Liam Coohill

Liam Coohill from Raymond James & Associates inquired about the non-interest deposit growth observed in the Cayman Islands during the quarter, specifically asking if seasonal factors contributed to these flows. He also sought a higher-level perspective on Butterfield's fee businesses, particularly the trust segment post-Credit Suisse integration, asking about new client opportunities and client retention trends following the fee structure adjustments. Additionally, he asked about the geographical focus for future trust acquisitions and other fee businesses of interest for M&A.

Answer

Chief Risk Officer Brie Hidalgo confirmed that the non-interest deposit growth in the Cayman Islands was due to a seasonal influx related to reinsurance payments. Chairman and CEO Michael Collins explained that while the Singapore office is in growth mode, organic trust growth is typically offset by natural attrition, making trust acquisitions the primary growth driver. He noted the Credit Suisse integration is progressing well. Regarding M&A, Michael Collins stated that Butterfield's focus for trust acquisitions remains on existing jurisdictions like Guernsey, Bermuda, Cayman, Switzerland, and Singapore, which are considered the best trust jurisdictions, and also on opportunities for bank overlap acquisitions.

Liam Coohill requested credit metrics for the $19.4 million well-secured multifamily loan downgraded to non-accrual. He also asked if the Q4 2025 non-interest income, excluding the one-time OREO impact, would serve as a good baseline for fee income in 2026.

Answer

Nick Pi, CRO, provided an updated appraisal value of $49 million for the $19.5 million loan, noting it was higher than previous valuations. Li Yu, CEO, highlighted the significant difference between the loan amount and market value. Edward J. Czajka, CFO, agreed that the Q4 non-interest income, excluding OREO gains, would be a good baseline for 2026 fee income, possibly slightly lower due to strong LC fee income in the current year.

Liam Coohill asked for the credit metrics of the well-secured multifamily loan downgraded to non-accrual, specifically its value and any particular considerations. He also inquired if the fourth-quarter fee income, excluding the one-time OREO impact, would serve as a good baseline for 2026.

Answer

Chief Risk Officer Nick Pi and Chairman and CEO Li Yu stated that the most updated appraisal valued the property at $49 million against a loan of $19.5 million, indicating a significant difference. CFO Edward J. Czajka confirmed that the non-interest income without the gain on sale of other real estate would be a good baseline for 2026, possibly slightly lower due to strong LC fee income this year.

Liam Coohill asked about the initiatives driving the impressive interest-bearing demand deposit growth observed in the quarter, specifically whether it was due to granular wins across the franchise. He also inquired about any underlying trends or industries being watched more closely on the credit side and whether the C&I downgrades in the quarter were idiosyncratic or had commonalities.

Answer

CEO Bryan McDonald explained that the deposit growth is a continuation of the bank's relationship banking focus and high service quality, significantly boosted by investments in deposit sales teams and new locations in Oregon, Boise, and Spokane. Chief Credit Officer Tony Chalfant clarified that the two C&I downgrades were idiosyncratic, unrelated to each other or any broader industry trends, and did not reflect any specific areas of concern in the portfolio.

Liam Coohill asked about the initiatives driving the impressive interest-bearing demand deposit growth observed in the quarter, specifically whether it was due to granular wins across the franchise. He also inquired about any underlying trends or industries being watched more closely on the credit side and if there were any commonalities among the C&I downgrades during the quarter.

Answer

Bryan McDonald (CEO) attributed the deposit growth to a continuation of relationship banking, high service quality, significant additions to the deposit sales team over several years, and new locations in Oregon, Boise, and Spokane. Tony Chalfant (Chief Credit Officer) stated that there was no correlation or commonality between the two C&I downgrades, describing them as idiosyncratic and not indicative of broader trends or specific industries being watched more closely in the portfolio.

Liam Coohill inquired about the competitive landscape for deposits, Heritage Financial's strategy for deposit gathering, the progress of the Olympic Bank Corp acquisition, and the current state of asset quality, asking if any specific trends are being closely monitored.

Answer

Bryan McDonald, President and CEO, explained that the bank focuses on operating relationships and strong servicing, acknowledging that new accounts might have higher average costs due to competitive pricing for excess deposits. He confirmed the Olympic acquisition is on track for an early Q1 closing, with smooth progress. Tony Chalfant, Chief Credit Officer, reported strong and stable credit quality, noting spotty rather than systemic impacts from economic volatility, with no material loss potential seen in non-performing loans.

Liam Joseph Coohill inquired about deposit gathering strategies amidst market competition, the progress of the Olympic Bank Corp acquisition, and the current state of asset quality and credit migration trends.

Answer

Bryan McDonald, President and Chief Executive Officer, stated that Heritage Financial continues to focus on operating relationships, acknowledging strong pricing competition for deposits. He confirmed that the Olympic Bank Corp acquisition is progressing as planned, on track for an early Q1 closing. Tony Chalfant, Chief Credit Officer, noted that economic volatility has had a spotty, not systemic, impact on the portfolio, with no material loss potential expected from current non-performing loans.

Liam Coohill of Raymond James & Associates, Inc. asked about the competitive landscape for loans, the deposit-gathering strategy for the planned Spokane branch, and the geographic or business-line dynamics behind loan production strength.

Answer

President & CEO Bryan D. McDonald acknowledged that loan competition has intensified, including on price, but stated Heritage's pipeline remains strong, aided by new teams. He explained the Spokane branch will target full-service business relationships. McDonald clarified that production strength is not tied to specific geographies but rather to market disruption and the focused efforts of new teams across their strong Pacific Northwest corridor.

Liam Coohill from Raymond James asked about the primary opportunities for loan growth, the key drivers of strong Q1 deposit growth, and whether the bank has adapted its credit underwriting in response to emerging economic risks.

Answer

President Bryan McDonald highlighted a focus on a balanced mix of C&I and commercial real estate loans and attributed strong deposit growth to new client acquisition from market disruption. Chief Credit Officer Tony Chalfant explained that while credit metrics are stable, a cross-departmental team is now in place to proactively monitor industries potentially impacted by economic changes, emphasizing client communication.

Liam Coohill inquired about the primary sources of competition on both the loan and deposit sides, specifically mentioning a regional competitor offering a floor handle on an equipment loan. He also asked about the difficulty of deposit gathering amidst intense loan growth and the expected focus and opportunities for the recently hired team in the Temecula-Murrieta market.

Answer

President and CEO David Brager stated that deposit gathering has been relatively strong, focusing on operating companies and full relationships, with competition mainly from larger regional banks. He noted that new deposit gathering often includes a higher percentage of noninterest-bearing deposits. Regarding the new team, he explained their focus on operating companies and high-net-worth individuals, with new opportunities in investor commercial real estate, leveraging their local presence in the growing Temecula-Murrieta market.

Liam Coohill asked about the primary sources of competition in both the loan and deposit markets, particularly regarding the difficulty of deposit gathering amid strong loan growth. He also sought details on the lending verticals and market opportunities for the newly hired banking team.

Answer

President and CEO David Brager noted that deposit gathering, while strong, has slowed slightly, with competition mainly from larger banks for loan pricing. He explained that the new team would focus on operating companies and high-net-worth individuals, with new opportunities in investor commercial real estate within the growing Temecula-Murrieta market.

Liam Coohill of Raymond James inquired about the primary drivers of C&I loan growth, the potential impact of tariffs versus tourism spending on the local economy, and the bank's capital allocation priorities for the second half of the year.

Answer

Chairman, President & CEO Robert Harrison explained that C&I growth was driven by a normalization in dealer floorplan balances, while payoffs in commercial real estate led to revised full-year loan growth guidance of low single digits. Harrison also noted that strong U.S. tourism spending is offsetting any tariff concerns, which are mainly limited to the auto dealer sector. CFO James Moses added that capital priorities remain organic growth, the dividend, and share repurchases, with more buybacks expected in the latter half of the year.

Liam Coohill of Stephens, Inc. inquired about the trends in C&I loan utilization rates, the strategic focus of recent hiring, and the drivers behind the quarterly decline in assets under management (AUM).

Answer

CEO Thomas Shafer noted mixed C&I client behavior, with some hesitancy on capital expenditures but accelerated inventory purchases due to trade uncertainty. He confirmed new hires were concentrated in the Florida commercial market, with modest contributions expected in 2025. Regarding AUM, Executive Jamie Britton and CEO Thomas Shafer attributed the decline to market fluctuations and normal client terminations, while expressing strong optimism about the future pipeline.

Speaking on behalf of David Feaster, Liam Coohill asked about potential borrowing hesitancy among customers, whether loan demand differed across its San Francisco and capital region footprints, and how small business borrowers are responding to the current economic uncertainty.

Answer

James Beckwith, an executive, attributed strong origination volumes to the bank's large and effective sales force rather than a change in customer sentiment. He confirmed that the San Francisco market is not more challenging and is, in fact, yielding sophisticated new clients and business opportunities. Regarding small businesses, Beckwith noted the SBA loan book faces a tough environment with high borrowing costs. Executive Vice President & CFO Heather Luck added that this risk is mitigated by a high reserve of nearly 9% allocated to that specific portfolio.