and if Associated Banc-Corp would provide details on the size of its Chicago portfolio.

Answer

President and CEO Andy Harmening highlighted Chicago and Milwaukee as clear examples of the sustainable growth model in major metropolitan markets, demonstrating the bank's ability to compete effectively. He declined to disclose specific portfolio sizes for Chicago but attributed the strong growth to the successful recruitment of high-quality Relationship Managers who attract new business and talent.

Jon Arfstrom sought clarification on the near-term margin outlook if there are additional Fed rate cuts, asking if a dip in the margin is expected or if mix shift is sufficient to maintain stability or upward movement.

Answer

CFO Derek Meyer emphasized the focus on stability, noting that remixing typically generates 1-2 basis points of margin improvement. He expressed confidence in a stable outlook, citing early positive responses to deposit repricing after the Fed cut. President and CEO Andy Harmening added that continued household growth and new capabilities (wealth, HOA title) will help maintain a flat or slightly up margin despite multiple interest rate changes.

Jon Arfstrom asked whether the increases in the lending pipeline were primarily driven by new hires and market share gains or by expanding borrowers and increased optimism. He also sought clarification on the near-term net interest margin (NIM) outlook, specifically if a dip is expected with potential rate cuts or if mix shifts will maintain stability.

Answer

President and CEO Andy Harmening attributed the pipeline growth largely to the bank's 'A player' hires and enhanced tools, rather than broader borrower optimism, expressing satisfaction with the resulting production. CFO Derek Meyer emphasized the bank's focus on NIM stability, with balance sheet remixing contributing slight improvements. Andy Harmening added that ongoing household growth and new capabilities in wealth management and HOA title further support a stable to slightly increasing margin despite multiple interest rate changes.

Jon Arfstrom from RBC Capital Markets sought clarification on the appropriate run rate for noninterest income, particularly capital markets fees, asked for color on the changes in commercial NPLs, and questioned how the bank measures the progress and profitability of its recent commercial banking expansion.

Answer

CFO Derek Meyer confirmed that Q1 capital markets revenue was a more normal run rate compared to the abnormally high Q4. Chief Credit Officer Pat Ahern explained the NPL movements were normal course of business, with some resolution in C&I and one specific deal driving the CRE increase. Executive Andrew Harmening detailed that progress on the commercial expansion is measured by the increasing production from new hires as their non-solicitations expire, with the full revenue and ancillary business (deposits, HSA, Private Wealth) benefit expected to materialize over time.

Jon Arfstrom asked for clarification on the securities portfolio size, the outlook for noninterest-bearing deposits, whether net interest income had troughed, and the forward-looking provision expense.

Answer

An executive confirmed that modest growth in the securities portfolio is expected and that Q2 likely marked the trough for net interest income. The executive also noted noninterest-bearing deposits have stabilized in dollar terms. CEO Andrew Harmening added that positive household growth should support these balances. Chief Credit Officer Pat Ahern stated that reserves are considered 'pretty solid' at their current level and future provisions will primarily reflect loan growth and other factors, not a need for a significant build.

Jon Arfstrom followed up on the concept of 'subscale' businesses, asking which areas have seen investments but are still most subscale, and later inquired about the evolution of the relationship management return hurdle exercise and its impact on client retention.

Answer

Chairman, President, and CEO Rob Holmes identified sales and trading, equity, public finance, and treasury as key subscale businesses, stating that none of the firm's businesses are yet at full scale, indicating significant future growth potential. He highlighted the firm's first lead-left equity deal and strong teams. Rob Holmes explained that the relationship management return hurdle has evolved into a core cultural practice, with the balance sheet committee ensuring capital deployment benefits the firm and the client relationship as a whole. This approach, where over 90% of loans have ties to other business lines, institutionalizes client relationships beyond individual bankers, enhancing client value and retention.

Jon Arfstrom from RBC Capital Markets asked Rob Holmes to identify the top few areas where the firm is most 'subscale' despite prior investments, highlighting where the biggest opportunities lie. He also inquired about the evolution of the relationship management return hurdle exercise and its impact on client retention and demands over the past two to three years.

Answer

Chairman, President, and CEO Rob Holmes asserted that literally none of the firm's businesses, including sales and trading, equity, public finance, treasury, and business banking, are at scale yet, indicating vast growth potential. He emphasized that the relationship management exercise has evolved into a core cultural component, where capital deployment decisions are made with a focus on firm-wide ROE and multi-line business support. This approach, he explained, institutionalizes client relationships beyond individual bankers, making clients more valuable and less price-sensitive.

Jon Arfstrom requested commentary on the modest increase in non-performing loans (NPLs) and asked for an update on the progress of the wealth management business build-out.

Answer

MD & CFO Matt Scurlock explained the NPL increase was due to a couple of isolated C&I credits and emphasized the overall strength of the credit portfolio, evidenced by a 26% year-over-year reduction in criticized loans. Chairman, President & CEO Rob Holmes described wealth management as the 'last leg' of the transformation, acknowledging it was slightly behind schedule but expressing strong optimism for future growth, citing a new platform and a large addressable market from new commercial clients.

Jon Arfstrom from RBC Capital Markets asked for a comparison of the current capital markets pipeline to historical levels, clarification on the P&L drivers for achieving the 1.10% ROAA target, and about any changes resulting from Rob Holmes' new Chairman title.

Answer

CFO Matt Scurlock stated the M&A pipeline was double the prior year's level entering 2025 and the capital markets pipeline is larger than at the same point last year. To reach the ROAA target, Scurlock pointed to balance sheet momentum and the absence of Q1 seasonal headwinds like lower day count and higher compensation expense. CEO Rob Holmes added that the improvement is holistic, driven by better client selection, which enhances both margins and fee income. Regarding his new title, Holmes said it brings more responsibility for leading the Board, but continuity is ensured as the former chairman remains as Lead Director.

Jon Arfstrom of RBC Capital Markets asked about the drivers behind Wintrust's mid-to-high single-digit loan growth guidance for 2026, particularly the momentum observed despite typical first-quarter softness, and then inquired about the company's positive operating leverage, expense management, and plans for 2026 expenses.

Answer

President and CEO Tim Crane and Vice Chairman and Chief Lending Officer Richard Murphy discussed cautious optimism in local economies, broad-based loan growth, and the seasonal nature of the premium finance business. CFO Dave Stoehr outlined expectations for 4%-5% expense growth off the fourth-quarter run rate to achieve positive operating leverage, noting potential increases in health insurance and mortgage business expenses.

Jon Arfstrom asked about Wintrust Financial Corporation's loan growth expectations for 2026, specifically what drives mid-single-digit versus high-single-digit growth, and the company's outlook on positive operating leverage, including expense plans for the upcoming year.

Answer

President and CEO Tim Crane and Vice Chairman and Chief Lending Officer Richard Murphy expressed cautious optimism for loan growth, citing broad-based performance, strong market positioning in C&I and CRE, and momentum in specialty verticals like mortgage warehouse and leasing, while acknowledging typical Q1 seasonality. CFO Dave Stoehr and Tim Crane detailed plans for positive operating leverage, expecting mid-to-high single-digit revenue growth and 4-5% expense growth off the Q4 run rate, with health insurance and mortgage business recovery as key variables.

Jon Arfstrom asked about the drivers of Wintrust's loan growth, specifically regarding pipelines and any changes observed. He also inquired about the company's NDFI (Non-Deposit Financial Institutions) exposure and its ability to maintain net interest margin (NIM) stability amidst potential Fed rate cuts.

Answer

Richard Murphy, Vice Chairman and Chief Lending Officer, explained that loan growth is driven by market share gains from larger banks in core markets, with stable C&I and CRE pipelines. Timothy Crane, President and Chief Executive Officer, added that these relationships often bring treasury management and wealth opportunities. Dave Dykstra, Vice Chairman and Chief Operating Officer, detailed that NDFI exposure, totaling over $2 billion, is primarily mortgage warehouse lines and capital call lines with no historical losses, plus loans to leasing and premium finance companies. Regarding NIM, Dave Dykstra expressed confidence in maintaining the margin around 3.50% even with three to four Fed rate cuts, citing the balance sheet's variable loan side, swap hedges, and variable deposit costs.

Jon Arfstrom of RBC Capital Markets inquired about loan growth expectations for the third quarter, the sources of the strong deposit growth, and the status of the wealth management platform outsourcing.

Answer

EVP & CFO David Stoehr and Vice Chairman & Chief Lending Officer Richard Murphy confirmed that loan growth is expected to remain in the mid-to-high single-digit range. President, CEO & Director Timothy Crane noted that the strong deposit growth was broad-based but the Q2 level should not be considered the new norm. He also confirmed the wealth management platform conversion to LPL is largely complete.

Jon Arfstrom of RBC Capital Markets inquired about the impact of borrower uncertainty on loan growth and the rationale behind the first-quarter credit reserve build.

Answer

Executive Timothy Crane stated that despite client uncertainty, the loan growth outlook remains unchanged, supported by a strong local economy and an expected robust Q2. Executive Richard Murphy added that while clients are cautious, key segments like premium finance are less affected. CFO David Dykstra explained the credit provision was increased due to a qualitative overlay for late-quarter market volatility, such as wider credit spreads, even as the baseline economic forecast improved.

Jon Arfstrom asked about client sentiment, loan growth expectations for 2025 amid rising competition, and the outlook for the mortgage business, including what interest rate level might stimulate activity.

Answer

Richard Murphy, an executive, acknowledged increased competitive pressure, particularly in commercial real estate, but affirmed the company's mid- to high-single-digit loan growth guidance, stressing that Wintrust will not chase deals with unfavorable pricing or structures. Executive Timothy Crane added that a mortgage rate near 6% previously triggered a material pickup in activity, but low housing inventory remains a challenge.

Jon Arfstrom of RBC Capital Markets inquired about the drivers and sustainability of Wintrust's loan growth, noting the increase in line utilization. He also asked for clarification on the lower-than-expected core provision expense and the outlook for the fourth quarter.

Answer

Richard Murphy, EVP and Chief Credit Officer, explained that loan growth is driven by a diversified portfolio, including strong pipelines in core C&I and new opportunities in asset-based and mortgage warehouse lending, making the current pace sustainable. David Stoehr, CFO, clarified that the Q3 provision was lower due to improved macroeconomic forecasts and fewer specific reserves, suggesting future provisions would primarily be tied to loan growth.

Jon Arfstrom asked about the remaining scope of Old National Bancorp's strategic portfolio management efforts and sought an update on the company's wealth strategy and outlook.

Answer

John Moran, CFO, described strategic portfolio management as a 'constant, ongoing' process, noting that the company has effectively managed inflows into classified buckets with de minimis loss content and believes they are past the worst. Jim Ryan, Chairman and CEO, highlighted talent as crucial for wealth management, with plans for increased hiring and collaboration with the commercial bank to drive higher growth and better penetration in key markets.

Jon Arfstrom asked about the remaining scope of strategic portfolio management activities. He also inquired about the wealth strategy and outlook, including expectations for growth and performance in that business segment.

Answer

John Moran, CFO, described strategic portfolio management as 'constant, ongoing,' noting that they have effectively managed inflows into classified buckets and are 'through the worst of it' regarding loss content. Jim Ryan, Chairman and CEO, highlighted strong wealth performance but emphasized further investment in talent and ongoing hiring to achieve higher growth. Tim Burke, President and COO, added that collaboration with the commercial bank is driving referrals and positive results in wealth management.

Jon Arfstrom sought clarification on the term 'active portfolio management,' asked about the characteristics of the CRE loans that will now be retained, and requested details on upcoming time deposit maturities.

Answer

CFO John Moran explained that 'active portfolio management' involves reducing criticized and classified assets through payoffs and refinancings. He noted the retained $2.4 billion in CRE loans are similar to ONB's existing underwriting standards. Moran also detailed upcoming time deposit maturities, highlighting a significant repricing opportunity in the brokered deposit bucket next quarter.

Jon Arfstrom of RBC Capital Markets asked for historical context on the qualitative reserve, which stands at 25% of the total allowance. He also probed for how much more room exists to lower deposit costs and inquired about the top priorities for the May 1st closing of the Bremer partnership.

Answer

Executive John Moran noted the 25% qualitative reserve is up slightly from the low 20s in early 2024. Executive James Ryan stated there is still room to lower deposit costs, particularly in the short-duration time deposit and exception-priced books. Regarding Bremer, Ryan emphasized that the immediate priority is 'cultural integration,' focusing on spending significant time with new team members and clients to ensure a smooth transition and to leverage the combined company's enhanced scale.

Jon Arfstrom of RBC Capital Markets requested more details on the abnormally large loan payoff trends and asked for an overall assessment of credit quality. He also inquired about the latest feedback and expectations from the pending Bremer partnership.

Answer

An executive explained that the higher payoffs were driven by increased capital markets activity, secondary market refinancings, and a few large, non-recurring transactions. Regarding credit, it was described as a 'quiet quarter' with continued normalization. Executive James Ryan expressed significant enthusiasm for the Bremer partnership, calling it a potential 'pivot point' for the company and highlighting the strong talent and positive reception from the Bremer team.

Jon Arfstrom from RBC Capital Markets followed up on lending, asking if increased competition was driving the bank's 'intentional' approach. He also inquired about exception pricing on deposits and the outlook for credit trends.

Answer

Executive Jim Sandgren acknowledged that competitive pressures are picking up on both loans and deposits but expressed confidence in their ability to win. CFO John Moran added they will remain 'on offense' with deposits as long as spreads are attractive. Regarding credit, Executive Mark Sander clarified that a recent delinquency bump was an administrative non-event and that while some risk rating downgrades could occur, they are well-managed and mitigated by a proactive approach.

Jon Arfstrom asked CFO Jim Mackey for details on the expense outlook, specifically where BankUnited plans to invest and trim to manage growth. Arfstrom also posed a broader question to Chairman, President, and CEO Raj Singh regarding his perspective on the New York market's economic performance compared to Florida, challenging the narrative that New York is difficult while Florida is thriving.

Answer

CFO Jim Mackey outlined the expense strategy, focusing on operational discipline to fund investments in revenue-producing staff, technology modernization (payment systems, AI workflows), and expansion within existing footprints like Dallas and Tampa. Chairman, President, and CEO Raj Singh acknowledged Florida as the company's center of gravity but asserted that New York is performing well, citing strong lower-end middle-market business and continued investment in the Tri-State area, emphasizing its status as a large, opportunity-rich economy.

Jon Arfstrom (RBC Capital Markets) asked about the puts and takes on BankUnited's expense outlook, specifically where the bank is investing and where it is trimming to control growth. He also sought Raj Singh's perspective on the New York market's performance, contrasting it with the common narrative of Florida's strong growth and New York's difficulties.

Answer

Jim Mackey (CFO) explained that expense discipline is used to fund investments in revenue-producing staff, technology modernization (payment systems, AI workflows), and expansion in existing footprints like Dallas and Tampa. Raj Singh (Chairman, President, and CEO) clarified that while Florida remains the center of gravity, New York's economy is doing well, with strong performance in lower-end middle-market business this quarter, and the bank is optimistic about both geographies, continuing to invest in the Tri-State area. Tom Cornish (COO) emphasized New York's large economy and the opportunity for BankUnited's service model to stand out.

Jon Arfstrom from RBC Capital Markets questioned the sustainability of the current non-interest income level, given sporadic BOLI income. He also asked how much room there is to lower interest-bearing deposit costs without Fed rate cuts and whether loan growth could accelerate in the second half of the year.

Answer

CFO Leslie Lunak acknowledged the BOLI income was sporadic but stated the long-term trajectory for non-interest income should be upward as fee businesses gain traction. She noted that without Fed cuts, deposit cost reduction would come from working 'around the edges.' COO Thomas Cornish expressed confidence in loan growth acceleration for the second half, citing strong production numbers and the tail end of planned, lower-margin credit exits.

Jon Arfstrom asked for confirmation on the expected decline in residential loans, the year-end margin target of 3%, the reserve level objective, and for more color on the sentiment from the recent top client event.

Answer

CEO Raj Singh and CFO Leslie Lunak confirmed the residential runoff should be roughly similar to last year and that a 3% NIM by year-end remains the objective, though the 'cone of uncertainty is wider.' They clarified the path to a 1% reserve is an expectation, not a goal. Raj Singh shared that he came away from the client event feeling more optimistic, as clients were engaged and focused on opportunities despite macroeconomic concerns.

Jon Arfstrom asked about the timeline for the loan loss reserve to reach 1%, the outlook for charge-offs, and if management had a wish list for regulatory changes.

Answer

CFO Leslie Lunak projected the reserve would likely reach 1% by the end of 2025, contingent on portfolio mix and a stable economy. CEO Raj Singh explained that commercial charge-offs are idiosyncratic and best viewed on a trailing 12-month basis. He added that while he has no major complaints, the removal of regulatory uncertainty around proposed rules is a net positive.

Jon Arfstrom of RBC Capital Markets asked if management has a preference for the Federal Reserve's future actions on interest rates, given the bank's ongoing business transformation.

Answer

CEO Raj Singh responded that the bank does not have a strong preference, as its balance sheet is structured to be relatively neutral to gradual rate changes. He emphasized that avoiding market surprises is more important. Mr. Singh expressed more concern about the fiscal policy environment and its potential to reignite inflation than about the Fed's monetary policy path.

Jon Arfstrom asked about the drivers behind the strong loan growth in the fourth quarter, whether loan pipelines were changing, and the company's overall reserve level goals, specifically if the 1.90% reserve was considered sufficient given stable credit quality.

Answer

Kevin Hester, President and Chief Lending Officer, attributed loan growth to a mix of similar loan sizes and geographies, fully funded larger non-construction loans, and stable interest rates. Chris Poulton, President of Centennial Commercial Finance Group, added that timing shifts in loan closures and payoffs also contributed. John Allison, Chairman, stated his preference for a 2% reserve, noting the current level was sufficient but would be increased if opportunities arose, while expressing optimism for 2026 and 2027.

Jon Arfstrom inquired about the company's current credit trends amidst broader market credit fears, the internal assessment of problem loans, and whether the improved pipeline supports a higher loan growth rate, especially given the company's increased willingness to grow the balance sheet.

Answer

Chairman John Allison and President and Chief Lending Officer Kevin Hester expressed confidence in the company's asset quality, noting a significant reduction in potential loss estimates from their monthly asset quality meetings and the benefit of low leverage. President of Centennial Commercial Finance Group Christopher Poulton and Chairman Allison indicated improving loan pipelines, with a large loan expected to close soon, suggesting potential for stronger growth.

Jon Arfstrom requested more detail on the positive net interest margin (NIM) trend in June, asked for an outlook on the mortgage banking business, and sought to confirm if a single yacht loan was the primary driver of the increase in non-accrual loans.

Answer

CEO of Centennial Bank, Stephen Tipton, confirmed the core NIM rose to 4.47% in June. President & Chief Lending Officer Kevin Hester described the mortgage business as inconsistent and not expected to see a sustained positive trend until rates fall. Mr. Hester and Chairman & CEO John Allison confirmed a single yacht loan was the main reason for the NPL increase, adding that no loss is expected on the loan.

Jon Arfstrom questioned the company's capital preferences between M&A and stock buybacks. He also asked Christopher Poulton if he was signaling a bottom in the size of the CCFG portfolio and inquired about which specific areas were driving core loan growth in the Community Bank footprint.

Answer

Executive John Allison and Executive Brian Davis explained the plan to pay off $140 million in high-cost subordinated debt while continuing to actively repurchase stock. Executive Christopher Poulton confirmed it was fair to assume the CCFG portfolio is near a bottom, as the recent decline was a controlled exit from C&I loans. Executive Kevin Hester identified Southeast Florida and metro markets in Florida and Dallas as particularly strong for loan growth but noted that higher payoffs in Q2 could be a headwind.

Jon Arfstrom of RBC Capital Markets requested a breakdown of the movements in non-performing assets (NPAs) during the quarter and the expected resolutions in Q1. He also asked about the outlook for the provision expense and the sustainability of the core earnings run rate.

Answer

Chief Lending Officer Kevin Hester clarified that NPAs rose as certain credits were moved to non-accrual status but expects $30-$40 million in dispositions in Q1 to reduce the balance. Chairman John Allison stated he is comfortable with the current reserve, does not anticipate significant near-term provisions, and affirmed that the company's earnings run rate is strong and consistent.

Jon Arfstrom sought clarification on the potential for an additional $20 million hurricane-related provision and asked if the pre-provision earnings run rate of mid-$0.50s per share is sustainable.

Answer

Chairman John Allison clarified that the $20 million figure was a potential additional reserve for Hurricane Milton, but it is too early to determine the final amount. He expressed optimism that losses would be minimal. Mr. Allison also confirmed that a mid-$0.50s EPS run rate, equating to a 1.96% ROA, is a reasonable expectation for the company's current operational performance.

Jon Arfstrom of RBC Capital Markets asked for additional insights into the balance sheet and P&L for Q1 2026 to properly set up the year, particularly regarding mortgage company loans. He also sought clarification on how to think about the provision for credit losses going forward, given two strong quarters, positive credit trends, and mid-single-digit loan growth expectations.

Answer

Hope Dmuchowski, Chief Financial Officer, noted strong momentum from Q4 into Q1, expecting less significant volatility in mortgage warehouse loans than typical Q1 declines. She mentioned adding over 100 client-facing and technology FTEs since mid-year and typical Q1 seasonality for marketing expenses. Thomas Hung, Chief Credit Officer, emphasized that net charge-offs are the most important measure of credit performance, as provision has more noise from economic outlook and loan growth. Ms. Dmuchowski added that the company is likely done with the 'building phase' for provision and expects it to normalize and trend with loan growth.

Jon Arfstrom asked for insights into First Horizon's Q1 balance sheet and P&L setup for the year, including the slope of the year. He also sought clarification on how to think about the provision for credit losses going forward, given two strong quarters, positive credit trends, and expected mid-single-digit loan growth.

Answer

Hope Dmuchowski, CFO, anticipated another strong Q1, similar to Q4, with strong momentum in mortgage warehouse lending offsetting typical seasonal declines. She noted expense seasonality with marketing down in Q1 and continued banker additions. Thomas Hung, CCO, emphasized net charge-offs as the best measure of credit quality, with provision having more noise due to economic outlook and loan growth. Ms. Dmuchowski added that the company is likely done with the reserve building phase and expects provision to normalize and trend with loan growth.

Jon Arfstrom with RBC Capital Markets inquired about First Horizon's optimism regarding loan growth and pipeline momentum, asking if there was a noticeable change from the previous quarter. He also questioned the starting point for the net interest margin in the fourth quarter, considering the impact of the Main Street lending program and mortgage company activities.

Answer

Chairman, President, and CEO Bryan Jordan confirmed a noticeable pickup in activity and customer confidence, attributing it to lower rates and a sustainable outlook despite potential tariff impacts. CFO Hope Dmuchowski clarified that the margin was positively impacted by a one-time adjustment, suggesting a more consistent starting point in the high 330s to low 340s for the fourth quarter, aligning with prior quarters when adjusted for the one-time item.

Jon Arfstrom inquired about First Horizon's optimism regarding loan growth, asking if the observed activity pickup and pipeline momentum represented a noticeable change from the previous quarter. He also asked CFO Hope Dmuchowski for a clearer starting point for the net interest margin in the fourth quarter, considering the positive impact from the Main Street lending program and mortgage company activities in Q3.

Answer

Chairman, President, and CEO Bryan Jordan confirmed a noticeable pickup in activity and customer confidence, leading to building pipelines. CFO Hope Dmuchowski clarified that the Q3 net interest margin included a one-time adjustment, suggesting a more normalized starting point in the high 330s to low 340s for the fourth quarter.

Jon Arfstrom of RBC Capital Markets inquired about the expectations for mortgage warehouse balances for the third quarter, given the significant step-up in period-end balances. He also sought clarification on whether hitting the high end of the revenue guidance would necessitate adjusting the expense guidance higher.

Answer

Senior EVP & CFO Hope Dmuchowski stated she expects Q3 mortgage warehouse balances to be at or above current levels, contingent on mortgage origination trends. Head of IR Tyler Kraft added that growth is also driven by gaining market share with existing clients. Hope Dmuchowski also clarified that even if revenue hits the high end of the range, she does not see expenses going above the guided 2% growth.

Jon Arfstrom of RBC Capital Markets questioned the outlook for mortgage warehouse balances for the third quarter and sought clarification on whether hitting the high end of the revenue guide would push expenses to the high end of their range.

Answer

CFO Hope Dmuchowski stated she expects Q3 mortgage warehouse balances to be at or above current levels, contingent on industry trends. Head of IR Tyler Craft added that growth is also fueled by gaining wallet share with existing clients. Dmuchowski clarified that even at the high end of the revenue range, expenses are not expected to exceed the guided 2% increase due to sensitivity analysis already performed on commissions.

Jon Arfstrom inquired about the stability in C&I loans, asking for color on the 'pause' from borrowers and its impact on pipelines. He also asked for details on the reserve increase and whether management is seeing actual credit deterioration.

Answer

Chairman, President and CEO Bryan Jordan described the borrower sentiment as a 'wait-and-see' approach due to tariff uncertainty, not pessimism, with pipelines remaining reasonably strong. Chief Credit Officer Thomas Hung added that while major investments are paused, the general sentiment is optimistic. Regarding reserves, Hung explained the 2 basis point increase was a prudent measure for macroeconomic uncertainty, not due to observed deterioration, noting that the ACL coverage remains among the strongest in their peer set.

Jon Arfstrom asked about near-term expectations for the net interest margin (NIM), given positive momentum from the securities restructuring and deposit repricing. He also asked for a high-level perspective on potential regulatory changes that would be beneficial for First Horizon.

Answer

CFO Hope Dmuchowski expressed confidence in the margin's stability, noting the company's ability to manage deposit costs, but was cautious about providing exact guidance due to market volatility. CEO Bryan Jordan affirmed that momentum from Q4 should continue into Q1. Regarding regulation, Jordan stated his hope that the new administration would re-evaluate asset thresholds like the $100 billion 'cliff,' advocating for tiering based on risk profile rather than just size.

Jon Arfstrom from RBC Capital Markets asked for CEO Bryan Jordan's outlook on loan growth, noting CRE stability but weaker C&I, and requested details on the fixed income ADR run rate for August and September.

Answer

CEO Bryan Jordan stated that current loan growth is muted due to market uncertainty around elections and Fed policy, but he remains optimistic about pent-up demand. Regarding fixed income, he noted significant weekly volatility, providing recent ADR figures but cautioning that a few weeks don't make a trend. CFO Hope Dmuchowski added that August and September were strong but activity spiked after the rate cut.

Jon Arfstrom from RBC Capital Markets asked about the progress of First Financial Bancorp's workforce efficiency efforts within the legacy company and the opportunities for applying this framework to the upcoming Westfield and BankFinancial acquisitions. He also sought clarification on the typical seasonal deposit flows observed in the fourth quarter.

Answer

Archie Brown, President and CEO, stated that the legacy company's efficiency efforts are approximately 90% complete, with further opportunities expected from the acquisitions. He confirmed that the modeled expense reductions (around 40% for Westfield and similar for BankFinancial) are on track to be met or exceeded, even with strategic additions of revenue-driving roles in the new markets. Jamie Anderson, Chief Financial Officer, explained the seasonal bump in public funds, primarily from Indiana property taxes, occurring in May and November, typically adding $150 million-$200 million in deposits, which then run out in the subsequent quarter.

Jon Arfstrom inquired about the progress of First Financial Bancorp's workforce efficiency efforts and the opportunities for further efficiencies from the two pending acquisitions. He also asked for a reminder of the typical seasonal deposit flows observed in the fourth quarter.

Answer

Archie Brown, CEO and President, stated that the legacy company is approximately 90% through its efficiency journey, with remaining opportunities expected over a couple of quarters. He highlighted significant efficiency opportunities from the Westfield and BankFinancial acquisitions, expecting to meet or exceed modeled expense reductions (e.g., ~40% for Westfield), even with strategic hiring for revenue growth in those markets. Jamie Anderson, CFO and COO, explained that Q4 typically sees a seasonal bump of $150-200 million in public funds, mainly from Indiana property taxes, which then run off in the subsequent quarter, often replaced by brokered CDs or borrowings.

Jon Arfstrom asked about noninterest income growth expectations for 2025, the growth runway for the Agile leasing business, and whether the significant reduction in classified assets (ex-FX item) suggests a peak has been reached.

Answer

President and CEO Archie Brown projected steady, gradual growth for most fee income lines, while CFO Jamie Anderson noted the foreign exchange business is growing 10-15% annually. On the Agile portfolio, management expects around 25% growth in 2025. Chief Credit Officer Bill Harry expressed a positive outlook on credit trends, stating he feels better about the trajectory of inflows into classified assets after significant resolutions in Q4.

Jon Arfstrom inquired about Western Alliance Bancorporation's balance sheet size limitations, given its rapid approach to $100 billion, and any related considerations.

Answer

President and CEO Ken Vecchione stated there are no real limitations, with growth driven by opportunities. The bank is building infrastructure to be LFI-ready and hopes for tailoring rules to move the threshold to $250 billion. He noted that non-ECR operating expenses remained stable despite these investments. In a follow-up on ROTC, CFO Dale Gibbons confirmed that a normalized provision would augment the ROTC, expecting improvement in the latter half of 2026. Ken Vecchione added that significant growth in the mortgage business next year could "supercharge" the return on average tangible common equity.

Jon Arfstrom asked about any balance sheet size limitations as Western Alliance Bancorporation approaches $100 billion. He also inquired about the upward bias in ROTC and top quartile performance, assuming a more normalized provision.

Answer

President and CEO Ken Vecchione stated there are no real balance sheet limitations, with growth driven by opportunities, and they are building infrastructure for LFI readiness, hoping for tailoring rules to raise the threshold to $250 billion. He noted stable non-ECR operating expenses despite LFI investments. CFO Dale Gibbons confirmed that a normalized provision would augment ROTC, expecting improvement in the back half of 2026. Ken Vecchione added that mortgage business growth next year could significantly boost ROTC.

Jon Arfstrom from RBC Capital Markets asked about the rate assumptions behind the mortgage banking outlook and whether the recent 19 basis point gain-on-sale margin was unusually low.

Answer

President and CEO Kenneth Vecchione noted that mortgage volumes pick up significantly when 30-year rates fall below 6.25%, and the current forecast assumes rates remain near current levels. Chief Financial Officer Dale Gibbons confirmed that the 19 basis point gain-on-sale margin was 'unusually low' but did not provide a forward-looking estimate.

Jon Arfstrom asked for confirmation that the provision expense would roughly match loan growth plus net charge-offs. He also probed for the level of confidence in achieving a high-teen ROTCE by year-end 2025 and questioned the drivers behind FTE growth.

Answer

Interim CEO Dale Gibbons and Chief Banking Officer Timothy Bruckner agreed that assuming the provision covers growth and charge-offs is a reasonable simplification, expressing comfort with the current ACL. Gibbons expressed high confidence in reaching an 'upper teens' ROTCE (defining it as 16-19%), driven by business opportunities. He attributed FTE growth to both Category IV regulatory prep and hiring at AmeriHome.

Jon Arfstrom asked if management felt more optimistic about 2025 following recent rate cuts and requested a "core" or "repeatable" earnings per share (EPS) run rate for Q3, given the number of unusual items like the MSR adjustment and securities gains.

Answer

CEO Ken Vecchione affirmed his optimism for 2025, citing confidence in the bank's balance sheet growth and its liability-sensitive position. Regarding core EPS, Vecchione stated that the reported $1.80 is a reasonable reflection, as the negative MSR valuation change was largely offset by securities gains. He suggested a similar dynamic could occur in Q4.

Jon Arfstrom asked Stacy Kymes for more details on the mortgage finance launch, including potential contributions, timeline, and the scope of what's possible for the business.

Answer

Stacy Kymes, President and CEO, indicated that achieving $500 million in commitments by year-end is very doable, with an expected utilization of plus or minus 50%. He noted approximately $70 million in mortgage finance loans outstanding at the end of Q3 2025, with material growth expected in 2026. Kymes highlighted the business's low credit risk, strong fit with BOK Financial's existing mortgage ecosystem, and significant growth opportunity for the foreseeable future.

Jon Arfstrom inquired about the expected trend for BOK Financial's core net interest margin (excluding trading) and the factors influencing it. He also asked for expectations regarding the trading book balance in the fourth quarter and sought more details on the mortgage finance launch, including its funding timeline and anticipated contributions.

Answer

CFO Marty Grunst confirmed expectations for a continued 'grind higher' in core margin, driven by fixed-rate asset repricing in securities and loans, incremental deposit repricing, and growth in loans and deposits. He projected the trading book average balance to remain relatively flat in Q4. President and CEO Stacy Kymes elaborated on mortgage finance, expecting $500 million in commitments by year-end with roughly 50% utilization, and significant growth in commitments and outstandings into 2026, emphasizing its low credit risk and fit within BOK Financial's mortgage ecosystem.

Jon Arfstrom asked for more detail on the pace of loan growth throughout the quarter and inquired about the current competitive environment for lending.

Answer

CEO Stacy Kymes explained that loan growth accelerated during the quarter as payoff headwinds in the energy and healthcare portfolios abated, allowing underlying C&I growth to become more visible. He described the lending environment in their markets as 'hypercompetitive,' noting some spread compression on high-quality C&I loans. EVP & CFO Martin Grunst added that this pressure is most visible on borrowers with access to capital markets.

Jon Arfstrom asked for an update on commercial loan pipelines and the expected size of the new mortgage finance business. He also questioned if the significant jump in trading-related net interest income (NII) was unusual and driven by the steeper yield curve.

Answer

CEO Stacy Kymes confirmed that loan pipelines are strong but borrower uncertainty is a wildcard. While not providing specific volume estimates for the new mortgage finance business, he said it reinforces their confidence in full-year loan guidance. EVP Scott Grauer explained that the mix shift toward trading NII is a more traditional and expected composition in a normal, steeper yield curve environment, a sentiment echoed by CEO Stacy Kymes and CFO Martin Grunst.

Jon Arfstrom from Jefferies inquired about the loan payoff activity in BOK Financial's specialized businesses, asking when the trend might reverse, and sought an outlook on energy lending given the new political administration.

Answer

CEO Stacy Kymes explained that payoffs in healthcare, CRE, and energy were due to temporary capital market conditions and he expects a return to normal growth. He noted that sustained Core C&I growth combined with this recovery supports their guidance. On energy, Kymes stated that while the new administration may be supportive, borrower discipline will ultimately drive activity. EVP Marc Maun added that energy lending saw a strong rebound in Q4 with new relationships, a trend he expects to continue.

Jon Arfstrom from RBC Capital Markets sought clarification on the normalized run rate for personnel expenses. He also asked about the sources of the strong deposit growth and what factors might reverse the recent trend of heavy loan payoffs in the specialty lending businesses like energy.

Answer

CFO Marty Grunst advised that averaging Q2 and Q3 personnel expense provides a good run rate, smoothing out timing-related incentive compensation. Grunst and EVP Marc Maun explained that deposit growth was broad-based across commercial and wealth, driven by both new clients and existing clients shifting funds from DDA to interest-bearing accounts. CEO Stacy Kymes added that the Q3 energy payoffs were a unique coincidence, not a fundamental shift, and he expects those balances to grow over the next 12 months.

Jon Arfstrom inquired about any notable trends or particularly favorable items in the fee income businesses this quarter, specifically regarding the wealth management and mortgage banking strategies.

Answer

CFO Valerie Toalson noted a typical seasonal dip in mortgage production but highlighted a 13% year-over-year increase, reflecting commitment and talent additions across the footprint. She also mentioned potential for increased refi activity if rates drop. For wealth management, she reported strong performance, with September being a peak revenue month, and ongoing investment in talent in Houston and Atlanta, expressing bullishness on wealth transfer opportunities. She also clarified a $4.3 million securities gain was offset by a $4.3 million hedge loss, resulting in a net zero P&L impact.

Jon Arfstrom followed up on CRE paydowns and vintages, asking if Cadence Bank expects paydown activity to slow. He also inquired about the fee income businesses, specifically the wealth management and mortgage banking strategies, and any particularly favorable items this quarter.

Answer

Chief Banking Officer Billy Braddock clarified that CRE paydowns, particularly from 2021-2022 vintages, are occurring due to bridge refinance activity, not sales, and are not necessarily expected to slow, but new 2024-2025 originations will start funding to offset them. CFO Valerie Toalson noted that mortgage banking revenue, excluding MSR, was up 13% year-over-year due to expanded production capabilities and talent additions. She also highlighted strong performance in wealth management, with September being a peak revenue month, and mentioned strategic hires in Houston and Atlanta.

Jon Arfstrom questioned whether the strong Q2 loan growth pace was abnormal or sustainable, and if the increased concentration in Texas required a different operational strategy. He also asked for clarification on the drivers of the expense guidance range.

Answer

CEO Dan Rollins and Chief Banking Officer Edward Braddock characterized the loan growth as a return to a more normal pace after prior uncertainty, noting that loan pipelines remain robust. Mr. Rollins stated that no change in strategy is needed for Texas, as it continues to be a key growth engine. CFO Valerie Toalson confirmed that the higher end of the expense guidance corresponds with higher revenue performance.

Jon Arfstrom of RBC Capital Markets questioned whether the strong Q2 loan growth was an anomaly or a new, sustainable pace. He also asked if the strategy in Texas would change now that it represents a significantly larger part of the franchise post-Industry acquisition.

Answer

Chairman and CEO Dan Rollins attributed the growth to a 'catch up' from previous uncertainty and noted that business activity remains as high as ever. Chief Banking Officer Edward Braddock confirmed that weekly volumes are at a one-year high. Rollins stated the strategy in Texas remains 'business as usual,' as the state continues to be the primary driver of growth for the bank.

Jon Arfstrom asked for more detail on the comment that commercial real estate (CRE) activity is the most robust in years, questioning what's driving it and if the bank is comfortable adding more CRE exposure. He also requested an expense outlook for the second quarter.

Answer

CEO James Rollins specified the activity is in high-quality merchant CRE, particularly in industrial and multifamily spaces, driven by in-migration. President Edward Braddock confirmed the activity is backfilling the portfolio with strong loan-to-cost ratios. Executive Chris Bagley added that the bank has room for more CRE exposure. On expenses, CFO Valerie Toalson said that while Q1 was strong, quarterly expenses are expected to increase but remain within the full-year guidance of 4% to 6% growth.

Jon Arfstrom from RBC Capital Markets asked for an explanation of the decline in noninterest-bearing deposits and the outlook for that category. He also inquired about expectations for the provision and reserve levels, and asked if management had a 'wish list' for regulatory changes.

Answer

CFO Valerie Toalson attributed the noninterest-bearing deposit decline to the addition of brokered deposits and a one-time outflow from Q3, and she expects a modest continued decline. She sees the credit reserve as stable, barring major economic shifts. CEO James Rollins expressed satisfaction with their current regulatory relationships and recent positive industry commentary from the FDIC.

Jon Arfstrom from RBC Capital Markets asked for more detail on the pressures impacting general C&I loan growth and what might change that trend. He also inquired about management's current preference for the interest rate environment.

Answer

President Edward Braddock explained that strong pipelines were being offset by payoff activity, particularly from sponsor-backed companies refinancing with private credit lenders, though the bank often retains the deposit relationships. Regarding rates, Chairman and CEO James Rollins stated 'stability is the key.' EVP and CFO Valerie Toalson added that the bank is fairly neutral but prefers slower, 25 basis point moves for easier customer absorption.

John Arfstrom from RBC Capital Markets asked about the future outlook for Zions Bancorporation's reserve level, seeking confirmation that no other abnormal credit issues are currently observed. He also asked Chairman and CEO Harris Simmons if there were any additional points on underwriting and credit that he wished to emphasize, given the recent stock volatility and extensive discussion on the topic.

Answer

Chief Credit Officer Derek Steward stated that the reserve level is based on expected economic scenarios and modeling, with judgment applied, and has remained stable, depending on economic shifts. Chairman and CEO Harris Simmons highlighted the bank's strong risk-adjusted net interest margin, even with the recent charge-off, and emphasized Zions Bancorporation's historically strong credit performance and culture, asserting that the recent event was an isolated incident not reflective of their overall credit quality.

John Arfstrom asked about the bank's reserve level, seeking confirmation that no other abnormal credit issues are currently observed, and how the bank is thinking about its reserve level going forward. He also followed up on any unsaid aspects of underwriting and credit, particularly regarding the bank's credit culture, risk-adjusted Net Interest Margin (NIM), and the impact of the recent isolated case.

Answer

Chairman and CEO Harris Simmons stated that reserves are based on economic scenarios and modeling, with judgment applied, and have remained stable, depending on economic shifts. He emphasized the bank's strong credit performance, noting that even with the $50 million charge-off, the risk-adjusted NIM of 301 basis points would place them in the top third of banks, and without it, 325 basis points. He reiterated that the 37 basis points of annualized charge-offs (including the isolated event) are not outside industry norms, highlighting the bank's reputation for doing credit well and its strong credit culture.

Jon Arfstrom of RBC Capital Markets asked for clarification on the construction and CRE term loan activity. He also sought confirmation that management expects enough underlying momentum to push the net interest margin higher even with potential Fed rate cuts.

Answer

EVP & Chief Credit Officer Derek Stewart clarified that the activity reflects construction loans converting to permanent term loans upon completion. CFO Ryan Richards confirmed that latent factors, such as fixed-asset repricing, provide enough momentum that they could still achieve net interest income growth over the next year, even with the rate cuts included in their forecast.

Jon Arfstrom asked if loan growth is expected in the second quarter despite economic headwinds and inquired about the potential benefits for Zions from the current regulatory outlook.

Answer

Executives, including Derek Steward and Scott McLean, affirmed they expect moderate loan growth to continue in Q2. Chairman and CEO Harris Simmons expressed encouragement with the current regulatory environment, anticipating a more 'sensible' approach focused on real risks rather than political issues, which he views as a welcome change.

Jon Arfstrom from RBC Capital Markets asked if management was more optimistic about overall loan growth compared to the prior quarter, inquiring about pipeline strength and borrower confidence. He also asked for commentary on the trend in energy loan balances.

Answer

Chairman and CEO Harris Simmons expressed more optimism for commercial loan growth but tempered it with expected headwinds from refinancing in commercial real estate and a shift to an "originate and sell" model for 1-to-4 family residential loans. President and COO Scott McLean commented on the energy portfolio, noting that while outstandings ticked down slightly, the business fundamentals are strong due to fewer bank competitors, better underwriting, and improved pricing. He remains optimistic about balanced growth in that portfolio.

Jon Arfstrom inquired about Huntington Bancshares' loan growth outlook, specifically focusing on pipelines, core trends, and whether growth is still accelerating beyond expansion-driven markets.

Answer

CFO Zach Wasserman confirmed accelerating growth, highlighting strong momentum, an implied 1.5% sequential growth, and robust pipelines across regional banking, commercial specialty, equipment/assets finance, and consumer lending. CEO Steve Steinour also provided an optimistic outlook on credit performance, attributing it to a moderate to low risk appetite and disciplined risk management.

Jon Arfstrom inquired about current borrower sentiment and the drivers of strong core loan growth, and also asked what regulatory changes would be most beneficial for Huntington.

Answer

CEO Stephen Steinour described customer sentiment as 'consistently positive' post-election, leading to an unlocking of deferred financing and investment, which drove record asset finance activity. Regarding regulation, Steinour stated that a more pro-business orientation, greater stability on capital rules, and a constructive dialogue with regulators would be beneficial for the industry and Huntington.

Jon Arfstrom sought clarification on the implied dollar amount for Q4 NII, the scale of NII acceleration expected in 2025 based on a presentation slide, and the revenue potential of the in-housed merchant acquiring business.

Answer

Zach Wasserman, Chief Financial Officer, clarified that Q4 NII is expected to be $15-$25 million lower sequentially. For 2025, he anticipates steady NII dollar growth throughout the year, driven by sustained NIM expansion and solid lending. He also corrected that the merchant acquiring business is expected to add approximately $25 million in incremental revenue next year, which represents about 1% of the total fee revenue base.

Jon Arfstrom of RBC Capital Markets inquired about the forward visibility on loan growth and asked for an update on credit quality trends, including any areas of concern or positive surprises.

Answer

CEO Stephen Steinour stated that loan pipelines provide visibility a couple of quarters out but not significantly into 2025. On credit, he noted that performance remains very strong. While he expects some 'sloppiness' in commercial real estate across the industry, he said it will not be a material issue for Huntington due to its continually decreasing exposure in that area.

Jon Arfstrom requested an outlook for fee income and management's confidence in hitting its growth targets. He also asked for an update on credit quality and any internal or external areas of concern.

Answer

CFO Zachary Wasserman expressed high confidence in achieving the 5-7% core fee income growth guidance, expecting an acceleration from Q1 driven by strong performance in payments and wealth management, plus a recovery in capital markets. Chief Credit Officer Brendan Lawlor stated that credit metrics remain stable and in line with expectations. He noted a continued focus on the small and well-reserved office CRE portfolio, which CEO Stephen Steinour added has been reduced by $500 million over the last year.

Jon Arfstrom asked for qualitative insights into the external and internal feedback on the merger, comparing current sentiment to three months prior, and identifying any remaining critical points. He also inquired if, upon deeper review, any initial merger accretion projections might be too conservative or aggressive, particularly regarding revenue synergies.

Answer

CEO Kevin Blair expressed increased conviction in the merger, citing five reasons: deeper familiarity with leadership, progress on key decisions (talent, technology), high retention and excitement among critical talent, cemented revenue and cost synergy cases, and constructive regulatory application discussions. CFO Jamie Gregory affirmed confidence in the revenue synergy opportunities, which are not yet included in the model, and stated the combined entity aims to outperform initial consensus-based projections by minimizing uncertainty and ensuring a strong day-one start.

Jon Arfstrom of RBC Capital Markets asked about the drivers behind the significant acceleration in loan growth and the outlook for deposit trends in the second half of the year.

Answer

CEO Kevin Blair attributed the strong loan growth to successful talent acquisition and robust pipelines, which are up 14% entering Q3. EVP & CFO Jamie Gregory explained that Q2's deposit decline was a strategic move to lower costs and that he anticipates 1-3% core deposit growth for the full year, driven by new client acquisition and seasonal inflows.

Jon Arfstrom inquired about the current lending environment, the factors that would drive loan growth to the high or low end of the guidance range, and the near-term outlook for the net interest margin (NIM).

Answer

CEO Kevin Blair explained that despite uncertainty from tariffs, client sentiment remains constructive, with strong production and pipelines in high-growth segments. He noted higher production and line utilization could push growth to the high end. CFO Andrew Gregory added that the NIM is expected to be relatively stable, as the temporary headwind from potential Fed rate cuts would likely offset the permanent benefit of asset repricing.

Jon Arfstrom inquired about the key drivers for Synovus's 2025 loan growth expectations, including borrower sentiment and production trends, and asked for the anticipated trajectory of the net interest margin (NIM) beyond the first quarter.

Answer

CEO Kevin Blair expressed optimism for a return to normalized loan growth, citing improved post-election client sentiment, the highest committed production in eight quarters, maturing new hires, and reduced headwinds from portfolio runoff. CFO Jamie Gregory projected a stable NIM in the mid-3.20% range for the first half of 2025, with expansion expected in the second half to potentially reach the mid-3.30% range, driven by fixed-rate asset repricing.

Inquired about the strength and quantification of loan pipelines and activity, as well as what factors could drive net interest income (NII) growth to the midpoint or higher of the guided range.

Answer

Management stated that while hard to quantify, loan pipelines and activity have definitely improved and momentum is picking up, though not yet back to pre-SVB levels. To achieve higher NII growth, the biggest factor would be an inflection point and stabilization in non-interest-bearing deposits, which remains an industry-wide uncertainty.

Jon Arfstrom inquired about the near-term and long-term commercial loan growth outlook, asking for color on conversations with lenders and borrowers, and sought an update on the commercial real estate (CRE) portfolio's potential for stabilization.

Answer

Chief Banking Officer Peter Sefzik explained that near-term, customers are cautious, taking their 'foot off the accelerator' but not braking, with pipelines suggesting a second-half recovery. On CRE, Sefzik noted there is hope for stabilization, viewing it as less of a headwind than 90 days prior due to increased deal flow.

Jon Arfstrom inquired about Comerica's 2025 loan growth outlook, the drivers behind improved customer sentiment, and the expected timeline for when commercial real estate (CRE) payoff headwinds might subside.

Answer

Chief Banking Officer Peter Sefzik explained that customer optimism has improved and seems less tied to interest rate relief than in previous quarters, with a stronger starting pipeline for the year. He anticipates CRE payoffs will continue through 2025 and possibly into early 2026, with the pace being sensitive to interest rate movements.

Inquired about the bank's hedging philosophy, the NII trajectory with further rate cuts, customer acceptance of lower deposit rates, and how potential CRE payoffs might impact overall 2025 loan growth.

Answer

The bank considers itself largely interest-neutral and insulated from rate drops, with deposit pricing being the main variable. They are seeing good customer acceptance of lower deposit rates. CRE loan payoffs are expected to be a headwind in 2025, but they hope growth in other parts of the portfolio will offset this.

Jon Arfstrom inquired about Comerica's hedging philosophy, the NII trajectory if the Fed continues cutting rates, customer acceptance of lower deposit rates, and how potential CRE loan payoffs might impact overall 2025 loan growth.

Answer

CFO Jim Herzog described Comerica's balance sheet as 'largely interest neutral' and insulated from rate drops, with deposit pricing being the main variable. Both Herzog and Chief Banking Officer Peter Sefzik confirmed strong customer acceptance of lower deposit rates. Sefzik added that while CRE loans have likely peaked and will create a headwind, he is hopeful that growth in other parts of the portfolio will offset this decline in 2025.

Asked about the primary focus for risk management in the current environment and for more detail on the non-interest income guidance, specifically the outlook for capital markets.

Answer

The risk management focus is on broad-based, proactive portfolio management and customer outreach, not a specific sector. Non-interest income is expected to grow sequentially in Q2, but the full-year performance within the 4-6% guided range will heavily depend on the timing of M&A deals in the capital markets business.

Jon Arfstrom asked CEO Michael Rhodes for a bigger-picture view on his top strategic priorities now that he has been in the role for a while and the sale of the card business is complete.

Answer

CEO Michael Rhodes stated the primary tactical priority is executing on the three drivers needed to achieve mid-teens returns: NIM expansion, normalizing credit losses, and expense discipline. Strategically, he emphasized focusing on the core franchises where Ally has a competitive advantage. He described Dealer Financial Services as a '1 of 1' ecosystem, the digital bank as having significant upside in customer growth, and the Corporate Finance business as a source of disciplined growth. Rhodes confirmed they are not seeking new diversification or M&A.

Asked about the timing of peak nonperforming loans, the nature of the Q3 credit review, the long-term target for the allowance for credit losses, and the confidence in the net interest margin expansion from loan repricing.

Answer

New additions to nonperformers will likely continue through '26 due to the repricing schedule. The Q3 review was not unusual, just a continuation of a more rigorous process with a new standard for underwriting. The normalized reserve level will depend on the future portfolio mix (more C&I). The margin lift from CRE repricing is a key driver, but it's tempered by the lower spread on new C&I loans that are being added.

Asked about management's confidence in the new provision outlook, expectations for Non-Performing Assets (NPAs) in the third quarter, and a 'financial psychology' question about where the CEO feels the most pressure.

Answer

Management expressed a much higher confidence level in the provision outlook due to having significantly more borrower financial data. They expect the Q3 NPA increase to be less severe than Q2's, with a goal of stabilizing or reducing NPAs by Q4. The CEO stated the focus is methodical, not triage, centered on accurate forecasting, understanding credit risk, and building risk infrastructure, all while planning for future growth.

Jon Arfstrom asked for an update on the company's new business pipeline and the potential for new partnership wins.

Answer

President and CEO Ralph Andretta confirmed the new business pipeline remains strong, citing the recent Saks Fifth Avenue portfolio acquisition and the de novo Hard Rock program as key examples. He highlighted the strength of their renewal book, with the majority of top programs secured through the end of the decade, and credited the company's diversified product set and vertical strategy for their success.

Jon Arfstrom asked if the current pricing on capital call lines could be maintained as prime rates rise and requested more detail on the repricing timeframe for the bank's fixed and hybrid loan portfolio.

Answer

Chief Banking Officer Mike Selfridge indicated that while the bank will benefit from rising prime rates, the capital call market is very competitive, suggesting the loan beta would not be 100%. CEO Mike Roffler explained that the repricing of the fixed and hybrid book is dynamic, driven by historical prepayment patterns (typically a 4-6 year life) and strong new business volume, which consistently reprices portions of the balance sheet to market rates.