Matt Olney

Matt Olney inquired about the performance and outlook for Hilltop Securities' broker-dealer business lines in 2026, including public finance, fixed income services, wealth management, and structured finance, and asked if the 13.5% pre-tax margin is a sustainable baseline. He also asked about the sensitivity of Net Interest Income (NII) and broker-dealer fees to the assumed three Fed rate cuts in 2026.

Answer

William B. Furr, CFO, and Jeremy B. Ford, CEO, expressed optimism for Hilltop Securities' business lines in 2026, citing strong performance in public finance, moderating results in fixed income, and growth in wealth management and structured finance. They confirmed the pre-tax margin guidance of low double digits to low teens (10%-14%). William B. Furr detailed NII sensitivity, estimating approximately $4.5 million per 25 basis point rate cut annually, with single-digit millions impact on broker fee income.

Matt Olney asked about the performance and outlook for Hilltop Securities' broker-dealer business lines in 2026, including Public Finance, Fixed Income Services, Wealth Management, and Structured Finance, and whether the 13.5% pre-tax margin is a good baseline. He also inquired about the sensitivity of Net Interest Income (NII) and broker fee income to potential Federal Reserve rate cuts.

Answer

William B. Furr (CFO, Hilltop Holdings Inc.) and Jeremy B. Ford (CEO, Hilltop Holdings Inc.) expressed optimism for Hilltop Securities' business lines in 2026, citing strong Public Finance, moderating Fixed Income Services, improving Wealth Management (market-dependent), and a robust Structured Finance market. William B. Furr confirmed a pre-tax margin guidance range of 10%-14%. Regarding rate sensitivity, William B. Furr stated broker fee income impact would be in the single-digit millions, and NII sensitivity is just over 4%, equating to approximately $4.5 million annually for every 25 basis point rate change.

Matt Olney asked if similar deposit betas are assumed for the remaining Fed cuts in the company's guidance, given that betas have been around 50% so far, and requested more specifics on the positive revision to non-interest income guidance.

Answer

Dan Geddes, Group Executive Vice President and CFO, confirmed that similar betas are assumed as Fed funds rates decline, while also monitoring competition for CDs. He attributed the improved non-interest income outlook to a healthier stock market, volume-related growth in interchange and service charges from customer acquisition, and the deferral of expected interchange regulation. He also noted strong capital markets performance in 2024, with potential for a stronger Q3 2025 due to school district bond underwriting.

Matt Olney from Stephens Inc. asked about the expected deposit beta for future Fed rate cuts and requested more detail on the drivers behind the upward revision to the non-interest income guidance.

Answer

CFO Dan Geddes confirmed they expect deposit betas to be similar on the way down as rates fall. Regarding the improved non-interest income outlook, he pointed to several factors: a healthier stock market benefiting trust fees, volume-driven growth in interchange and service charges from new customer acquisition, and the delay of a previously anticipated negative regulatory impact on interchange fees.

Matt Olney from Stephens Inc. asked about the deposit beta assumptions for the remaining Fed cuts included in the guidance and requested more specifics on the drivers behind the improved outlook for non-interest income.

Answer

CFO Dan Geddes confirmed that the guidance assumes similar deposit betas on future rate cuts. For the upwardly revised non-interest income guidance, he cited several factors: a healthier stock market benefiting trust fees, strong customer growth driving volume-related fees like interchange, and the removal of a previously anticipated negative regulatory impact on interchange fees for 2025.

Matt Olney sought commentary on loan pricing, specifically whether C&I spreads are holding steady or if competition is increasing, to help forecast loan betas.

Answer

Rob Cafera, Chief Financial Officer, stated that there have been no material changes in credit spreads, which are holding well across FirstSun Capital Bancorp's focused spaces. Olney also asked about the impact of recent interest rate cuts on the pending acquisition with First Foundation and its implications for asset and liability repositioning. Rob Cafera affirmed continued excitement for the merger, noting that macro rates have not caused any pause or change in expectations, and that balance sheet repositioning is on schedule. Neal Arnold, CEO and President, added that actions are being taken to reduce the term asset, short-funded structure of First Foundation's balance sheet, with good progress on hedging and joint activities.

Matt Olney asked for commentary on FirstSun Capital Bancorp's loan pricing, specifically if C&I spreads are holding steady or if competition is increasing. He also inquired about the impact of recent and potential interest rate cuts on the financial metrics of the pending First Foundation acquisition and its implications for the previously discussed asset and liability repositioning.

Answer

Rob Cafera (CFO, FirstSun Capital Bancorp) stated that credit spreads have been holding well across the franchise footprint with no material changes in trends. Regarding the First Foundation merger, Rob Cafera affirmed continued excitement and no changes in expectations due to macro rates, noting good progress on integration planning and balance sheet repositioning. Neal Arnold (CEO and President, FirstSun Capital Bancorp) added that actions are being taken to reduce the term asset, short-funded structure of First Foundation's balance sheet, with confidence in progress through hedging and joint activities.

Matt Olney of Stephens inquired about the mechanics and timing of FirstSun Capital Bancorp's $3.4 billion repositioning plan post-merger, potential for further balance sheet remixing, and the long-term management of the combined entity's CET1 capital ratio.

Answer

Rob Cafera, Senior EVP and CFO, detailed the repositioning plan's timing, including bulk sales and natural portfolio declination, expected around the early Q2 closing. Neal Arnold, President and CEO, added that hedges are in place for market risk and anticipated further remixing towards higher asset yields and core deposits over 4-6 quarters. Mr. Cafera also outlined the capital strategy, projecting significant CET1 accretion post-2027, allowing for future capital management strategies.

Matt Olney asked about the mechanics and timing of the $3.4 billion repositioning plan outlined on slide 14, inquiring about the execution risk. He also asked about opportunities for further remixing beyond the initial plan and the normalized capital level and management strategy given projected CET1 ratio growth.

Answer

Rob Cafera, Senior EVP and CFO of FirstSun Capital Bancorp, and Neal Arnold, President and CEO of FirstSun Capital Bancorp, explained that the repositioning would involve bulk sales and potential securitization, with progress expected in Q4 and Q1, and completion around an early Q2 closing. They noted hedges are in place for market risk. For further remixing, they anticipate migrating to higher asset yields and more core deposits over 4-6 quarters, leveraging C&I teams and natural repricing. Regarding capital, Rob Cafera stated that FirstSun maintains operating thresholds, supports organic growth and M&A, and expects significant capital accretion, leading to future capital management strategies beyond 2027.

Matt Olney of Stephens Inc. sought clarification on the 'market price deterioration' that influenced charge-off guidance and asked if there were any unusual items, such as MSR sales, contributing to the strong mortgage banking income.

Answer

EVP & Chief Credit Officer Jennifer Norris clarified that the 'market price deterioration' comment referred to a lower-than-expected final valuation on a specific workout credit within the telecom industry. CFO Robert Cafera confirmed that the strong mortgage results were driven purely by organic gain-on-sale origination activity, with no MSR sales or other unusual items during the quarter.

Matt Olney of Stephens Inc. sought clarification on the 'market price deterioration' impacting charge-off guidance and asked if there were any unusual items within the strong mortgage banking income.

Answer

Chief Credit Officer Jennifer Norris explained that the 'market price deterioration' comment referred to a specific C&I credit in the telecom sector where the final asset valuation upon workout was lower than initially estimated. CFO Robert Cafera confirmed that the strong mortgage banking revenue was driven entirely by organic gain-on-sale activity from originations, with no MSR sales or other unusual items contributing to the result.

Matt Olney asked if the company considered a recent distressed bank deal in Texas, sought more color on the lowered NII guidance, and asked for details on the new large nonaccrual loan.

Answer

CEO Neal Arnold confirmed they reviewed the Texas deal but passed due to the significant risk from the asset mark-to-market. CFO Robert Cafera attributed the lower NII guidance primarily to lower-than-expected average balances in Q1 from back-end loaded loan growth. He also described the new nonaccrual as a $13 million manufacturing credit with a cross-border component.

Matt Olney asked about the drivers of fourth-quarter loan growth, the outlook for organic loan growth, and the impact of paydowns. He also inquired about details regarding a significant non-performing commercial real estate loan in Houston and lessons learned from recent credit issues.

Answer

CFO Greg Robertson attributed strong Q4 loan growth to pipeline demand and a downshift in payoffs, projecting mid-single-digit loan growth for 2026, assuming a more balanced view of paydowns. Chairman and CEO Jude Melville added that growth was led by Southwest and North Louisiana, highlighting geographic diversification. Regarding the non-performing loan, Greg Robertson identified it as a $25.8 million commercial real estate medical facility in Houston, one of the bank's largest single exposures. Jude Melville emphasized concentration risk as a key lesson, reinforcing the need to keep individual loan exposures and industry/geography concentrations manageable.

Matt Olney asked about the drivers behind the strong loan growth in the fourth quarter, the outlook for organic loan growth in 2026, and how paydowns are factored into future projections. He also inquired about specific details regarding the large commercial real estate relationship that went non-performing, its size relative to other bank exposures, and broader lessons learned from recent credit issues.

Answer

CFO Greg Robertson attributed Q4 loan growth to pipeline demand and a downshift in payoffs, projecting mid-single-digit loan growth for 2026 with a more balanced view of paydowns. CEO Jude Melville added that growth was led by Southwest and North Louisiana, highlighting diversification. Regarding credit, Greg Robertson identified the non-performing loan as a Houston-area medical facility, stating it's one of the largest single CRE exposures. Jude Melville emphasized lessons learned about concentration risk and the need to keep individual loan exposures manageable, refining processes for credit decisions.

Matt Olney inquired about Business First Bancshares' core net interest margin expectations for the fourth quarter, potential impacts from future Fed rate cuts, and current deposit pricing competition in their markets. He also asked for evidence supporting the anticipated rebound in loan growth for Q4. In a follow-up, he asked about potential delays in SBA sales due to a government shutdown and sought updates on Progressive Bank's trends, M&A application, and expected closing.

Answer

CFO Greg Robertson projected a couple of basis points margin expansion in Q4 due to deposit momentum and normalized loan growth, noting continued competitive deposit markets. CEO Jude Melville added that unfunded line commitments from Q3 would contribute to Q4 loan growth. Regarding SBA sales, Greg Robertson clarified that a government shutdown would delay income into Q1, not eliminate it. Jude Melville provided positive updates on Progressive Bank's profitability, strong shareholder vote, and expected early January closing, with conversion scheduled for August.

Matt Olney asked about Business First Bancshares' core net interest margin expectations for Q4, considering recent Fed rate cuts, and inquired about deposit pricing competition in their markets. He also followed up on the conviction for a loan growth rebound in Q4.

Answer

Greg Robertson (CFO, Business First Bancshares) expects a 2 basis point margin expansion in Q4 due to deposit momentum and normalized loan growth, noting continued competitive deposit pricing. He and Jude Melville (CEO and Chairman, Business First Bancshares) indicated early Q4 success and unfunded line commitments support expectations for low to mid-single-digit loan growth.

Matt Olney from Stephens Inc. questioned the slowdown in loan yield momentum, the persistence of elevated FHLB borrowings, and sought feedback on the recent core system conversion, including its expected benefits.

Answer

EVP & CFO Gregory Robertson attributed the loan yield softness to competition, noting pricing is holding in the mid-to-low sevens. SVP Matthew Sealy added that lower deferred loan fees also contributed. Robertson explained that FHLB borrowings are a strategic tool for managing funding, particularly in repositioning higher-cost deposits from the Oakwood acquisition, and may fluctuate. CEO Jude Melville stated it is too early for broad feedback on the new core system but reiterated its strategic importance for future organic and M&A efficiency, rather than immediate cost savings.

Matt Olney inquired about the outlook for loan growth for the remainder of the year, the potential trajectory for the core net interest margin, and the sustainability of the strong Q1 fee income performance.

Answer

CFO Gregory Robertson projected low to mid-single-digit quarterly loan growth, which would result in low single-digit growth for the full year due to a flat Q1. He anticipates continued, but more modest, core margin expansion in the low single-digit basis point range quarterly. Robertson also guided toward a more normalized quarterly fee income run rate of $11.5 million to $12 million, as Q1 benefited from strong, but less predictable, SBIC and SBA income. CEO Jude Melville added that the bank has fundamentally improved its capabilities in SBA and swap income, establishing a new, higher baseline for performance.

Matt Olney inquired about the outlook for Business First's net interest margin (NIM) in 2025, the competitive landscape for loan pricing and yields, and the expected drivers for fee income growth.

Answer

CFO Gregory Robertson projected continued "low to mid-single-digit margin expansion" in 2025, contingent on organic deposit growth. He and CEO David Melville affirmed a commitment to pricing discipline, leveraging new technology to price entire relationships, even amid potential competition. For noninterest income, Robertson guided to a $40-$50 million target for 2025, using Q4's $11.8 million as a good run rate. Melville added that a diversified infrastructure of products like SBA and swaps should provide multiple avenues for growth.

Matt Olney asked for commentary on the loan growth rate, which was slower than recent trends, inquiring specifically about C&I borrower sentiment and line utilization. He also sought confirmation on the sustainability of fee income after a strong quarter driven by swap fees.

Answer

CFO Gregory Robertson explained that the 4.4% annualized loan growth was intentionally aligned with capital growth and profitability goals, noting the bank also sold $30 million in loans. Other executives added that customer line utilization was normal for the time of year. Regarding fees, Robertson affirmed that the Q3 level is a good run rate for future growth, though it will be lumpy. CEO David Melville added that the company has intentionally diversified its noninterest income streams, with SBA income expected to be a strong contributor in Q4, ensuring aggregate growth even if individual components fluctuate.

Matt Olney asked for an update on the securitization pipeline for 2026 and the potential net impact of future securitizations on the balance sheet, yield, and fees. He also inquired about the status and timeline of the Keystone merger applications and the mechanics of the preferred convertible instrument, including its conversion rights and impact on capital ratios like CET1 and tangible book value.

Answer

John McWhorter, Chief Financial Officer, indicated that another securitization is likely in 2026, but it would probably involve selling existing assets to manage concentration, potentially shrinking the balance sheet slightly and booking fees upfront. Bart Caraway, Founder, Chairman, President, and CEO, confirmed the Keystone merger is proceeding as planned, with shareholder meetings scheduled. Regarding the preferred convertible instrument, Bart explained the company has the right to call it in September 2027, likely converting it to common. He noted it's already included in most capital ratios, EPS, and tangible book value, but its conversion would add approximately 125-150 basis points to the CET1 ratio.

Matt Olney asked for an update on the securitization pipeline, following the two securitizations completed in 2025. He also inquired about the current status and timeline for the Keystone merger applications and closing. Finally, he sought clarification on the mechanics of the preferred convertible instrument on the balance sheet, including its conversion timeline, discretion, and impact on capital ratios and tangible book value.

Answer

John McWhorter, CFO, indicated that another securitization is likely in 2026, but it would differ from previous ones, focusing more on selling existing assets to manage concentration limits for construction lending, potentially shrinking the balance sheet slightly and booking fees upfront. He confirmed that the Keystone deal is proceeding as planned, with shareholder meetings scheduled for Third Coast and Keystone. Regarding the preferred convertible instrument, John McWhorter explained that the bank has the right to call it in September 2027 for conversion to common stock. He clarified that it is already included in most capital ratios and tangible book value, and its conversion would add approximately 125-150 basis points to the CET1 ratio.

Matthew Olney asked for more details on the Q4 margin expectations, including assumptions on loan fees, interest rates, and Fed cuts, and inquired about the company's rate sensitivity. He also asked about the variable portion of the securities portfolio and current deposit and loan pricing competition in their markets.

Answer

John McWhorter, Chief Financial Officer, explained that the Q4 margin forecast reflects normalized loan fees after a quarter with record capitalized fees, and expects to outperform asset-sensitive assumptions due to aggressive deposit rate cuts. He noted that approximately $200 million of the nearly $600 million securities portfolio is variable, with Bart Caraway, Founder, Chairman, President and Chief Executive Officer, clarifying that $206 million in held-to-maturity is floating rate. John McWhorter expressed confidence in core deposit growth, anticipating a reduction in broker deposits and an improved cost of funds, providing a tailwind to the margin.

Matt Olney asked for more details on the Q4 margin expectations, including assumptions on interest rates, Fed cuts, and rate sensitivity. He also sought clarification on the variable portion of the securities portfolio and insights into current deposit and loan pricing competition in the bank's markets.

Answer

John McWhorter, CFO, projected a Q4 margin of 3.90%-3.95%, attributing it to normalized loan fees and aggressive deposit rate cuts, noting the bank is slightly asset-sensitive and expects to outperform assumptions. He clarified that approximately $200 million of the nearly $600 million securities portfolio is variable, primarily held-to-maturity. Mr. McWhorter expressed increased confidence in core deposit growth, anticipating a reduction in broker deposits and a slight tailwind to the margin from seasonal customer funds.

Matt Olney from Stephens Inc. asked about the drivers behind the Q1 deposit contraction and sought further details on the loan securitization, including its pro forma impact on CRE concentration ratios, any remaining off-balance sheet exposure, and the nature of the underlying assets.

Answer

Executive John McWhorter explained the deposit decline was due to typical seasonality and expects balances to be flattish in Q2. On the securitization, he reported the construction concentration ratio fell from ~148% to the low 130s. The bank retained a $78 million investment-grade security with lower credit risk, backed by floating-rate, short-term (3-year maturity) single-family construction loans, with no other significant off-balance sheet exposure.

Matt Olney inquired about the loan growth outlook for 2025, the specific asset classes being reduced, the near-term forecast for the net interest margin (NIM) amid potential Fed rate cuts, and the bank's comfort level with its loan-to-deposit ratio.

Answer

Executive Bart Caraway stated that while loan growth can be lumpy, Q4 is shaping up to be on the higher side of the guided range. Executive John McWhorter clarified that the primary asset class runoff was in bond anticipation notes, which is now complete. Regarding the NIM, McWhorter expressed confidence in a flat to positive outlook, citing strong demand deposit growth and a high cost of funds that provides flexibility to lower rates. He also noted the loan-to-deposit ratio is expected to decrease by year-end due to seasonal inflows.

Matt Olney inquired about the net interest margin (NIM) outlook for the March quarter, specifically asking if the 3.63% run rate from December was a good starting point and if seasonal headwinds were expected.

Answer

CFO Stefan Chkautovich stated that while specific NIM guidance isn't provided, underlying potential for increased spread exists in the March quarter due to decreasing deposit costs, with loan-side impacts being near break-even. He also noted that seasonal liquidity inflows have been partially offset by reductions in brokered deposits, leading to less impact from typical seasonal headwinds.

Matt Olney asked about the nature of loan paydowns, specifically if unexpected paydowns beyond seasonal agricultural ones were anticipated, and inquired about the current loan pricing competition in the marketplace. He also sought clarification on the net interest margin (NIM) outlook, asking if the 3.63% level was a better run rate for December, if additional seasonal headwinds were expected in the March quarter, and if future NIM tailwinds would be primarily driven by deposit costs rather than loan pricing.

Answer

Chairman and CEO Greg Steffens explained that several unexpected paydowns occurred, including a larger C&I relationship that outgrew them, noting that overall prepayment rates have been higher than historical averages. CFO Stefan Chkautovich added that these unexpected paydowns were not necessarily rate-driven but a mixed bag. Regarding competition, Mr. Chkautovich mentioned that treasuries have been volatile, with some aggressive competition in the low sixes and high fives for top-flight credit. He confirmed that the 3.63% NIM was a better run rate and that while they don't give specific guidance, they see potential for increased spread in the March quarter due to decreased deposit costs, with the loan side being at break-even. He also noted that seasonal liquidity inflows were partially offset by reductions in brokered deposits, and affirmed that future NIM tailwinds would be more driven by deposit costs than loan pricing.

Lastly, Matt Olney inquired about the drivers behind the strong cost controls and lower non-interest expenses observed this quarter, asking if this represents a sustainable run rate.

Answer

EVP and CFO Stefan Chkautovich attributed the cost controls primarily to ASC 310-20 accounting changes, confirming the current quarter's non-interest expense as a good baseline, with a slight step-up expected in the third fiscal quarter due to merit increases.

Matt Olney inquired about the outlook for credit quality, including provision expense and charge-offs, given recent migration. He also asked about the bank's net interest margin expansion, rate sensitivity, and the potential impact of future Fed rate cuts. Finally, he sought clarification on the drivers of cost controls and the sustainability of the current expense run rate.

Answer

Greg Steffens, Chairman and CEO, indicated an expectation for charge-off activity to decrease from recent levels, with delinquencies trending back to historical ranges. Stefan Chkautovich, EVP and CFO, explained that the bank remains liability-sensitive, expecting to be a net beneficiary of rate cuts, though seasonal deposit influx might temporarily neutralize this. He attributed strong cost controls primarily to ASC 310-20 changes, establishing a new baseline with a slight increase anticipated in the third quarter due to merit raises.

Matt Olney of Stephens Inc. inquired about the momentum of loan growth during the quarter, the drivers behind expected higher prepayments, and the near-term outlook for the net interest margin, including the potential impact of Fed rate cuts. He also sought details on a specific CRE charge-off, questioning the cause of the collateral's value deterioration and the status of other related appraisals.

Answer

Greg Steffens, Chairman, confirmed that loan growth was steady and that expected prepayments in non-owner-occupied CRE have been indicated by borrowers but have not yet occurred. Regarding the charge-off, he explained it resulted from a special-purpose property losing its tenant, leading to a valuation based on much lower market rents, and noted a 42% specific reserve is held against the remaining balance. Stefan Chkautovich, EVP & CFO, added that the bank is currently neutral to rate movements but expects natural NIM expansion from loan repricing. Matt Funke, President and Chief Administrative Officer, commented that deposit competition remains reasonable despite a recent minor uptick.

Matt Olney inquired about the momentum of loan growth, the drivers behind anticipated prepayments, the near-term outlook for the net interest margin, and the specifics of a significant CRE charge-off.

Answer

Chairman and CEO Greg Steffens confirmed that loan growth was steady throughout the quarter and noted that expected prepayments are concentrated in larger non-owner-occupied commercial real estate credits. EVP & CFO Stefan Chkautovich added that while the bank is currently neutral to rate movements, he anticipates margin expansion from loan repricing. Regarding the CRE charge-off, Mr. Steffens explained it was due to a special-purpose tenant vacating, leading to lower market rents, and confirmed a 42% specific reserve is held against the remaining loan balance.

Matt Olney inquired about the competitive landscape for deposits across Southern Missouri Bancorp's rural and metro markets, the strategy behind purchasing securities during the quarter, and the outlook for noninterest expenses.

Answer

An executive noted that deposit competition is a mixed bag and not distinctly different between rural and metro markets, though some competitors with high loan-to-deposit ratios are driving pricing. CEO Greg Steffens added that this is not a consistent rural versus metro trend. CFO Stefan Chkautovich explained the opportunistic purchase of approximately $50 million in CMOs and mortgage-backed securities, funded with brokered CDs, to capitalize on higher market rates. President and CAO Matthew Funke addressed expenses, noting seasonal compensation adjustments in the March quarter but no other significant changes expected.

Matt Olney inquired about the competitive landscape for both deposit and loan pricing, sought clarification on the net interest income (NII) and margin guidance, and asked for details on the scope and financial goals of the bank's new performance improvement project.

Answer

CFO Stefan Chkautovich noted that deposit rate competition eased following the FOMC cuts, making their pricing more competitive. President and CAO Matthew Funke added that on the loan side, the market is moving back towards their pricing, and strong demand reduces the need to be more aggressive. Mr. Funke confirmed expectations for continued NII growth, with the net interest margin potentially flat in the December quarter due to seasonality before improving. He described the performance project as a comprehensive operational review aiming to pay for itself within a year, with potential long-term savings in the low single-digits of noninterest expense.

Matt Olney inquired about Southern Missouri Bancorp's CD pricing dynamics, seeking details on maturing volumes and renewal rates. He also asked for a forecast on near-term expense growth and questioned if the strong credit trends could lead to a lower allowance ratio in the future.

Answer

President and Chief Administrative Officer Matthew Funke and CFO Stefan Chkautovich explained that approximately $1 billion in CDs are repricing over the next 12 months at an average rate of 4.79%, while 12.5% of the fixed-rate loan book is renewing at higher rates around 8.15-8.17%. They projected expense growth to be in the mid-single digits, in line with the bank's overall growth. Regarding the credit allowance, Funke noted their conservative stance and expressed hope to avoid provisioning increases but did not commit to reducing the ratio.

Matt Olney from Stephens asked Chairman, President, and CEO Rob Holmes about the 'full potential' of recent investments and what operating metrics at full scale might look like longer term, given the firm exceeded its legacy ROAA targets in the second half of 2025. He also inquired about preliminary thoughts on capital instruments maturing or becoming callable soon.

Answer

Chairman, President, and CEO Rob Holmes stated that the firm is not providing multi-year guidance but expressed strong optimism about the future, emphasizing that the platform's synergy, talent, and pipelines are working better than anticipated. He highlighted that no business is yet at scale, indicating significant growth potential through execution and scaling of existing investments. CFO Matt Scurlock confirmed that the firm has 'a ton of optionality in the capital base' and will 'behave accordingly in Q1 when some of these instruments become callable.'

Matt Olney asked Chairman, President, and CEO Rob Holmes to elaborate on the 'full potential' of recent investments and what that looks like for the bank's longer-term operating metrics, and later inquired about callable instruments in the capital base and any preliminary plans.

Answer

Chairman, President, and CEO Rob Holmes stated that while multi-year guidance isn't provided, the platform's synergy, talent, and pipelines are exceeding expectations, supported by technology and improved operating efficiency. He emphasized that the firm is at the 'precipice' of its potential, with the current focus on execution and scaling existing investments. CFO Matt Scurlock acknowledged the 'ton of optionality' in the capital base regarding callable instruments and indicated that the firm would 'behave accordingly in Q1' when these instruments become callable.

Matt Olney asked about the firm's capital strategy, specifically whether the current high capital levels represent a deployment opportunity or if they will be maintained for competitive advantage in client acquisition. He also inquired about the firm's M&A focus, asking which businesses (depository, investment banking, wealth management) might be more amenable to acquisition versus organic growth.

Answer

CEO Rob Holmes outlined a disciplined capital menu, prioritizing organic growth, platform investments, bond repositioning, and share repurchases (12% of shares at an average of $59). He noted that while whole bank M&A was previously 'red' on the menu, it's now 'yellow' due to improved earnings, but emphasized the need for strong currency and focus on tangible book value per share. He also stressed that high capital levels are a significant competitive advantage in the market. Regarding M&A focus, Rob Holmes stated the firm evaluates all opportunities (fintech, depository, wealth) but believes the best return currently comes from realizing existing revenue and cost synergies embedded in the platform, citing new equities and corporate card businesses as examples with significant untapped potential.

Matt Olney asked about commercial customer behavior and loan demand throughout the volatile quarter and questioned the firm's confidence in its mortgage finance growth guidance, which seems more optimistic than the broader market.

Answer

MD & CFO Matt Scurlock stated that strong client acquisition drove C&I growth as anticipated, with stable line utilization. Chairman, President & CEO Rob Holmes added that demand for bank debt from new clients remains high. Regarding mortgage finance, Scurlock reiterated that their guidance is based on a consistent $1.9 trillion market view, with Holmes emphasizing their strategy is to bank select, high-quality clients, not to gain overall market share.

Matt Olney of Stephens Inc. followed up on the mortgage finance self-funding ratio, asking about the drivers for its expected decline to 95% and whether it could improve further. He also asked for the specific hedge impact on NII in Q1.

Answer

CFO Matt Scurlock explained the decline in the self-funding ratio is a positive reflection of strong deposit growth in other core commercial areas of the bank. This allows TCBI to selectively reduce higher-cost deposits in the mortgage finance business where it cannot earn an acceptable aggregate return. He expects the ratio to remain below 100% for the foreseeable future. Scurlock also stated the hedge impact on NII in Q1 was approximately $8 million.

Matt Olney asked for details on the future impact of interest rate hedges as they mature and how technology investments are enabling the company to maintain flat expense levels into next year.

Answer

CFO Matt Scurlock pointed to new disclosures detailing hedge maturities, noting the first significant tranche expires in Q2 2025, which should provide a net interest income benefit. President and CEO Rob Holmes explained that technology investments in client journeys, workflow automation, and a modern, unified tech stack are driving efficiencies and reducing operating risk, allowing for disciplined expense management while still investing for growth.

Matt Olney at Stephens inquired about the key drivers behind Simmons First National Corporation's strong Q4 loan growth, seeking clarification on pipeline components and the outlook for 2026. He also asked for insights into the Q4 net interest margin (NIM), any unusual factors, and expectations for margin expansion in 2026, particularly from the backbook repricing tailwinds. Finally, Olney questioned the current competitive landscape for deposit and loan pricing.

Answer

President and CEO James Brogdon highlighted that Q4 loan production was the highest in years, driven by robust opportunities and good timing, leading to meaningful growth despite elevated paydowns. He noted that the underlying growth rate was well above the disclosed 7% annualized. Brogdon explained that the 'ready to close' pipeline is at a multi-quarter high, supporting early 2026 production, but the overall 2026 guide is for low-to-mid single-digit growth due to cautious credit underwriting and competitive pricing. CFO Daniel Hobbs detailed the 31 basis points linked-quarter NIM growth, attributing 19-20 bps to the balance sheet restructure and 11 bps to core NIM expansion from loan growth and rate/mix. Hobbs projected Q1 NIM to be stable to slightly up, with the full year stable to mid-380s by Q4, supported by backbook repricing and moderating deposit betas. Brogdon added that strategic focus on organically growing low-cost deposits offers upside to the NIM guide. Regarding competition, Brogdon observed 'pretty good behavior' on deposit rates from the industry, but noted irrational competition from smaller banks. He emphasized that loan pricing remains highly competitive, particularly in C&I, where risk-adjusted returns are often stronger in CRE due to 'irrational pricing'.

Matt Olney asked about the process for determining the 60% specific reserve on the two problem credits, how the bank can reiterate full-year expense guidance despite the $4.3 million Q1 fraud loss, and the plan to reduce the $2.9 billion in brokered deposits.

Answer

President Jay Brogdon explained the specific reserves were set conservatively by the special assets group to ensure no further losses upon resolution. Regarding expenses, Brogdon and CFO Daniel Hobbs confirmed the full-year guidance holds due to underlying expense discipline, the one-time nature of the fraud charge, and potential future recoveries. Hobbs added that the strategy to reduce brokered deposits relies on growing core customer deposits, which reduces the need for wholesale funding.

Matt Olney asked for more detail on why the fourth-quarter Net Interest Margin (NIM) of 2.87% exceeded internal expectations and followed up on the sustainability of the 200 basis point positive spread on repricing fixed-rate loans.

Answer

President Jay Brogdon and CFO Daniel Hobbs attributed the Q4 NIM outperformance to better-than-expected pricing discipline on both loans and deposits, particularly by reducing deposit costs faster than anticipated. Mr. Hobbs confirmed the 200 basis point spread on repricing fixed-rate loans is a reasonable near-term assumption, though Mr. Brogdon cautioned that intense market competition for quality credits could affect this spread throughout the year.

Matt Olney of Stephens Inc. asked for details on the reinvestment plans for savings from branch closures and the near-term expense outlook. He also inquired about the potential for positive operating leverage in 2025 and sought more color on the bank's indexed deposits.

Answer

CFO Daniel Hobbs explained that savings will be partly reinvested into revenue-generating initiatives and partly taken to the bottom line, and he expects to beat the full-year expense guidance. President Jay Brogdon confirmed that achieving positive operating leverage in 2025 is a primary goal. Hobbs clarified that the indexed deposits are tied to Fed funds and reprice immediately, benefiting the bank in a falling rate environment.

Matt Olney asked for insights into current loan pricing, competitive pressures across different segments like CCFG and the Community Bank, and the outlook for the core net interest margin in 2026.

Answer

Kevin Hester, President and Chief Lending Officer, and Chairman John Allison described intense competitive pressures, including 'silly' pricing with low floors and flexible rate settings. Kevin Hester noted the Community Bank's Q4 originations were around 690, with December at 675 (coupon plus fees). Kevin Hester also stated the core margin ended December at 4.59%, expressing a goal to keep it flat in 2026, citing potential for fixed-rate loan repricing and CD portfolio adjustments.

Matt Olney asked about current loan pricing trends, specifically competitive pressures observed across CCFG and the Community Bank. He also sought insight into the puts and takes on the core net interest margin as the company moves into 2026.

Answer

Kevin Hester, President and Chief Lending Officer, described aggressive and 'silly' competitive pricing in the Community Bank, including prime minus 75 with no floor. John Allison, Chairman, echoed concerns about these competitive pressures. Stephen Tipton, CEO of Centennial Bank, expressed a hope to keep the core margin flat, noting potential for fixed-rate loan repricing and CD portfolio management, while acknowledging competitive pressures as a key variable. The core margin, excluding event income, was 4.56% in Q4 and 4.59% at December's end.

Matt Olney asked about the impact of the lawsuit settlement on Q3 expenses, whether the $111 million expense goal is achievable in Q4, and for clarification on the size thresholds for potential M&A targets, distinguishing between large and smaller deals.

Answer

CEO Stephen Tipton clarified that lawsuit-related legal expenses were minimal in Q3, with other one-time items affecting expenses. Chairman John Allison mentioned a significant donation made during the quarter. Regarding M&A, Chairman Allison indicated a broad target range from $0 to $25 billion, reiterating excitement about the recently signed Letter of Intent with a good operator.

Matt Olney asked about the competitive environment for deposit pricing within the bank's footprint and sought management's current perspective on the stock buyback program, particularly at current valuation levels.

Answer

CEO of Centennial Bank, Stephen Tipton, described the deposit pricing environment as stable compared to Q1, noting the bank is competing effectively. Chairman & CEO John Allison indicated that while a special dividend has been considered, the company's capital deployment strategy, including buybacks, will depend on potential M&A activity in the near term. He noted the company has significant cash at the holding company but will be paying off subordinated debt soon.

Matt Olney followed up on the M&A discussion, asking if the potential for faster regulatory approvals changes the company's strategy, such as considering multiple smaller deals. He also asked for specifics on how small of a deal the bank would consider.

Answer

Executive John Allison responded that faster approvals are exciting and that he would not be adverse to pursuing a couple of smaller deals simultaneously. He explained that the bank is ready for new assets to enhance its high-performing platform. Regarding size, Allison stated that while deals below $300 million are generally too small, an exception could be made for a strategic in-market acquisition in a key geography like Florida, with the ultimate decision depending on the potential accretion to EPS.

Matt Olney of Stephens Inc. sought more detail on the quarter-end balances for criticized and classified loans compared to the prior quarter. He also inquired about the competitive landscape for deposit pricing across the bank's different state markets.

Answer

Chief Lending Officer Kevin Hester reported that criticized loans were flat quarter-over-quarter, while classified loans decreased by approximately $22 million. CEO Stephen Tipton noted that deposit competition is intense across all markets, but Home Bancshares has been successful in renewing CDs at rates below maturing tranches, helping to manage funding costs.

Matt Olney asked for more detail on the drivers behind the strong operating expense control and questioned whether any new credit problems were emerging beyond the previously discussed legacy issues in Texas.

Answer

CEO Stephen Tipton credited disciplined headcount management for the cost control and noted potential future savings from renegotiating large IT contracts in 2025. On credit, Chief Lending Officer Kevin Hester and Chairman John Allison confirmed that the focus remains on the same legacy Texas credits, with no significant new problem inflows. They expect resolution on some of these within the next one to two quarters.

Matt Olney asked about the drivers behind the core margin expansion in Q3, the outlook for Q4 core margin, and the reasons for the increase in criticized loans.

Answer

Jim Mabry (CFO) indicated modest margin contraction expected in Q4, followed by modest expansion in 2026, assuming four rate cuts. David Meredith (EVP and Chief Credit Officer) attributed the rise in criticized loans to broad-based increases across commercial real estate, C&I (including a multifamily transaction and tricolor credit), self-storage, and senior housing, emphasizing proactive risk identification.

Matt Olney asked about the drivers behind the core net interest margin expansion in the third quarter and the outlook for margin trends in Q4 and 2026. He also inquired about the reasons for the increase in criticized loans during Q3.

Answer

CFO Jim Mabry expressed satisfaction with the Q3 margin expansion, projecting modest contraction in Q4 and modest expansion in 2026, assuming four rate cuts by year-end 2026. EVP and Chief Credit Officer David Meredith attributed the rise in criticized loans to a broad-based increase across commercial real estate and C&I, including a single multifamily transaction, two C&I transactions, and some migration in self-storage and senior housing portfolios, emphasizing proactive risk management with no expected loss exposure.

Matt Olney from Stephens Inc. asked for an update on core expense levels and the timeline for realizing cost savings from the merger, and also questioned if long-term profitability targets for ROA and efficiency ratio remain intact.

Answer

Executive VP & CFO James Mabry stated that merger-related cost efficiencies were not reflected in Q2 but will begin to appear in Q3 and ramp up in Q4, with the full run-rate expected by Q1 2026. President & CEO Kevin Chapman confirmed that the company is tracking in line with its long-term strategic goals for ROA and efficiency ratio, noting the efficiency ratio is already below 60% before most cost savings have been realized.

Matt Olney of Stephens Inc. sought clarification on how a lower-than-expected loan mark could impact closing capital ratios, the bank's appetite for calling or refinancing its callable subordinated debt, and the current competitive landscape for deposits and loans.

Answer

Executive James Mabry confirmed that a lower loan mark would result in higher capital, projecting the CET1 ratio to be slightly above 11% at closing, with slightly lower EPS accretion and tangible book value dilution. He added that calling sub-debt is an option being considered, supported by a strong cash position at the parent company. Regarding competition, Mabry noted that funding pricing has been better than anticipated, with more competitive pressure on the asset side.

Matt Olney requested details on the volume of variable and fixed-rate loans scheduled to reprice in the upcoming year and asked for color on the quarterly increase in classified loans.

Answer

James Mabry detailed that the ~$6 billion variable-rate book reprices quickly, while ~$700 million in fixed-rate loans at a blended rate of ~5.5% will reprice over the next 12 months. David Meredith clarified that the uptick in classified loans was not due to new problem assets but rather a migration of existing special mention loans to a substandard classification as part of ongoing portfolio management.

Matt Olney requested more detail on the fixed-asset repricing dynamics, including the dollar amount of loans repricing and their yields. He also asked for additional color on the downgrade of 'a few larger loans' mentioned in the prepared remarks, specifically regarding industry concentrations or common themes.

Answer

EVP and CFO James Mabry provided specifics on asset repricing, noting roughly $5.5 billion in variable-rate loans and $750 million in fixed-rate loans are set to reprice over the next year. He reiterated expectations for 'modest' NIM compression in Q4. EVP and Chief Credit Officer David Meredith clarified that the loan downgrades were primarily concentrated in the senior housing sector (three loans) and one non-medical office loan, describing the stress as isolated to these asset classes.

Matt Olney circled back on the loan growth discussion, asking when the elevated payoff pressure might ease, especially with lower interest rates potentially creating more refinancing opportunities. He also sought updated thoughts on M&A, including ongoing conversations with strategic partners and expectations for finding a suitable partner for Stellar Bank. Finally, he requested the updated fair value mark on the loan portfolio related to purchase accounting accretion.

Answer

Ray Vitulli (President of the Company and CEO of Bank) indicated that a lift from advances exceeding paydowns is expected in a couple of quarters, supported by 62% year-to-date loan origination growth. He emphasized delivering on the healthy pipeline and anticipates pivoting to growth in 2026. Bob Franklin (CEO) confirmed ongoing M&A conversations but stressed being 'very protective of the balance sheet' and deposit base, seeking partners with similar funding philosophies. He acknowledged the possibility of being active but with a careful approach. Paul Egge (CFO) stated that the remaining loan discount for purchase accounting accretion is $58.1 million.

Matt Olney sought an update on when Stellar Bancorp expects elevated loan payoffs to slow, considering that lower rates might increase refinancing activity. He also asked for the bank's updated thoughts on M&A, including ongoing conversations with strategic partners and expectations for finding a suitable partner. Lastly, he requested the updated fair value mark on the loan portfolio related to purchase accounting accretion.

Answer

Ray Vitulli, President of Stellar Bancorp and CEO of Stellar Bank, indicated that a lift from advances exceeding paydowns is expected in a couple of quarters, helping to offset the $300-350 million payoff run rate. He reiterated a healthy pipeline and an expectation for growth to manifest in the second half of the year and into 2026. Bob Franklin, CEO of Stellar Bank, confirmed ongoing M&A conversations, emphasizing the bank's protective stance on its balance sheet and deposit base, seeking partners with similar funding philosophies, and approaching M&A cautiously. Paul Egge, CFO of Stellar Bank, stated that $58.1 million remains of the loan discount for purchase accounting accretion.

Matt Olney of Stephens Inc. sought details on the mix of recent loan originations, the expense outlook for the remainder of 2025, the feasibility of reaching a 4% core margin, the potential for redeeming debt, and the current pace of M&A discussions.

Answer

Executive Chairman & CEO Robert Franklin described a broad-based origination mix, including C&I and CRE, and noted that M&A conversations have increased, though the bank remains disciplined on pricing. Senior EVP & CFO Paul Egge affirmed the goal is to keep expenses flat, absent opportunistic investments, and reiterated the intention to 'scratch and claw back up to a four handle on margin,' adding that potential rate cuts would be a net benefit. Egge also stated that redeeming debt is being evaluated alongside other capital deployment options.

Matt Olney asked for an update on capital allocation strategy, focusing on the pace of share buybacks and the potential for redeeming subordinated debt. He also explored whether other capital deployment options, such as security or loan portfolio purchases, were being considered. Shifting topics, he inquired about the drivers behind the improvement in interest-bearing deposit costs and the future outlook for the core net interest margin (NIM).

Answer

CEO Bob Franklin reiterated that the bank continues to build capital and is evaluating the best use, including potentially retiring some sub-debt later in the year, continuing share buybacks, and remaining open to M&A, particularly with private banks. He emphasized a focus on core banking rather than ad-hoc strategies like portfolio purchases. CFO Paul Egge added that while the bank has used both buybacks and dividend increases, the significant Q1 improvement in deposit costs is not likely to be repeated at the same pace. He stated the goal is to push the core NIM, currently at 3.97%, back above 4%, but noted future gains will be incremental.

Matt Olney asked for clarification on the 2025 loan growth outlook, expectations for deposit growth after a flat 2024, and the revenue growth assumptions needed to achieve the stated goal of positive operating leverage.

Answer

CEO Robert Franklin confirmed that a mid-single-digit loan growth target for 2025 remains reasonable, despite some expected payoffs early in the year. President Ramon Vitulli highlighted strong Q4 loan origination momentum and positive leading indicators for deposit growth, noting 58% of new accounts were from new customers. CFO Paul Egge affirmed that achieving positive operating leverage implies revenue growth will meet or exceed the guided ~3% expense growth.

Matt Olney of Stephens asked for an update on the loan growth outlook for 2025, the drivers of noninterest expense running above target, the strategy for the growing securities portfolio, and the specifics behind recent credit quality changes.

Answer

CEO Robert Franklin stated that mid-single-digit loan growth is the goal for 2025, market conditions permitting. CFO Paul Egge addressed expenses, noting they are running about $1 million above the $70 million quarterly target due to seasonality but they aim to hold the line. Egge also detailed that the securities portfolio provides liquidity and has an effective duration of 3.5 years. Franklin confirmed that favorable resolutions on previously identified problem credits drove the improvement in nonperforming loans during the quarter.

Matt Olney asked if any material loan floors would become effective as the Federal Reserve continues to cut rates. He also inquired about the allowance for credit losses ratio, noting it was at the low end since CECL adoption, and asked if it was expected to continue to drift lower.

Answer

CFO Marty Grunst stated that loan floors are not expected to be a factor in the foreseeable future given current rate levels. President and CEO Stacy Kymes explained that the allowance ratio is predicated on asset quality, loan growth, and other factors, and while loss content is not expected to be material, the ratio's future trend depends on these variables. He emphasized the current health of the reserve relative to criticized levels, non-performing levels, and charge-offs.

Matt Olney inquired about BOK Financial's allowance for credit losses ratio, noting it's at the lower end since CECL adoption, and asked if the commentary implies it could continue to drift lower.

Answer

Stacy Kymes, President and CEO, explained that the allowance ratio is predicated on asset quality, loan growth, and other factors. He noted that the current reserve is very healthy relative to criticized levels, non-performing levels, and charge-offs, and while they don't foresee material loss content, the ratio's future movement depends on these dynamic factors.

Matt Olney sought to reconcile comments about new loan growth being accretive to NIM while C&I spreads are facing pressure. He also asked for color on the volatility and outlook for the trading securities portfolio.

Answer

EVP & CFO Martin Grunst clarified that loan growth boosts NII dollars and can improve margin by shifting the asset mix from lower-yielding securities, with new loans expected at spreads similar to the existing book. Grunst, along with EVP Scott Grauer and CEO Stacy Kymes, explained the trading portfolio balance fluctuates based on tactical market opportunities and risk management, with balances rising as market uncertainty eased, all while remaining within internal risk limits.

Matt Olney sought clarification on whether lower commodity prices would spur new energy hedging activity. He also asked if the full-year guidance assumes the Q1 trading interest revenue spread of 98 basis points would be maintained or improve with potential Fed cuts.

Answer

CEO Stacy Kymes agreed that lower commodity prices would likely lead to less hedging activity in the near term, as customers are opportunistic. CFO Martin Grunst confirmed that the company's full-year guidance assumes the trading spread will improve from Q1 levels as rate cuts materialize later in the year.

Matt Olney of Stephens Inc. questioned the company's low double-digit growth guidance for 2025 net interest income (NII), asking for a Q1 starting point and the underlying assumptions about the yield curve's shape.

Answer

CFO Martin Grunst detailed that while core NII will benefit from asset repricing, the main driver is the trading portfolio. He projected the spread on the trading portfolio could expand from 36 bps to over 100 bps as funding costs fall with anticipated Fed cuts, significantly boosting trading NII. He clarified the guidance assumes two Fed cuts with long-term rates remaining stable, leading to a steeper curve. EVP Scott Grauer added that client demand to invest further out on the curve has increased, supporting this outlook.

Matt Olney from Stephens asked for details on the investment securities portfolio, including cash flows, recent purchase activity, and plans for its overall size. He also questioned whether the lower end-of-quarter borrowings level was a sustainable run rate for Q4.

Answer

CFO Marty Grunst detailed that the securities portfolio had ~$760 million in cash flow in Q3, repricing up 115 bps, and guided for a ~$650 million quarterly run rate going forward. Purchases continue to be in shorter-duration mortgage securities. Regarding borrowings, Grunst explained the quarter-end decline was driven by durable deposit growth and typical MBS settlement cycles, suggesting the lower level is a reasonable starting point for Q4, though subject to future loan growth.

Matt Olney asked for insights into loan pricing and competition observed in recent weeks and months within both the Community Bank and Commercial Bank segments.

Answer

Chief Banking Officer Billy Braddock and CFO Valerie Toalson stated that while the market is competitive, loan yields have been holding firm, with new and renewed loans in Q3 coming in at approximately 6.85%. They acknowledged some tightening of spreads on softer-based transactions and in specific verticals but affirmed the bank's ability to maintain its yields overall.

Matt Olney asked for color on loan pricing and competition in Cadence Bank's Community Bank and Commercial Bank segments in recent weeks and months.

Answer

Chief Banking Officer Billy Braddock stated that the market is competitive, but yields have been holding, with new and renewed loans for Q3 coming in at about 6.85%. He noted some tightening of spreads on softer-based transactions and in certain verticals, but overall, the bank is able to maintain its yields.

Matt Olney requested follow-up details on the bond purchases and related borrowings, asking about the timing and duration of the trade. He also asked if the bank might do more of these trades, particularly if loan growth slows.

Answer

CFO Valerie Toalson clarified the trade occurred in the last month of the quarter and involved purchasing $785 million of 2.5-year duration agency securities funded by borrowings, capturing a positive spread. She and CEO James Rollins confirmed that future trades are an option and would be driven entirely by the available spread, not necessarily as a substitute for loan growth.

Matt Olney of Stephens inquired about the competitive landscape for deposit pricing and any near-term tailwinds for the net interest margin (NIM). He also sought clarification on the pricing for incremental new deposits.

Answer

CFO Valerie Toalson identified significant NIM tailwinds, including the repricing of about $6 billion in CDs from over 4% to lower rates and the maturation of higher-cost brokered deposits. Executive Chris Bagley noted that deposit competition remains, with CD specials recently picking back up. Toalson confirmed new time deposits were being added in the mid-to-high 3% range.

Matt Olney of Stephens inquired about the funding for the planned BTFP paydown, asking if it would result in lower overnight liquidity levels. He also requested more color on the credits that migrated to nonaccrual status.

Answer

Chairman and CEO James Rollins and EVP and CFO Valerie Toalson confirmed it was a 'fair assumption' that cash levels would normalize to a lower range of $1.0-$1.5 billion. Regarding credit, Rollins and President Chris Bagley described the increase in nonaccruals as 'generic normal flow' from previously identified criticized loans, emphasizing there were no systemic or industry-specific weaknesses.

Matt Olney inquired about the expected stabilization of the net interest margin (NIM), considering the typical two-quarter lag after Fed rate cuts and the mitigating impact of loan floor rates. He also sought clarification on the projected net income and EPS growth for 2026 versus 2027.

Answer

George Gleason, Chairman and CEO, explained the two-quarter lag in margin stabilization, attributing it to the repricing cycle of seven-month CD specials relative to variable rate loans. He noted that 22% of variable rate loans were at their floor as of September 30, which will help accelerate margin catch-up with future Fed cuts. Regarding EPS growth, George Gleason confirmed that 2026 is expected to see record net interest income and EPS, but with relatively small year-over-year gains due to infrastructure build-out and RESG payoffs, with more significant benefits and material growth anticipated from 2027 onwards.

Matt Olney asked for a preliminary framework for Bank OZK's loan growth outlook for 2026, questioning if the pace from the latter half of 2025 would be a reasonable baseline.

Answer

President of CIB Jake Munn stated that he expects CIB's growth to accelerate into 2026. President Brannon Hamblen noted RESG faces headwinds from prepayments. Chairman & CEO George Gleason framed this within the bank's 'growth, growth and diversification' strategy, where CIB and other units are expected to grow faster than RESG, thereby continuing to diversify the loan portfolio.

Matt Olney posed a long-term, big-picture question about Banco OZK's loan growth aspirations beyond 2025 and the associated investment spending required. He also asked for the bank's perspective on potential regulatory changes under the new presidential administration.

Answer

Chairman and CEO George Gleason stated that significant foundational expenses for growth initiatives like CIB are already in the run rate, which should allow the bank to maintain an industry-leading efficiency ratio as revenues scale. President of CIB Jake Munn added that their growth is pragmatic, ensuring new business is generated before adding headcount. Regarding regulation, Gleason expressed hope for a more constructive and 'rightsized' regulatory environment that would reduce unnecessary burdens and allow the banking industry to better support U.S. economic growth.

Matt Olney asked for details on the Chicago land loan that drove higher charge-offs and for a comparison of loan pricing between the Real Estate Specialties Group (RESG) and the Corporate & Institutional Banking (CIB) division.

Answer

CEO George Gleason explained the Chicago loan was charged down due to the slow pace of resolution by the sponsor, despite their continued engagement. He framed the quarter's overall asset quality as positive, citing progress on other key assets. Regarding pricing, Gleason noted that while RESG spreads are typically higher, CIB loans offer significant fee and deposit opportunities, resulting in a comparable return on equity when viewed holistically.

Matt Olney inquired about the outlook for fees and expenses, specifically asking for a run rate with and without the unpredictable oil and gas revenue. He also sought an update on the expectations for the recent mortgage investment, particularly looking ahead to 2026. Additionally, Olney circled back to the M&A topic, asking Tom Travis about the major challenges currently impacting M&A volumes in the region.

Answer

Kelly Harris, CFO, projected a similar Q4 run rate to Q3 for core fee income ($1 million) and non-interest expenses ($9 million-$9.5 million), acknowledging oil and gas unpredictability. Jason Estes, Chief Credit Officer, described the mortgage business as slow but covering costs, with expectations for 2026 to be better than 2025 despite high contract fallout rates. Tom Travis, President and CEO, cited AOCI overhang, long-maturity fixed-rate loans, and sellers' high valuation expectations as key M&A challenges, emphasizing Bank7's disciplined, owner-like approach.

Matt Olney of Stephens Inc. asked for clarification on Q3 fee income guidance, details on loan growth drivers like energy lending, and the bank's balance sheet sensitivity to potential interest rate cuts.

Answer

CFO Kelly Harris clarified the Q3 fee projection is $2 million, split evenly between core and oil & gas. President & Chief Credit Officer Jason Estes detailed that growth was driven by hedged production loans and C&I, while CEO Thomas Travis noted that overall energy exposure as a percentage of the portfolio has declined over the long term. Kelly Harris added that the bank anticipates loan and deposit betas to remain one-for-one for the next few rate cuts, with loan floors providing support.

Matt Olney from Stephens Inc. asked if a material shift in the loan portfolio mix is expected in 2025, given paydowns and backfilling in energy and hospitality. He also sought to clarify 2025 loan growth expectations, asked for the dollar amount of the nonaccrual interest that benefited Q4, and requested a forecast for fee income.

Answer

Jason Estes (Executive) stated that the loan mix will remain within historical ranges, noting there is room to backfill in energy and hospitality, which are at the low end of their typical concentration. He said low single-digit loan growth for 2025 is a reasonable but disappointing expectation, with any upside likely occurring in the second half of the year. Thomas Travis (Executive) specified the elevated nonaccrual interest in Q4 was approximately $600,000 and commented on heightened regulatory scrutiny of CRE. Kelly Harris (Executive) forecasted Q1 fee income to be $2.4 million.

Matt Olney from Stephens Inc. sought details on Bank7's M&A strategy, including the ideal characteristics of a partner and key financial evaluation metrics. He also asked how the pace of Federal Reserve rate cuts might impact the bank's core margin.

Answer

Executive Thomas Travis detailed the bank's M&A criteria, emphasizing a preference for partners with strong core deposits and cultural alignment, potentially including a merger of equals (MOE). He explained that their evaluation is based on a holistic view of financial metrics over a 3-to-5-year strategic period, not a single metric. Regarding interest rates, Travis expressed confidence in managing the net interest margin regardless of the pace of Fed cuts, citing the bank's historical resilience and internal modeling.

Matt Olney inquired about the risk profile of Bank7's energy loan portfolio in relation to commodity price fluctuations. He also asked for color on the decline in nonperforming assets (NPAs) during the quarter and sought an update on the net interest margin (NIM) trajectory.

Answer

Executive Jason Estes and Executive Thomas Travis detailed the bank's energy underwriting, which includes stress testing at low commodity prices (e.g., $45 oil) and confirming that large borrowers actively use hedging to de-risk operations. Regarding credit, Estes confirmed the loan book is 'very clean' with low past dues and no alarming migration trends. Executive Kelly Harris addressed the NIM, stating that it bottomed out around 4.60% in Q1, benefiting from a lower cost of funds, and is expected to 'hold up and perform well' in Q2 and Q3.

Matt Olney inquired about Hancock Whitney Corporation's confidence in criticized commercial loans continuing to decline or having peaked, and asked about the opportunities for new loan producers, especially given recent bank sales and market disruption in growth markets.

Answer

Chief Credit Officer Chris Ziluca indicated that the earlier build-up in criticized loans was partly due to previously low levels, and that the company is now seeing companies rehabilitate or seek alternate financing, leading to a 'nice return to moderation.' President and CEO John Hairston highlighted Hancock Whitney's advantage as a low SNCS concentration bank, allowing aggressive hiring from disrupted organizations. He sees opportunities for C&D and conventional business/commercial bankers in emerging markets like Texas, Florida, Tennessee, Georgia, and the Carolinas. Hairston emphasized the need to increase net banker growth from 8.6% to 'well north of 10%' to ensure consistent mid-single-digit loan growth in 2026, leveraging earnings firepower to attract talent.

Matt Olney of Stephens Inc. asked about the higher-than-expected charge-offs in Q2 and the outlook for both charge-offs and criticized commercial loans for the remainder of the year.

Answer

Chief Credit Officer Chris Ziluca explained that Q2 charge-offs were elevated due to the resolution of a few specific, reserved-for credits. He expressed confidence in the full-year guidance, citing no systemic portfolio issues and noting that outflows from the criticized loan category are currently outpacing inflows, signaling an improving trend.

Matt Olney of Stephens asked for the expected contribution of new hires to the back-half-loaded loan growth and for color on loan pipelines. He also inquired about the target mix of producers for the 20-30 hires planned for the year.

Answer

CFO Michael Achary quantified that new hires are expected to contribute about 15% of the year's total loan growth. CEO John Hairston added that the contribution could be higher if they can accelerate hiring in faster-producing areas like equipment finance. For the hiring mix, Mr. Hairston detailed plans for a couple of hires in each specialty line (CRE, equipment finance), about half in business/commercial banking, and four in wealth management, noting they would opportunistically hire more if talent became available.

Matt Olney from Stephens Inc. asked about the strategic rationale for acquiring Sabal Trust to expand the wealth management business now and whether more M&A in that space is likely. He also requested details on the organic growth strategy in Texas.

Answer

CEO John Hairston explained that the Sabal acquisition accelerates a decade-long strategy to grow wealth management, which is crucial for serving their target client base of privately-owned businesses. CFO Michael Achary added that the deal complements their existing infrastructure and signals an openness to further inorganic growth, including depository institutions. Hairston detailed the Texas plan, which includes hiring bankers and opening five new financial centers in North Dallas.

Matt Olney asked for updated expectations on deposit betas for the current down-rate cycle and requested details on the commercial loan charge-offs recorded in the third quarter.

Answer

CFO Michael Achary provided expectations for deposit betas through the cycle, projecting a total deposit beta of 37-38% and an interest-bearing deposit beta of 57-58%. Chief Credit Officer Christopher Ziluca explained that the Q3 charge-offs were elevated due to a couple of specific C&I credits that the bank decided to charge down, with the remainder being smaller, run-rate items.

Matt Olney of Stephens Inc. asked for an outlook on the net interest margin for the second half of the year, its dependency on loan growth, and the current competitive environment for deposit pricing in Texas.

Answer

CEO Lee Gibson stated that the net interest margin has tailwinds due to late-quarter loan growth and favorable repricing of maturing CDs. He noted that over $430 million in CDs are maturing in the next 90 days and are expected to be repriced at least 10 basis points lower. Gibson indicated they are not seeing significant new pressure on deposit pricing and that any net loan growth would be an additional benefit to the margin.

Matt Olney of Stephens Inc. asked for an outlook on the net interest margin (NIM) for the second half of the year, questioning its dependency on potentially volatile loan growth. He also probed into the competitive landscape for deposits in Texas and whether Southside is experiencing the same pricing pressures reported by its peers.

Answer

CEO Lee Gibson stated that the NIM has tailwinds independent of loan growth, noting that significant loan growth occurred late in Q2, which should benefit Q3's average balances. He anticipates further NIM expansion if net loan growth continues. Regarding deposits, Gibson explained that Southside is not seeing intense pricing pressure. He highlighted that over $430 million in CDs are maturing in the next 90 days, and the bank expects to reprice them at rates at least 10 basis points lower, providing continued relief on funding costs.

Matt Olney of Stephens inquired about capital management, specifically how the bank weighs stock repurchases against its callable subordinated debt. He also sought clarity on loan growth, asking if Q1 paydowns were a timing issue and why the full-year guidance was maintained despite some surprise paydowns.

Answer

An executive, likely CLO Keith Dongey, explained they are balancing both capital actions, aiming to pay down at least half of the $92 million in callable sub debt while considering buybacks. He clarified that Q1 loan paydowns were a mix of expected and unexpected events, with some payoffs occurring earlier than forecast. The mid-single-digit growth guidance is maintained because the loan pipeline has significantly increased, from ~$1.3 billion to $1.9 billion, giving them confidence in positive growth for Q2 and beyond.

Matt Olney asked for commentary on the M&A environment in Texas, Southside Bancshares' specific acquisition target profile, and the expense outlook for 2025, considering the ongoing C&I initiative and other factors.

Answer

CEO Lee Gibson observed that M&A chatter has increased and he expects more activity in Texas in 2025. He reiterated Southside's target profile as banks either under $1.2 billion or over $3 billion, primarily along the I-35 corridor. CFO Julie Shamburger projected that quarterly noninterest expense would be around $37 million or slightly higher in 2025, driven by salary increases, the C&I initiative, and higher software costs.

Matt Olney of Stephens Inc. inquired about the projected ramp-up of the net interest margin (NIM) to its 3.7% fourth-quarter target and the key drivers for this expansion. He also asked for details on the significant loan paydowns seen late in the quarter and the long-term outlook for loan growth.

Answer

CFO Wally Wallace detailed the NIM forecast, attributing the expansion to tailwinds from loan repricing, which offset modeled Fed rate cuts. He noted competitive pricing pressures could influence the outcome within the guided range. President and CEO of Origin Bank, Lance Hall, explained that loan growth was impacted by client uncertainty and decisions to use cash for projects, reducing line utilization. Chairman, President & CEO Drake Mills added that line utilization dropped from 53% to 50%, representing an $83 million reduction. For the long term, Lance Hall expressed optimism, citing a strategy focused on hiring talented bankers and capitalizing on market disruption, while maintaining pricing discipline.

Matt Olney of Stephens Inc. inquired about Origin's loan growth outlook, the progress of its client selection process, the financial impact of the 'Optimize Origin' initiative, and trends in deposit costs and market competition.

Answer

President and CEO of Origin Bank, Lance Hall, confirmed building pipelines and energized bankers provide confidence in loan growth despite macro uncertainty. Chief Risk Officer Jim Crotwell noted the client selection process is in the 'seventh inning stretch' after exiting approximately $200 million in relationships. CFO Wally Wallace explained that a significant portion of the incremental 'Optimize Origin' savings are expected to benefit the bottom line, as reflected in improved expense guidance. Lance Hall also addressed deposit competition, noting some aggressive CD specials from competitors, while Wally Wallace discussed deposit beta assumptions in their rate cut models.

Matt Olney asked for details on the drivers behind the projected mid- to high-single-digit loan growth for 2025, the timing and components of the $21 million "Optimize Origin" plan, and the sensitivity of the net interest income (NII) outlook to Fed rate cuts and the yield curve.

Answer

Chairman, President and CEO, Drake Mills, explained that 2024's slow growth was a deliberate strategy to stay under the $10 billion asset threshold, which involved exiting $149 million in non-strategic loans. President and CEO of Origin Bank, Lance Hall, added that this positions the bank with ample liquidity to "take the shackles off" bankers in 2025. CFO Wally Wallace detailed the timing of the optimization benefits, noting some will phase in during Q1 and Q2 2025, and confirmed the bank remains asset-sensitive, meaning fewer rate cuts would be beneficial to the NII outlook.

Matt Olney asked about the drivers behind higher-than-expected deposit costs in Q3 and the implications for deposit betas in a falling rate environment. He also sought clarity on the net interest margin (NIM) outlook and the specific metrics, such as ROA or efficiency ratio, being targeted in the company's new profitability initiative.

Answer

Chief Financial Officer Wally Wallace explained that strong, unexpected growth in interest-bearing deposits pressured costs, but noted that deposit betas are performing better than modeled. He clarified that the NIM requires a measured pace of Fed cuts to expand, as large cuts create immediate pressure. Chairman, President and CEO Drake Mills added that the profitability initiative targets a peer-like ROA of around 1.05-1.06% by focusing on broad revenue and expense opportunities, with a goal of accelerating to upper-quartile performance once growth resumes.

In a follow-up, Matt Olney of Stephens Inc. asked for clarity on the drivers of the average factoring invoice size, the growth potential for supply chain financing, and the composition of the strong noninterest-bearing deposit growth.

Answer

Kim Fisk, President of Triumph Factoring, and Aaron Graft, CEO, explained that the factoring invoice size is influenced by customer mix and that the payments segment is a better market indicator. Todd Ritterbusch, President of Payments & Banking, and Graft highlighted significant growth potential for supply chain finance. Ritterbusch also broke down noninterest-bearing deposit growth as being driven primarily by mortgage warehouse deposits (over 50%) and TPAY float (under 50%).

Matt Olney of Stephens Inc. asked about the GreenScreens acquisition's integration and growth prospects, the outlook for the Payments segment's EBITDA margin, drivers of the average factoring invoice size, the growth potential for supply chain financing, and the composition of noninterest-bearing deposit growth.

Answer

CEO Aaron Graft and President of Intelligence Dawn Salvucci-Favier detailed the GreenScreens integration, highlighting a pipeline ACV increase to $80k and expectations for the Intelligence segment to grow fastest. President of Payments & Banking Todd Ritterbusch stated a long-term goal of over 40% EBITDA margin for the Payments segment. President of Factoring Kim Fisk explained that invoice size is influenced by customer mix. Ritterbusch also clarified that recent NIB deposit growth was driven by mortgage warehouse deposits and TPAY float.

Matt Olney inquired about the go-to-market strategy for the new Intelligence segment, including target clients, and asked for an outlook on its potential revenue ramp over the next few years.

Answer

CEO Aaron Graft explained that the initial target clients are the 560 existing TriumphPay customers. The strategy is a direct response to client requests for data, leveraging Triumph's position as a neutral, high-volume, and precise data source. Graft noted the segment's gross margin is over 90% as it uses existing data. He stated that while revenue will grow in 2025, it will not be meaningful until potentially the latter half of 2026, as the company is focused on delivering a product of excellence rather than rushing it to market.

Matthew Olney of Stephens Inc. inquired about the 2025 monetization strategy for the TriumphPay platform, given management's continued cautious outlook on the overall freight market.

Answer

President of TriumphPay Melissa Forman stated that monetization is actively occurring, highlighting over 30% year-over-year fee revenue growth despite the market headwinds, driven by added value and new features. CEO Aaron Graft supported this, noting the freight recession masks significant underlying progress and that fee revenue, the most valuable type, continues to grow. He emphasized that if the market normalizes, the platform's performance would accelerate significantly.

Matt Olney of Stephens Inc. requested information on the long-term KPIs and goals for the Factoring-as-a-Service (FaaS) offering. He also asked for more financial details on the 'green screens' acquisition to better incorporate it into his financial model.

Answer

Executive Aaron Graft explained that they will add a second FaaS client in the back half of the year and more in 2026, reiterating his belief that the Factoring segment's revenue will 'at least double' over time, driven largely by FaaS. Regarding 'green screens,' an unnamed executive stated they could not share financials for the private company but expect the deal to close in Q2. Graft added the strategic rationale is to capture a portion of a $600M+ addressable market for broker intelligence, an investment the board believes will create more value than share buybacks.

Matthew Olney inquired about the bank's plans for a subordinated debt instrument that becomes callable later in the year and asked for more detail on the office and retail loans that migrated to nonaccrual status.

Answer

CFO Terry Earley and CEO Malcolm Holland confirmed the $125 million sub debt tranche is on their radar. While a full payoff is unlikely, a partial payoff is highly probable, and a complete refinancing is also possible, pending market conditions. Chief Credit Officer Curtis Anderson explained the nonaccrual migrations were long-standing names being moved toward final resolution, with strategies in place to have them moved off the books by early Q3.

Matthew Olney from Stephens asked about capital management, specifically the company's plans for a subordinated debt instrument that becomes callable later in the year, and also requested more detail on the recent migration of office and retail loans into nonaccrual status.

Answer

CFO Terry Earley confirmed that the $125 million tranche of subordinated debt callable in October is being closely watched. He indicated that a full payoff is unlikely, but a partial paydown is 'very high' probability, depending on market conditions. CEO Malcolm Holland added that a complete refinance of the debt is also a possibility. Regarding credit, Chief Credit Officer Curtis Anderson explained that the new nonaccrual loans were long-standing relationships that the bank is now actively moving toward final resolution, with strategies in place to have them resolved by the beginning of the third quarter.

Matthew Olney inquired about the bank's capital management plans, specifically regarding a subordinated debt instrument becoming callable later in the year, and requested more detail on the loans that migrated to nonaccrual status.

Answer

CFO Terry Earley and CEO Malcolm Holland confirmed the $125 million sub-debt tranche callable in October is under review. They indicated a full payoff is unlikely, but a partial paydown is highly probable, with a full refinance also being a possibility depending on market conditions. Chief Credit Officer Curtis Anderson explained that the new nonaccrual loans were long-standing relationships and that clear strategies are in place to achieve resolution by the beginning of the third quarter.

Matt Olney requested more specific guidance on the expected 'moderate expense growth' for 2025 and asked about the timing for when net loan balances would begin to grow again after a period of high paydowns.

Answer

CFO Terry Earley clarified that 'moderate expense growth' is expected to be in the 'low to mid-single digits.' CEO Malcolm Holland projected that net loan growth would likely begin in the second quarter of 2025, with full-year growth forecasted in the low to mid-single-digit range. He noted that while payoffs are hard to predict, current forecasts show them being heaviest in the back half of the year.

Matt Olney of Stephens Inc. asked about the bank's plans for its significant overnight liquidity position. He also requested details on the dollar amount of floating-rate loans and indexed liabilities and how quickly they reprice following Fed rate changes.

Answer

CFO Terry Earley stated that carrying high excess liquidity is not the goal and the plan is to deploy it through a combination of paying down wholesale deposits, purchasing securities, funding loan growth, and shedding other high-cost deposits. He noted that approximately 75% of the loan portfolio is floating-rate. On the liability side, about $2.5 billion in deposits are contractually or functionally indexed to the Fed funds rate and reprice "immediately" with any changes.

Matt Olney from Stephens Inc. asked for more details on the C&I loan contraction in Q1, the drivers behind the quarter's positive deposit growth, and the strategic plan for the significant expected cash flows from the securities portfolio.

Answer

Executive Tyson Abston clarified that the C&I loan balance decrease was due to lower line utilization rather than specific paydowns or company sales. He attributed the strong deposit growth to the bank's consistent strategic focus on acquiring core deposit relationships, noting they expect 2-5% net growth for the year. For the securities portfolio, Abston stated the plan is to continue systematically reinvesting the cash flows into the bond portfolio, dollar-cost averaging and taking advantage of market dislocations, while maintaining ample liquidity for loan growth.

Matt Olney of Stephens Inc. asked for details on the Q1 contraction in C&I loans, the drivers of deposit growth, and the strategy for upcoming cash flows from the securities portfolio.

Answer

Executive Tyson Abston attributed the C&I loan decrease to lower line utilization, which he expects could reverse. He highlighted that strong deposit growth is a core part of their model, aiming for 2-5% annual growth through relationship banking. For the anticipated $116 million in securities cash flows, the plan is to systematically reinvest in the bond portfolio, leveraging market opportunities, while maintaining significant liquidity.

Matt Olney of Stephens Inc. inquired about the specifics of the C&I loan growth in Q4, any seasonality in deposit flows, the outlook for operating expenses in 2025, and the bank's current stance on M&A.

Answer

Executive Tyson Abston explained that Q4 C&I growth was driven by higher utilization from existing customers, a typical year-end trend, not a new targeted program. He also noted some Q4 deposit seasonality from public funds but stressed the ongoing focus on core deposit franchise building. Executive Shalene Jacobson projected minimal expense growth of 1-2% for 2025, targeting an efficiency ratio of 2.5% of total assets. Regarding M&A, Abston confirmed the bank is actively having conversations and is open to accretive, culturally aligned acquisitions, leveraging its strong capital position.

Matt Olney from Stephens asked about the current competitive landscape for deposit pricing in the company's footprint and the longer-term outlook for deposit betas in a potential rate-down cycle. He also inquired about the dollar amount of floating-rate loans and sought clarity on the company's expense target relative to assets.

Answer

Executive Tyson Abston noted that deposit pricing pressure has lessened over the last 6-9 months. Executive Shalene Jacobson added that they are modeling a higher deposit beta sensitivity for rate decreases in early 2025 and confirmed that just under $250 million in loans are floating rate. Regarding expenses, Abston reiterated that 2.5% of assets remains the target, but the company is comfortable floating above it temporarily and will not sacrifice strategic investments to meet the ratio while the balance sheet is shrinking.

Matt Olney inquired about the timeline for loan balance stabilization, the potential for further loan pressure in the second half of the year, and the specifics of the FHLB advances, including rates and duration. He also asked for details on the foreclosed Austin property, including its appraisal value and lease status.

Answer

Executive Tyson Abston projected that loan growth would likely resume in 2025 after potential further paydowns of around $100 million in the second half of 2024, pending rate decreases and post-election clarity. He confirmed the Austin property has a $17 million appraisal, is being marketed, and is expected to be 100% occupied soon. Executive Shalene Jacobson added that the repaid FHLB advances had a rate around 5.4% and the remaining short-term advances carry a similar rate.

Matt Olney sought more detail on the new investment securities being purchased, specifically regarding product type, yield, and duration. He also asked for the expense outlook beyond the first quarter of 2025.

Answer

Senior Chairman and CEO David Zalman confirmed the bank's strategy remains focused on 15-year fully amortized mortgage-backed securities. CFO Asylbek Osmonov added that the $150 million in securities purchased in Q4 yielded about 5.05%. For expenses, Osmonov projected a 1% to 2% increase in the second half of the year over the Q1 baseline of $141-$143 million, driven by annual merit increases and technology investments.

Matt Olney of Stephens Inc. inquired about the company's strategy for its $3.9 billion in borrowings, particularly in a flat loan growth environment, and asked about the expected borrowing and overnight liquidity levels for 2025.

Answer

CFO Asylbek Osmonov and CEO David Zalman explained the plan is to pay down borrowings, which will be accretive to the Net Interest Margin (NIM). They confirmed a recent $500 million paydown and projected reducing borrowings by another $1 billion to $1.5 billion over time. They also stated the overnight cash position would be maintained in a comfortable range of $1.5 billion to $2.0 billion.

Asked about the outlook for loan growth, deposit costs, and earning assets for the second half of the year. Later, he followed up on the nature of substandard loan paydowns and the bank's appetite for securities restructuring.

Answer

Management expects a mid-single-digit loan growth pace, a relatively stable net interest margin with deposit costs flattening, and potentially flat to slightly increased earning assets. Substandard loan paydowns were often facilitated by asset sales where the principal had been sufficiently reduced. The bank is open to another securities restructuring if the economics are favorable, similar to the one completed at year-end.

The analyst asked about the current competitive landscape for deposit costs, the expected balance sheet seasonality for the second quarter, and the company's appetite for further securities portfolio restructuring.

Answer

Executives noted that while deposit competition persists with some banks offering rates around 5-5.25%, the pressure is less intense than in Q4. For Q2, they expect the balance sheet to be relatively flat as public fund outflows are offset by seasonal deposit inflows from tourist markets. They are actively evaluating another securities portfolio trade and will execute it if the financial benefits are attractive.

Asked for a quantification of the expected Q1 margin compression, the impact of public fund flows, the timing of the bond restructure's benefits, the intensity and source of deposit competition, the drivers of higher Q4 expenses, the expense outlook for 2024, and the reason for lower sequential fee income.

Answer

Management guided to Q1 margin compression being about half of Q4's, with the bond restructure's benefit starting in Q1. They noted deposit competition remains intense from both large and small banks across their footprint. Higher Q4 expenses were due to year-end accruals, and the 2024 expense run rate is guided to ~$44 million per quarter. Lower Q4 fee income was a normalization from an elevated Q3, with Q4 levels being in line with the first half of the year.

The analyst requested details on the new deposit gathering campaign, the drivers behind the decline in criticized and classified loans, and the outlook for fee income.

Answer

The deposit campaign includes a 5.25% 6-month CD and a 5% money market account tied to a non-interest bearing deposit. The decline in criticized loans was driven by payoffs and upgrades. Fee income was strong due to a non-recurring annual interchange fee payment, so fees are expected to be lower next quarter.

Asked for updated thoughts on capital deployment strategies like buybacks, given recent increases in bank valuations. Also inquired about the drivers for the balance sheet's shift toward a more rate-neutral position and the outlook for its interest rate sensitivity.

Answer

Executives noted that with the stock price now higher, buybacks are less attractive, and the focus for capital deployment will shift more towards funding high-quality organic growth. The balance sheet became more rate-neutral due to adding more variable-rate loans and shifting time deposit maturities out slightly. However, they confirmed the bank remains positioned to benefit from a potential rate cut.

Inquired about the sensitivity of loan portfolio churn to interest rates and its impact on the loan growth outlook, and asked about the potential for security yield improvement and further portfolio restructurings.

Answer

Management expects increased loan churn regardless of rate cuts, though recent rate moves caused a slight pause. They are comfortable with their loan growth guidance, noting higher churn could be a net positive for NIM. They expect continued modest improvement in securities yields from reinvestment but have no immediate plans for further large-scale restructurings.

Asked about the ongoing transition of the securities portfolio, the company's tolerance for realizing losses in a potential restructuring, and whether DDA balances have bottomed out.

Answer

The securities portfolio transition is in the 'fifth or sixth inning.' A potential restructuring would be guided by not compromising capital ratios, having a short earnback period (1-2 years), and being neutral or accretive to risk-based capital ratios. The relative size of the portfolio is expected to remain consistent. The company's goal is to grow DDA and core deposits from current levels.

Inquired about changes in the bank's interest rate sensitivity, sought more data to support the deposit cost stabilization outlook, and asked for details on the competitive landscape in mortgage warehouse lending.

Answer

The bank remains liability sensitive, though slightly less so after paying down some wholesale funds. Confidence in deposit cost stabilization comes from the ability to replace high-cost funding with lower-cost core deposit growth. Mortgage warehouse balances are expected to be maintained or grow, supported by seasonality and competitor exits from the business line.

Pressed for more specific near-term guidance on Net Interest Income (NII) and Net Interest Margin (NIM) for Q1, questioned the timing of the NIM inflection point, and asked for details on the higher expense outlook.

Answer

Management guided to a 5-7 basis point NIM increase in Q1 2024, with an expectation to reach ~3% by year-end 2024. They confirmed the NIM likely bottomed out late in Q4 2023. The higher expense guidance of ~$85 million per quarter is due to typical Q1 items like merit/bonus season and strategic investments, and this run-rate is expected for the next several quarters.

Inquired about the monthly margin trend in Q3, the outlook for net interest income, the drivers of Q3 deposit costs, the volume of indexed deposits, and the ideal interest rate environment for 2024.

Answer

The margin expanded from August to September. NII is expected to be stable in Q4 and then grow. Higher Q3 deposit costs were a result of a deliberate strategy to reduce borrowings. The bank has $3-4 billion in indexed deposits and would benefit meaningfully from Fed rate cuts and a steeper yield curve.