Matthew Clark

Matthew Clark asked for the spot rate on deposits at the end of December. He also inquired about the seasonality of expenses for the first quarter, seeking clarity on whether it typically sees a pickup. Additionally, Clark asked for an update on First Hawaiian Bank's thoughts on mainland M&A, including any recent discussions and a reminder of the ideal target characteristics.

Answer

Vice Chair and CFO James Moses stated the spot rate on deposits for the month of December was 1.24%. He noted that expenses are generally flat throughout the year but typically see a slight pickup in the first quarter before declining. Chairman, President, and CEO Robert Harrison reiterated that while organic growth is the focus, mainland M&A remains an option. He described an ideal target as having a strong management team, disciplined lending culture, strong deposit franchise, being well-managed (not a fixer-upper), located west of the Rockies, and sized between $2 billion and $15 billion.

Matthew Clark asked for the spot rate on deposits at the end of December. He also inquired about the seasonality of expenses, specifically if there's a typical pickup in the first quarter, to understand the run rate for the start of the year. Additionally, he sought updated thoughts on mainland M&A, including ideal target characteristics and size range.

Answer

James Moses, Vice Chair and CFO, First Hawaiian Bank, confirmed the spot rate on deposits for the month of December was 1.24%. He noted that expenses are generally flat throughout the year, with a slight pickup typically observed in the first quarter. Robert Harrison, Chairman, President, and CEO, First Hawaiian Bank, reiterated that while organic growth is the focus, M&A remains an option. He described an ideal target as having a strong management team, disciplined lending culture, strong deposit franchise, being well-managed, located west of the Rockies, and sized between $2 billion and $15 billion.

Matthew Clark inquired about First Hawaiian Inc.'s spot rate on deposits at the end of September. He also asked for details regarding the negative migration in substandard loans during the quarter, specifically what drove the increase and the type of customer involved. Additionally, he sought updated commentary on M&A discussions.

Answer

Jamie Moses, Vice Chairman and CFO, stated the spot rate on deposits at the end of September was 136 basis points. Lea Nakamura, EVP and Chief Risk Officer, attributed the increase in classified assets primarily to a single, longtime customer, emphasizing that the bank is working closely with them and is not concerned about loss. Bob Harrison, Chairman, President, and CEO, declined to share the specific customer type due to the small market. Harrison also reiterated that the M&A stance remains unchanged, open to the right opportunity, but with no new developments.

Matthew Clark from Piper Sandler asked for the spot rate on deposits at the end of September. He then inquired about the negative migration observed in substandard loans during the quarter, seeking details on what drove the increase, the type of customer involved, and the specific situation. Finally, Clark asked for any updated commentary on M&A discussions, particularly if anything had materially changed since the last quarter.

Answer

Vice Chairman and CFO Jamie Moses confirmed the spot rate on deposits at the end of September was 136 basis points. EVP and Chief Risk Officer Lea Nakamura attributed the increase in classified assets primarily to a single, long-time customer, emphasizing that the bank is not concerned about loss and is working closely with the customer, prudently updating ratings based on financials. Chairman, President, and CEO Bob Harrison declined to share specific customer details due to the small market. Regarding M&A, Harrison stated that the bank's stance remains unchanged: open to discussions and considering the right opportunity, with no material changes from previous guidance.

Matthew Clark from Piper Sandler inquired about Avidbank's deposit spot rate at year-end, the future management of its deposit beta given the high 80% rate this quarter, plans for outstanding sub-debt, and the drivers and stickiness of non-interest-bearing deposit growth.

Answer

Chairman and CEO Mark Mordell stated the interest-bearing deposit spot rate at year-end was 2.91%. He explained that 20% of interest-bearing deposits are indexed, and the bank has successfully lowered non-indexed deposit costs by about 60% with Fed rate cuts, though new deposits might come at higher rates. Mordell indicated sub-debt plans are a "2026 thing" pending investment-grade ratings. He noted non-interest-bearing deposit growth was broad-based across Venture, fund finance, and corporate banking, acknowledging its lumpy nature and aiming for growth similar to overall deposits in 2026.

Matthew Clark inquired about the spot rate on deposits at year-end, the future management of deposit beta given the high 80% this quarter, plans for the outstanding sub-debt, and the sources and stickiness of the strong non-interest-bearing deposit growth.

Answer

Mark Mordell (Chairman and CEO) and Patrick Oakes (CFO) stated the interest-bearing deposit spot rate was 2.91% at year-end. They explained that 20% of interest-bearing deposits are indexed, and they've seen success lowering non-indexed deposit costs with Fed rate cuts, aiming for a 60% beta. Mark Mordell confirmed sub-debt plans are a 2026 priority, focusing on investment-grade ratings before more burns off. He also noted that non-interest-bearing deposit growth was broad-based across Venture, fund finance, and corporate banking, acknowledging its lumpy nature but targeting similar growth to overall deposits in 2026.

Matthew Clark asked about Avidbank Holdings Inc.'s deposit cost beta, its ability to maintain the 55-60% range through future rate cuts, and the spot rate on deposit costs at the end of September 2025. He also inquired about the source of non-interest-bearing deposit growth, total venture deposits at quarter-end, and the outlook for loan and deposit pipelines. Additionally, he asked for details on the small uptick in non-performing assets (NPAs) and its relation to the reserve build.

Answer

CEO Mark Mordell stated that while they model a 50% beta and have exceeded it, maintaining the 50%+ beta will become increasingly difficult with continued rate cuts, but he hopes to keep it close to 59% for the next one or two cuts. He provided the interest-bearing deposit figure at $336 million as of September 30, 2025, and stated that venture and fund finance deposits combined were approximately $798 million at the end of September 2025. Mordell confirmed strong pipelines for both loans and deposits, expressing optimism for a solid Q4, consistent with historical trends. He explained that the NPA uptick was due to a single venture client credit of $1.4 million, for which a full reserve was taken, directly contributing to the increase in the Allowance for Credit Losses (ACL).

Matthew Clark from Piper Sandler asked about Avidbank Holdings, Inc.'s ability to maintain its 59% cycle-to-date interest-bearing deposit beta amidst potential future rate cuts, aiming to mitigate asset sensitivity. He also inquired about the spot rate on deposit costs at the end of September, the drivers behind the quarter's non-interest-bearing deposit growth, the current level of venture deposits, and the outlook for loan and deposit pipelines. Additionally, Mr. Clark sought clarification on the specific credit type causing the small uptick in non-performers and its relation to the reserve build.

Answer

CEO and Chairman Mark Mordell indicated that while they model a 50% deposit beta, they aim to sustain a 50%+ beta for the next few rate cuts, acknowledging increasing difficulty with further reductions. He stated that interest-bearing deposits totaled $336 million at September 30. Mr. Mordell reported that venture and fund finance deposits combined were approximately $798 million. He described both loan and deposit pipelines as strong, expressing optimism for a solid Q4, consistent with historical trends. Regarding non-performers, Mr. Mordell specified that the increase was due to a single $1.4 million venture client credit, for which a full reserve was established, impacting the Allowance for Credit Losses.

Matthew Clark inquired about current reinvestment rates for new loans and securities, the expected cadence of share buyback activity given the company's strong CET1 ratio, and the potential for further improvement and timing of reductions in criticized loans.

Answer

CFO David Della Camera stated that security reinvestment rates are now in the 5-year +60-70 range, and new loan production is in the low- to mid-6s on a weighted average basis. He reiterated the company's intention to continue active share repurchases to approach the peer median capital over time, with the pace dependent on market conditions. CEO James Reuter noted that while their proactive approach has stabilized and trended down criticized loans, he could not provide absolute predictions but expects continued good progress.

Matthew Clark asked about the current reinvestment rates for new loans and securities, the expected cadence of share repurchase activity given the strong CET1 ratio, and the outlook for further reduction in criticized loans after a 10% decrease in the quarter.

Answer

CFO David Della Camera stated that reinvestment rates for securities were around 5-year plus 60-70 basis points, and for new loan production, they were in the low- to mid-6s on a weighted average basis. He affirmed the company's intention to continue active share repurchases, aiming to approach the peer median for capital ratios. CEO James Reuter indicated that while the proactive approach to credit has stabilized and trended down criticized loans, making absolute predictions for future reductions is difficult, but progress is expected.

Matthew Clark from Piper Sandler Companies asked why the loans transferred to held for sale were higher than the amount initially announced with the branch sale. He also inquired about the remaining volume of non-relationship loans targeted for runoff and the strategic intent behind the deposit market share slide in the presentation.

Answer

EVP & CFO David Della Camera clarified that the additional loans moved to held for sale were all identified as being tied to the Arizona and Kansas branch transaction. President & CEO James Reuter stated that most of the deliberate runoff of non-strategic loans has already occurred, though some stabilized multifamily construction loans may still exit to the secondary market. He explained the deposit market share slide is meant to illustrate existing density and growth opportunities, not to signal an intention to exit any markets.

Matthew Clark of Piper Sandler inquired about the specifics of credit migration this quarter, asking for more color on the types of industrial and agricultural credits that were downgraded. He also questioned the risk of further reserve builds given the declining reserve-to-nonperforming loan ratio, the origin of the problem loans (legacy First Interstate vs. legacy Great Western Bank), and the company's stance on capital returns, particularly the potential for a stock buyback versus maintaining the dividend.

Answer

CEO James Reuter explained that the credit issues are part of a deliberate 'credit reset' to ensure consistency across the footprint, noting that while some downgrades were in specific industrial warehouse and multifamily properties, there were no systemic trends. He stated the company is action-oriented, as shown by exiting indirect lending and repositioning the branch network. Deputy CFO David Della Camera affirmed that the current reserve level of 1.24% is appropriate based on their robust quarterly analysis. Regarding capital, Reuter emphasized that the dividend remains a key priority and while all options are considered, there are no imminent plans for a stock buyback.

Matthew Clark asked for details on the increase in criticized loans, including whether it was driven by a third-party review, the origin of the loans, their size, and any associated marks. He also inquired about the size of a specific loan expected to be refinanced and sought new CEO Jim Reuter's updated thoughts on long-term strategic targets.

Answer

CEO Jim Reuter clarified that a third-party review affirmed the bank's internal credit ratings and that the criticized loans originated from the Great Western Bank footprint without any purchase accounting marks. CFO Marcy Mutch added that the four loans totaled $160 million and are all current on payments. Regarding strategy, Mr. Reuter expressed continued confidence in the bank's fundamentals and team, noting that specific long-term targets will be shared next quarter, while pointing to the exit from indirect lending as an immediate strategic action.

Matthew Clark of Piper Sandler & Co. inquired about the specific reserves for a C&I relationship, whether reserves were previously set aside for the two metro office credits that were charged-off, and the spot deposit rate and core margin for the month of September.

Answer

CEO Kevin Riley stated that while the specific reserve on the C&I credit is not disclosed, it is considered adequate. CFO Marcy Mutch added that while no specific reserves were on the two metro office loans, their characteristics were included in the overall allowance calculation. Mutch also provided the September spot rate on deposits as 2% and the core net interest margin for September as 3.03%.

Matthew Clark asked about the timing of delayed new loan fundings, particularly construction projects, and their potential impact on provisioning in the first half of the year. He also inquired about the year-end spot rate for deposit costs, the company's deposit beta management strategy amidst competition, and the plan for completing the 2026 share repurchase authorization.

Answer

David Morimoto, Vice Chairman and COO, clarified that delayed loan fundings are weighted more towards Q2 2026 and include both funded deals and construction projects. Dayna Matsumoto, EVP and CFO, stated the deposit spot rate at 12/31 was 89 basis points and confirmed the interest-bearing deposit beta is around 30%, expected to remain in the 25-30% range with room to lower costs. Regarding the buyback, Ms. Matsumoto indicated the board approved a larger authorization for flexibility, and the company plans to be active, though the amount will be dynamic.

Matthew Clark inquired about the timing of delayed new loan fundings, particularly construction projects, and their implications for provisioning in the first half of 2026. He also asked about the year-end spot rate for deposit costs, the sustainability of the 30% deposit beta given market competition, and the company's plan to complete the $55 million share buyback authorization in 2026.

Answer

David Morimoto, Vice Chairman and COO, confirmed delayed closings, noting they are weighted more towards Q2 2026 and include both funded deals and construction. Dayna Matsumoto, EVP and CFO, stated the deposit spot rate at 12/31 was 89 basis points and affirmed the current cycle's interest-bearing deposit beta is around 30%, expecting it to remain in the 25%-30% range with room to lower costs. She also indicated that while the board approved a larger share repurchase authorization for flexibility, the amount bought back each quarter would be dynamic, reflecting strong earnings and capital.

Matthew Clark of Piper Sandler Companies asked for specific financial metrics, including the spot deposit cost and net interest margin for June. He also inquired about the volume and rates of maturing CDs for the next two quarters, the expected deposit beta in a rate-cut environment, new loan yields, the dollar amount of the quarter's large C&I charge-off, details on two newly criticized loans, and the total size of the mainland SNC portfolio.

Answer

EVP & CFO Dayna Matsumoto provided the June 30 spot deposit cost (0.98%) and June NIM (3.49%). She detailed upcoming CD maturities ($430M in Q3, $350M in Q4) rolling off at 3.6% while new promotions are at 3.4%, and projected a similar downward deposit beta. Vice Chairman & COO David Morimoto stated new loan yields averaged 7.2% in Q2. Senior EVP & Chief Risk Officer Ralph Mesick quantified the single charge-off at 21 basis points and provided the mainland SNC portfolio size at approximately $403 million, but declined to give specific details on the downgraded credits, citing client confidentiality while noting no losses are expected.

Matthew Clark inquired about the hospitality credit downgraded to Special Mention, seeking details on its situation and expected resolution. He also asked about the expense outlook for the year, specifically regarding the continuation of OREO costs and the projected mid-single-digit expense growth. Additionally, he requested the CD repricing schedule for the first and second quarters, including roll-off and new offering rates, and questioned the company's strategy on share repurchases given its strong capital. He also followed up on loan prepayments and payoffs in the fourth quarter.

Answer

President and CEO Bonnie Lee explained the hospitality loan was proactively placed in Special Mention due to a property improvement plan, with no foreseen loss. CFO Romolo C. Santarosa clarified OREO expenses included a bulge from past-due taxes and projected mid-single-digit expense growth, noting seasonal factors. Chief Banking Officer Anthony Kim detailed $1.8 billion in CDs maturing in H1 at high 3s/low 4s, expected to reprice lower. CFO Romolo C. Santarosa stated the board evaluates capital return quarterly, with repurchase amounts dependent on market conditions. President and CEO Bonnie Lee added that loan payoffs and paydowns were elevated in Q4 and 13% higher year-over-year.

Matthew Clark inquired about the hospitality credit downgraded to Special Mention, the expense outlook for the year including OREO costs, the CD repricing schedule for the first and second quarters, the rationale behind the current share buyback strategy, and the trends in loan prepays and payoffs compared to prior quarters.

Answer

Bonnie Lee, President and CEO, explained the hospitality loan downgrade was due to proactive monitoring of a senior credit with a strong sponsor, undergoing a Property Improvement Plan for future events, with no foreseen loss. Romolo C. Santarosa, CFO, clarified that the OREO expense bulge was temporary due to past-due taxes, with one property expected to sell. He also detailed that approximately $1.8 billion in CDs are maturing in the first half of the year at high 3s/low 4s, with expectations to reprice them lower. Regarding the buyback, Mr. Santarosa noted the board evaluates capital return quarterly, considering share price performance relative to tangible book, and expects repurchases to continue based on market conditions. Ms. Lee added that loan payoffs and paydowns were elevated compared to the prior quarter and 13% higher year-over-year in 2025.

Matthew Clark of Piper Sandler asked for details on Hanmi's SBA credit standards, the factors contributing to the loan portfolio's resilient yield, CD repricing data for the second quarter, and the expected expense run rate for 2025.

Answer

CEO Bonita Lee attributed strong SBA performance to underwriting based on past performance rather than projections and focusing on direct lending over broker channels. CFO Romolo Santarosa explained that loan yield stability comes from a small portion of floating-rate loans (under 10%) and a blend of fixed and adjustable products. He guided for expenses to generally move with inflation, noting seasonal patterns. CBO Anthony Kim specified that $685 million in CDs will mature in Q2 at a rate of 4.42%.

Matthew Clark asked about the deposit beta for the quarter, future expectations for deposit beta, plans for sub-debt refreshes in April, and the outlook for share buybacks given the company's excess capital.

Answer

CFO Lynn Hopkins indicated that the 30% deposit beta for linked quarters is just starting, with a year-over-year beta closer to 70%, and expects it to increase as a large portion of funding matures. Regarding sub-debt, Ms. Hopkins confirmed $120 million is eligible for redemption and repricing on April 1st, and the company is exploring options to rightsize it given more attractive market conditions. She also stated that a more active buyback program would likely follow the rightsizing of the sub-debt.

Matthew Clark inquired about the current deposit beta, future expectations for deposit cost reductions, plans for the upcoming sub-debt refresh in April, and the company's strategy for its share buyback program given current capital levels.

Answer

CFO Lynn Hopkins stated that the current 30% interest-bearing deposit beta is just starting, with expectations for it to increase as a significant portion of deposits mature. Regarding the $120 million sub-debt eligible for redemption in April, Ms. Hopkins indicated the company is exploring options to rightsize it, noting the current market is more attractive than the existing ~7% rate. She also mentioned that a more active share buyback program is anticipated after the sub-debt is addressed.

Matthew Clark asked about the implications of the 2.97% deposit spot rate on the deposit beta, particularly with recent rate cuts, and whether the 70% cycle-to-date beta could be maintained. He also inquired about the average net interest margin (NIM) in September and the loan growth mix shift, specifically the pipeline for C&I versus single-family mortgages.

Answer

CFO Lynn Hopkins indicated that the deposit beta has likely slowed due to fierce competition, noting the rate cut's late-quarter timing. She highlighted that 40% of time deposits mature in Q4, potentially offering some funding cost opportunities. Lynn also stated that loan growth and earning asset yields are key drivers of NIM. CEO Johnny Lee confirmed a healthy loan pipeline, still predominantly residential mortgage and CRE, with C&I requiring more time. He also noted the government shutdown's impact on SBA loan funding.

Matthew Clark asked about the implications of the 2.97% deposit spot rate on the deposit beta, particularly with recent rate cuts, and whether the 70% cycle-to-date beta could be maintained. He also inquired about the average net interest margin (NIM) in September and the loan growth mix shift, specifically the pipeline for C&I versus single-family mortgages.

Answer

CFO Lynn Hopkins indicated that the deposit beta has likely slowed due to fierce competition, noting the rate cut's late-quarter timing. She highlighted that 40% of time deposits mature in Q4, potentially offering some funding cost opportunities. Lynn also stated that loan growth and earning asset yields are key drivers of NIM. CEO Johnny Lee confirmed a healthy loan pipeline, still predominantly residential mortgage and CRE, with C&I requiring more time. He also noted the government shutdown's impact on SBA loan funding.

Matthew Clark of Piper Sandler Companies asked about the outlook for loan and deposit growth, the rising loan-to-deposit ratio, the future trajectory of deposit costs amid potential Fed rate cuts, and clarification on the forward-looking expense run rate.

Answer

President & CEO Johnny Lee noted a focus on quality loan growth and organic deposit generation, with potential loan sales to manage the loan-to-deposit ratio. EVP & CFO Lynn Hopkins added that while deposit competition will persist, she expects costs to decrease with Fed cuts, similar to past cycles. She also clarified that noninterest expenses are expected to normalize to an $18 million quarterly run rate due to the timing of executive transition and legal costs.

Matthew Clark from Piper Sandler asked about the presence of any outsized interest recoveries from problem loan sales, the bank's appetite for further loan sales, potential exposure to tariff wars, and the reasons for weak gain-on-sale income in Q1.

Answer

Lynn Hopkins confirmed there were no interest recaptures from Q1 loan sales. CEO David Morris and Lynn Hopkins explained that while they remain open to opportunistic sales, they believe they are well-reserved for the remaining problem assets. Johnny Lee noted that the trade finance portfolio is small (4% of total loans) and initial checks show no financial impact from tariffs. Lynn Hopkins and David Morris attributed the lower gain on sale to a strategic decision to hold some loans, but expect a rebound driven by a growing SBA pipeline and a new hire.

Matthew Clark asked for details on the net interest margin, upcoming CD maturities, the loan growth outlook, and the expected expense run rate for 2025.

Answer

EVP & CFO Lynn Hopkins projected continued NIM expansion in Q1, driven by repricing CDs, but noted it may flatten in Q2. President & CEO Johnny Lee stated the loan pipeline is healthy at $200-$225 million and that low to mid-single-digit growth is a reasonable target. Lynn Hopkins added that the 2025 expense run rate would likely be slightly above $17.5 million per quarter, with legal fees remaining elevated due to credit workouts.

Matthew Clark asked for several specific financial details, including the average net interest margin for September, current offer rates for new CDs, the expected deposit beta in an easing cycle, the reason for the decline in securities yield, plans for renewing the share buyback program, and details on an upcoming debt maturity.

Answer

Executive Lynn Hopkins provided detailed responses, estimating the September NIM was around 2.75% when normalized for nonaccrual placements. She stated new CD offer rates are 50-70 basis points lower than maturing ones. The decline in securities yield was attributed to maturing commercial paper being reinvested at lower rates. On capital management, she confirmed the company is 'seriously looking at' a new buyback program. Regarding debt, she noted a $150 million FHLB advance is due in March and discussed refinancing strategies, including a recent putable advance.

Matthew Clark asked for quantification of the Facebook disbursement fees within the service charge line and a sustainable run rate for this income before seasonality. He also inquired about the spot rate on deposits at year-end and the outlook for the deposit beta, given a 55% beta this quarter.

Answer

Ken Vecchione, President and CEO, declined to quantify the Facebook settlement fees due to competitive risk and noted the lumpiness of settlement income. Vishal Idnani, CFO, stated the spot rate on interest-bearing deposits is 281 basis points, down from the Q4 average of 296 basis points, and projected the deposit beta to remain in the mid-50s range going forward.

Matthew Clark asked if Western Alliance could quantify the Facebook disbursement fees generated in Q4 2025 and what a sustainable run rate for the service charge line might be before seasonal effects. He also inquired about the spot rate on interest-bearing deposits at year-end and the outlook for the deposit beta, given the 55% beta observed in Q4.

Answer

President and CEO Ken Vecchione stated that the bank could not provide specific numbers for the Facebook settlement due to competitive risk and noted that settlement fees are difficult to predict quarter-by-quarter. CFO Vishal Idnani provided the spot rate on interest-bearing deposits at year-end as 2.81%, down from the average rate of 2.96% for the quarter. He projected the deposit beta to remain in the mid-50s range going forward.

Matthew Clark asked for quantification of the anticipated settlement from the lawsuit in Western Alliance Bancorporation's jurist banking division for the fourth quarter.

Answer

CFO Dale Gibbons identified the lawsuit as the Facebook Cambridge Analytica settlement, involving over 10 million plaintiffs. He explained that the bank, as the distributor, will earn fees for distributing 15 million payments and verifying participants over several months. In a follow-up on deposit rates and beta, Dale Gibbons stated the ending rate for interest-bearing deposits was 3.17% at the end of September. He noted that the ECR beta is faster, which will lead to slight net interest income compression in a rate-cutting cycle, but this will be offset by ECR cost savings and additional income from AmeriHome operations.

Matthew Clark asked for quantification of the anticipated Q4 settlement from the juris banking division related to the Facebook Cambridge Analytica lawsuit. He also inquired about the spot rate on deposits at the end of September and the assumed beta for a potential rate cutting cycle.

Answer

CFO Dale Gibbons explained that Western Alliance Bancorporation is the distributor for a large class action settlement (over 10 million plaintiffs), earning fees for distributing payments and verification. He stated the ending rate for interest-bearing deposits was 3.17% at the end of September. He noted that the ECR beta is faster, leading to slight NII compression in a rate-cutting cycle, which is offset by ECR cost savings and AmeriHome income.

Matthew Clark requested the spot deposit rate for June, the blended beta assumption, and an update on the contribution of commercial banking fees to total fee income.

Answer

CEO Ken Vecchione indicated that spot rates for investments were higher than the Q2 average while deposit and borrowing costs were down, supporting the NIM outlook. CFO Dale Gibbons added that the securities yield continues to rise. Regarding fees, Vecchione projected that non-mortgage, noninterest income would rise over 20% year-over-year, with Gibbons specifying that commercial banking-related income currently constitutes 15% of revenue.

Matthew Clark from Piper Sandler asked for the exit net interest margin for the quarter and inquired about the outlook for criticized assets and credit migration.

Answer

President and CEO Kenneth Vecchione declined to provide an end-of-month margin but gave a cadence outlook, expecting stronger growth in the adjusted NIM in the second half of the year. Chief Banking Officer Tim Bruckner stated that he expects criticized asset levels to be flat in the coming quarter and then begin to decline in the latter part of the year.

Matthew Clark inquired about the outlook for ECR-related deposit costs, specifically the assumptions for average ECR deposit balances in 2025. He also asked about the near-term plan for average earning assets, particularly regarding the repayment of debt taken on in Q4.

Answer

Interim CEO and CFO Dale Gibbons and Chief Banking Officer Stephen Curley stated they expect broader deposit diversification in 2025, with mortgage-related ECR deposits remaining flat but with improved economics due to reduced pricing competition. Gibbons confirmed the plan is to use seasonal deposit inflows in Q1 to repay the higher-cost borrowings from Q4.

Matthew Clark asked for a quantitative forecast for ECR-related customer service costs in 2025 and questioned the drivers behind the Q3 decline in HFI loan yields, asking to distinguish the impact of SOFR repricing versus lower loan fees.

Answer

CFO Dale Gibbons explained that ECR costs are expected to decline significantly. CEO Ken Vecchione quantified this, projecting a roughly $50 million sequential decline in Q4 from Q3. For the loan yields, Gibbons attributed the decline primarily to asset repricing ahead of Fed cuts and suggested using the current quarter's loan fee run rate for modeling. He also noted the combined NIM (including ECR costs) is expected to have troughed in Q3.

Matthew Clark requested the spot rate on deposits at the end of December 2025 to gain visibility into Q1 2026. He also asked about FirstSun Capital Bancorp's current money market account offerings, the competitive pressure on those rates, and whether there are any updates to the pro forma guidance for the First Foundation acquisition relative to the initial announcement.

Answer

Rob Cafera (CFO, FirstSun Capital Bancorp) stated that the total cost of deposits was around 198 basis points for Q4 2025, with the spot rate at the end of December closer to 190 basis points. He noted that money market offerings are very competitive, with top-tier consumer MMDA products around 3.45% with balance qualifiers. Rob Cafera indicated that there are no updates to the pro forma projections for the First Foundation deal at this time, reiterating excitement about future prospects.

Matthew Clark asked for the spot rate on deposits at the end of December to gain visibility into the first quarter.

Answer

Rob Cafera, Chief Financial Officer, stated that the total cost of deposits for the fourth quarter was around 198 basis points, and at the end of December, it was closer to 190 basis points. Clark also inquired about FirstSun Capital Bancorp's current money market offerings, the typical rate range, and whether there's pressure to increase or decrease those rates. Rob Cafera noted the competitive environment, indicating that promotional offerings for top-tier consumer money market accounts are around 3.45%, subject to balance qualifiers. Lastly, Clark asked for any updates on the pro forma guidance relative to the time of the deal announcement, considering the better-than-expected quarter. Rob Cafera stated that there are no updates on pro forma projections at this time but reiterated excitement about future prospects.

Matthew Clark sought clarification on whether the entire $3.4 billion repositioning would be completed by the deal's closing, particularly concerning wholesale funding reduction. He also asked about the sources of the 35% cost savings, given limited operational overlap, and the expected remaining subsegments of NDFI exposure after the reduction.

Answer

Rob Cafera, Senior EVP and CFO of FirstSun Capital Bancorp, clarified that the full repositioning is expected concurrent with an early Q2 closing, but some wholesale deposits with term maturities would roll down post-closing, beyond the initial $3.4 billion paydown. For cost savings, he stated that approximately 70% would come from people, with professional services (including FDIC elements) being a significant contributor, along with non-customer-facing back-office facility opportunities. Neal Arnold, President and CEO of FirstSun Capital Bancorp, added that they are conservative in projections and aim to overachieve. Regarding NDFI exposure, Rob Cafera indicated that $450-$460 million in the SNCC book fits the NDFI space, and the combined entity expects to be in the 5-6% range, spread across consumer credit, mortgage credit, and business credit intermediaries.

Matthew Clark of Piper Sandler sought clarification on whether the entire $3.4 billion repositioning would be completed by the deal's closing, the sources of the projected 35% cost savings, and the expected remaining NDFI exposure post-reduction, including its subsegment composition.

Answer

Rob Cafera, Senior EVP and CFO, confirmed the $3.4 billion repositioning is expected concurrent with the early Q2 closing, with some wholesale funding reduction continuing post-closing. He detailed cost savings primarily from personnel (70%), FDIC elements, and professional services, with Neal Arnold, President and CEO, noting unimpacted groups like branches and wealth management. Mr. Cafera also stated that NDFI exposure would reduce to 5-6% combined, spread across consumer, mortgage, and business credit intermediaries.

Asked for the cost of incremental deposits and the spot rate at quarter-end, the sustainability of non-interest-bearing balances, an update on the Southern California expansion's footings, and the current M&A environment and strategy.

Answer

The company noted that new deposits are more expensive, with the end-of-June spot rate slightly below the quarterly average. They expect net growth in non-interest-bearing deposits for the full year. The Southern California initiative is performing well and is effectively self-funding with around $200 million each in loans and deposits. On M&A, they remain opportunistic but selective in the Southwest, noting a gap in price expectations between buyers and sellers.

Matthew Clark of Piper Sandler Companies requested details on incremental deposit costs, the sustainability of non-interest-bearing deposit balances, an update on the Southern California expansion's footings, and the current M&A environment.

Answer

CFO Robert Cafera stated that the cost of new deposits is higher than the portfolio average and that the spot rate at quarter-end was slightly below the quarterly average. He affirmed that despite some transitory funds, the bank expects net growth in non-interest-bearing deposits for the year. For the Southern California initiative, Mr. Cafera reported that both loans and deposits grew to approximately $200 million each, making the expansion self-funded. CEO Neal Arnold commented on M&A, noting the focus is on the Southwest and that while conversations are ongoing, price discovery remains a challenge.

Matthew Clark of Piper Sandler Companies questioned the cost of incremental deposit growth, the sustainability of non-interest-bearing balances, the loan and deposit footings in the Southern California initiative, and the current M&A environment.

Answer

CFO Robert Cafera provided the spot rate for deposits at the end of June and confirmed that while some large deposits were transitory, the bank still expects net growth in non-interest-bearing accounts for the year. He reported that the Southern California initiative is now effectively self-funded, with both loans and deposits at approximately $200 million each. CEO Neal Arnold commented that M&A conversations continue with a focus on the Southwest, but differing price expectations have made deal resolutions challenging.

Matthew Clark asked for the spot deposit rate and average margin for March, sought to quantify the MSR impact on mortgage revenue, and inquired about the Q2 expense run rate and specific M&A priorities.

Answer

CFO Robert Cafera stated the March margin was stable around 4.07-4.08% (non-FTE) and clarified the MSR revenue impact was driven by net capitalization changes, not a significant fair value write-down. He expects the Q2 expense pace to increase to meet full-year guidance. CEO Neal Arnold reiterated that M&A strategy is focused on their existing footprint without naming specific targets.

Matthew Clark inquired about the strength and stickiness of non-interest-bearing deposit (NIBD) growth in the quarter, its outlook for the year, and the loan pipeline's potential to reach mid-single-digit growth. He also asked for special mention and classified loan balances.

Answer

Chairman and CEO Peter Ho noted that while Q4 NIBD growth was strong (6%+), it might be outsized, though the directional growth is expected to continue, supported by balanced business segments and some seasonality. President and Chief Banking Officer Jim Polk indicated improved loan pipelines, but growth would likely remain in the low single digits until both consumer and commercial segments contribute more significantly, with a potential to reach mid-single digits later in 2026. Chief Risk Officer Brad Shairson later provided special mention balances of $63.4 million and total classified loans of $298.5 million.

Matthew Clark asked about the drivers and stickiness of non-interest-bearing deposit growth, the outlook for loan growth, and specific credit quality metrics like special mention and classified balances.

Answer

Chairman and CEO Peter Ho noted strong but potentially outsized non-interest-bearing deposit growth in Q4, expecting continued but moderated expansion. President and Chief Banking Officer Jim Polk discussed improving loan pipelines, anticipating mid-single-digit growth for 2026. Chief Risk Officer Brad Shairson provided special mention and classified loan balances, highlighting pristine credit quality and an improved economic outlook for Hawaii supporting the ACL reduction.

Matthew Clark from Piper Sandler inquired about Bank of Hawaii's spot rate on total deposits, the projected timeline for achieving a 3% Net Interest Margin (NIM), and the outlook for loan growth in Q4 2025 and into 2026.

Answer

CFO Brad Satenberg confirmed the spot rate on total deposits was 154 basis points. Chairman and CEO Peter Ho indicated a potential NIM of $250 by year-end 2025, projecting a 25 basis point annual NIM pickup from fixed asset accretion, with additional upside from Fed funds rate reductions and deposit repricing. He also reiterated a low single-digit loan growth outlook, noting improving pipelines and potential for further upside with economic stability.

Matthew Clark inquired about the spot rate on total deposits, the timeline for Bank of Hawaii to achieve a 3% Net Interest Margin (NIM), and the outlook for loan growth in the fourth quarter and the upcoming year.

Answer

CFO Brad Satenberg stated the total deposit spot rate was 154 basis points. Chairman and CEO Peter Ho indicated that reaching a $2.50 NIM by Q4 seems likely, with fixed asset accretion contributing approximately 25 basis points annually to NIM, alongside potential upside from Fed Funds rate reductions and deposit repricing. Peter Ho also confirmed that low single-digit loan growth remains the expectation, with improving pipelines and potential for further upside with economic clarity.

Matthew Clark inquired about the contribution of recent hires to the strong loan production and current pipeline, the December 31st spot rate for deposit costs and expectations for Q1 reductions, and the reasons behind the increase in special mention loans.

Answer

Timothy Myers, President and CEO, indicated that recent hires significantly contributed to loan production, with the pipeline being more diverse. Dave Bonaccorso, CFO, provided the December 31st spot rate for interest-bearing deposits at 2.08% and total deposits at 1.17%, noting that most rate reductions occurred in late December. Timothy Myers explained the increase in special mention was due to both the downgrade of a wine industry credit and conservative upgrades from substandard to special mention for properties like a fully leased commercial property awaiting tenant occupancy.

Matthew Clark inquired about the contribution of recent hires to loan production and pipeline, the December 31st spot rate for deposits, expectations for Q1 deposit cost reductions, and the reasons behind the increase in Special Mention loans.

Answer

President and CEO Timothy Myers noted that recent hires significantly contributed to loan production, with the pipeline showing more diversity. CFO Dave Bonaccorso provided the December 31st spot rate for interest-bearing deposits at 2.08% and total deposits at 1.17%, expecting most rate reductions to be captured in spot rates. Timothy Myers explained the increase in Special Mention was due to a downgrade of a wine industry credit and strategic upgrades from Substandard for properties like a previously vacant commercial property now 100% leased.

Matthew Clark (Piper Sandler) inquired about Bank of Marin Bancorp's latest considerations regarding an HTM securities loss trade and provided an outlook on future expense run rates, including seasonality and growth pace for the upcoming year.

Answer

President and CEO Tim Myers indicated that the company is still evaluating various factors for a potential HTM securities loss trade, with no final decision made. CFO Dave Bonaccorso projected Q4 expenses to be similar to Q3, noting that payroll-related adjustments are the primary seasonal wildcard.

Matthew Clark inquired about Bank of Marin Bancorp's latest considerations regarding a held-to-maturity (HTM) securities loss trade, given the company's strong capital position. He also asked for updated thoughts on the expense run rate, seasonality, and the projected pace of growth for the upcoming year.

Answer

President and CEO Tim Myers stated that the company continues to evaluate all moving parts concerning an HTM securities loss trade, with no final decision made. Chief Financial Officer Dave Bonaccorso indicated that Q4 expenses would likely be similar to Q3, with payroll-related adjustments being a potential wildcard, though to a smaller degree than in prior years.

Matthew Clark of Piper Sandler Companies inquired about the specifics of two commercial real estate (CRE) loans that migrated to non-performing status, the bank's appetite for restructuring its held-to-maturity (HTM) securities portfolio, and its strategy for share repurchases.

Answer

President and CEO Tim Myers explained the CRE loans are smaller, non-San Francisco retail/mixed-use properties with good sponsorship, and the bank is not particularly concerned about them. Regarding the HTM portfolio, Myers stated that while they continue to evaluate a potential restructuring, they remain cautious about the impact on capital and shareholder dilution. He also noted that the recent share buyback activity was limited by a short execution window following regulatory approvals, but it remains a competing use of capital they will continue to evaluate.

Matthew Clark of Piper Sandler Companies inquired about the specifics of two commercial real estate (CRE) loans that migrated during the quarter, the bank's appetite for restructuring its held-to-maturity (HTM) securities portfolio, and its strategy regarding the share buyback program.

Answer

Tim Myers, Director, President & CEO, clarified that the migrated CRE loans were smaller retail/mixed-use properties outside of San Francisco with good sponsorship, and the bank is actively working on remargining them. Regarding the HTM portfolio, he stated that while a restructuring is under consideration, the bank remains cautious about the potential impact on capital and shareholder dilution. Myers also explained that the recent share buyback activity was limited by a narrow execution window due to regulatory processes, but the board has reauthorized the program, viewing it as an attractive use of capital below tangible book value.

Matthew Clark asked for the spot deposit rate at year-end and in January, following recent rate cuts. He also questioned the likelihood of the bank using its new shelf filing for specific purposes like repositioning HTM securities, team lift-outs, or M&A. He concluded by asking for updated thoughts on M&A and the expected tax rate.

Answer

CFO Dave Bonaccorso provided the December average cost of deposits (1.32%) and interest-bearing deposits (2.37%), stating the year-end spot rate was very close to the average and that interest-bearing costs were cut by another 8-9 basis points in January. President and CEO Tim Myers stated there are no immediate plans to tap the shelf filing, viewing it as a tool for preparedness. On M&A, he said the bank prefers to be an acquirer but valuations are an impediment, and the bank is comfortable continuing its organic strategy. Bonaccorso confirmed the tax rate should reset to the 25-26% range.

Matthew Clark asked if First Western Financial expects to maintain its interest-bearing deposit beta in the mid-50s for the upcoming year and requested the spot rate on deposits at the end of the year. He also questioned whether the end-of-period balance sheet, including lower non-interest-bearing deposits and higher borrowings, combined with potential asset yield pressure from December rate cuts on the floating-rate portfolio, might lead to a slight decrease in NIM in the first quarter.

Answer

Scott C. Wylie, Chairman and CEO, affirmed the expectation to hold the mid-50s deposit beta. David L. Weber, Chief Financial Officer, stated the spot rate on deposits at year-end was 2.86% and indicated that the NIM in December was 2.72%, expressing no expectation of incremental pressure leading to a NIM decrease in the first quarter.

Matthew Clark inquired about First Western Financial's ability to maintain its mid-50s interest-bearing deposit beta and asked for the spot rate on deposits at year-end. He also questioned whether the current balance sheet structure implies incremental NIM pressure in the first quarter, considering non-interest-bearing deposit trends and borrowings.

Answer

Scott Wylie, Chairman and CEO, and David Weber, CFO, confirmed their expectation to hold the mid-50s deposit beta and provided the year-end spot rate on deposits as 2.86%. David Weber, CFO, stated that he does not anticipate incremental NIM pressure in the first quarter, noting that the NIM in December was 2.72%.

Matthew Clark from Piper Sandler asked for the spot rate on deposits at quarter-end, updated thoughts on deposit beta with potential Fed rate cuts, and the expected expense run rate for Q4 2025. He also inquired about the wealth management business's AUM trends and the strategy for renewed growth and profitability.

Answer

CFO David Weber stated the spot rate on deposits was 3.04% and projected a money market deposit beta of around 63% for Q4, noting a declining trend. He estimated Q4 expenses would be similar to Q3. CEO Scott Wylie addressed wealth management, emphasizing a focus on fee income growth over AUM, highlighting progress from a new planning team leader, and provided additional color on declining average deposit costs within Q3.

Matthew Clark asked about the spot rate on deposits at the end of the quarter and updated thoughts on the deposit beta with additional Fed rate cuts. He also inquired about the expense run rate going forward, considering the impact of incentive compensation, and sought an update on the wealth management business's growth and profitability improvement strategy, noting a decrease in AUM in lower-fee products.

Answer

David Weber, CFO, reported the spot rate on deposits was 3.04% and indicated that the deposit beta, which was around 63% for money market accounts in Q3, is declining and expected to continue doing so. He suggested that the Q4 expense run rate would likely be similar to Q3, with incentive compensation varying based on financial performance. Scott Wylie, CEO, explained that the wealth management team has been replaced and a new leader is in place, with a focus on fee income growth rather than AUM, noting positive progress in investment agency AUM and a declining average deposit cost within Q3.

Matthew Clark from Piper Sandler Companies inquired about the nature of end-of-quarter borrowings, the spot rate for deposits in June, expectations for further deposit cost relief, and the updated expense run rate for the second half of the year.

Answer

CFO David Weber explained that the borrowings were overnight at a mid-4% rate, intended to be paid off with incoming Q3 deposits. He stated the June spot rate on total deposits was 3.07% and expects NIM to be flat in Q3 before expanding in Q4. Weber also reaffirmed the expense guidance of $19.5 million to $20 million. CEO Scott Wylie added that the company's strategy focuses on operating leverage from revenue growth rather than cost-cutting.

Matthew Clark inquired about the nature of borrowings at quarter-end, the spot rate for deposits in June, and the expense outlook for the second half of the year.

Answer

CFO David Weber explained that the borrowings were overnight at a mid-4% rate and are expected to be paid off with Q3 deposit inflows. He stated the June spot rate on total deposits was 3.07% and reaffirmed the expense guidance of $19.5 million to $20 million. CEO Scott Wylie added that the company's strategy focuses on operating leverage from revenue growth rather than cost-cutting.

Matthew Clark of Piper Sandler Companies inquired about the nature of recent borrowings, the spot rate on deposits, and the outlook for both deposit costs and overall expenses for the remainder of the year.

Answer

CFO & Treasurer David Weber explained that the borrowings were overnight funds at a mid-4% rate, which the company plans to pay off with incoming deposits in Q3. He stated the June spot rate for total deposits was 3.07% and projected a flat NIM for Q3, followed by expansion in Q4. He also reaffirmed the expense guidance of $19.5 million to $20 million. Chairman & CEO Scott Wylie added that the company's strategy focuses on operating leverage from revenue growth rather than cost-cutting.

Matthew Clark of Piper Sandler Companies inquired about the nature of recent borrowings, the spot rate for deposits, and the outlook for both net interest margin (NIM) and operating expenses for the remainder of the year.

Answer

CFO David Weber explained that the borrowings were overnight at a mid-4% rate and are expected to be paid off with Q3 deposit inflows. He noted the June spot rate on total deposits was 3.07% and projected a flat NIM for Q3, followed by expansion in Q4 to the low-to-mid 2.70s. Weber reaffirmed the expense guidance of $19.5 million to $20 million. CEO Scott Wylie added that the company's strategy prioritizes operating leverage through revenue growth over cost-cutting.

Matthew Clark inquired about the components of the linked-quarter increase in loan yields, asking for the specific dollar amount of any interest recoveries. He also requested the spot rate on deposits at the end of March, the average margin for the month, and an update on the resolution timeline for remaining nonperforming assets.

Answer

Executive David Weber quantified the amortized loan fees, noting they were approximately $200,000 higher than normal. He provided a spot deposit rate of 2.98% and projected a flattish Net Interest Margin (NIM) for Q2 before expanding in the second half of the year. Executive Scott Wylie added that the one remaining OREO property is expected to be sold this year, while a significant NPL resolution is dependent on court timing and anticipated in 2025.

Matthew Clark sought to confirm that the marks on the OREO ranch were fully reflected relative to its sale price and asked about the carrying value of the two remaining homes. He also requested the spot rate on deposits at the end of December, inquired about the full-year NIM outlook, and asked for color on the significant drop in noninterest-bearing deposits at year-end.

Answer

Executive Scott Wylie clarified that the ranch is carried below its contract price, implying a potential gain in Q1, and that the write-downs on the other two properties were based on new appraisals received around year-end but booked in Q4. He provided the December spot deposit rate as 3.05%. Both Scott Wylie and David Weber affirmed that exiting 2025 with a NIM around 2.73% is achievable. Scott Wylie explained the drop in noninterest-bearing deposits is a typical seasonal outflow in Q4 as clients pay year-end bonuses and distributions.

Matthew Clark asked for clarification on the spot NIM calculation, the percentage of floating-rate loans, the reason for a disconnect between AUM growth and fee income, the size of a fraud loss recovery, and the expense outlook.

Answer

CFO David Weber clarified the 2.40% spot NIM excludes the impact of an interest reversal but includes the non-accrual loans, and noted about 25% of the loan book is floating rate. CEO Scott Wylie explained the AUM fee lag was due to asset mix, with growth in fixed-fee directed trusts, and mentioned an initiative to better monetize AUM. David Weber stated the fraud recovery was about $100,000. For expenses, Scott Wylie projected a 2025 range of $19.5M-$20.5M and a Q4 run rate similar to or slightly above Q3's $19.4M. COO Julie Courkamp also provided the special mention loan figure.

Matthew Clark sought clarification on the Q1 expense run rate guide. He also asked about the uptick in deposit costs in Q4, whether it was due to the Guaranty deal, and if a downward trend is expected. Additionally, he inquired about the timing of cost saves from the Guaranty acquisition and if any were realized in Q4, and whether the Q4 net charge-offs were unusual.

Answer

Ron Copher, CFO, confirmed the Q1 expense guide as $189-$193 million. He attributed the Q4 deposit cost uptick to the Guaranty acquisition and expects declining deposit costs going forward. He also stated that Guaranty cost saves will primarily take hold after the conversion, with none materially realized in Q4. Randy Chesler, President and CEO, clarified that the Q4 net charge-offs were normal and typical for year-end portfolio cleanup, with nothing outsized or unusual.

Matthew Clark from Piper Sandler sought clarification on Glacier Bancorp's Q1 expense run rate guide. He also inquired about the increase in deposit costs this quarter, whether it was acquisition-related, and if a downward trend is expected. Additionally, he asked about the timing of cost saves from the Guaranty acquisition and if any were realized in the current quarter, and the nature of the slight increase in net charge-offs.

Answer

Ron Copher, CFO, confirmed the Q1 expense guide of $189 million-$193 million. He attributed the uptick in deposit costs to the Guaranty acquisition and confirmed expectations for declining deposit costs going forward. He also stated that cost saves from Guaranty would primarily take hold after the conversion. Randy Chesler, President and CEO, clarified that the 12 basis points in net charge-offs were normal and typical for year-end cleanup, with nothing outsized or unusual.

Matthew Clark from Piper Sandler questioned Glacier Bancorp on the spot rate of deposits at quarter-end, the expected deposit beta for future rate cuts, and provided an updated non-interest expense run rate guidance, including the impact of the Guaranty acquisition and anticipated cost saves.

Answer

CFO Ron Copher stated the spot deposit cost was 1.22% at September 30 and projected a future deposit beta of 15%-20% with Guaranty's inclusion. He detailed Q3 core non-interest expense at $160 million and guided Q4 non-interest expense to $185 million-$189 million, incorporating a full quarter of Guaranty's expenses and a $3 million core deposit intangible amortization.

Matthew Clark from Piper Sandler Companies asked for a quantification of purchase accounting accretion's contribution to loan yields in Q2 versus Q1. He also questioned if the Bank of Idaho acquisition impacted interest-bearing deposit costs and requested the spot deposit rate and margin for the month of June.

Answer

President & CEO Randall Chesler stated that purchase accounting accretion was approximately 4 basis points in Q2, down from 8 basis points in Q1. SVP & Treasurer Byron Pollan confirmed the Bank of Idaho deal slightly increased deposit costs but expects overall funding costs to decline. He reported the June spot deposit rate was 1.25% and the spot margin was 3.30%.

Matthew Clark from Piper Sandler Companies asked for quantification of purchase accounting accretion's impact on loan yields, the reason for the slight increase in interest-bearing deposit costs, and the spot rates for deposits and margin for the month of June.

Answer

President & CEO Randall Chesler stated that purchase accounting accretion contributed about four basis points to the loan yield in Q2, down from eight basis points in Q1. SVP & Treasurer Byron Pollan explained the increase in deposit costs was due to the Bank of Idaho acquisition and expects costs to remain stable. Pollan also provided the June spot deposit rate of 1.25% and a spot net interest margin of 3.30%.

Matthew Clark of Piper Sandler inquired about the spot deposit rate and margin in March, the reason for the uptick in nonaccrual loans, and the potential impact of Canadian lumber tariffs on construction activity.

Answer

Treasurer Byron Pollan provided the specific metrics: a 1.24% spot deposit rate at March-end and a 3.05% margin for the month of March. Chief Credit Administrator Tom Dolan explained the nonaccrual increase was tied to a single, well-secured relationship with no expected loss. Executive Randall Chesler and Tom Dolan noted that while customers are aware of potential cost increases from tariffs, they are managing through it by building conservatism into project budgets and have not indicated plans to pull back.

Matthew Clark of Piper Sandler & Co. requested specific margin details, including the spot deposit rate at year-end, the December margin, the implied Q4 2025 exit rate, and the outlook for loan yields. He also asked for guidance on the expense run rate.

Answer

Treasurer Byron Pollan provided a year-end spot deposit rate of 1.26% and a December spot margin of 2.99%. He confirmed the 2025 NIM guidance implies a Q4 exit rate around 3.35%-3.45% and expects loan yields to expand. CFO Ron Copher guided for quarterly expenses of $151 million to $154 million for 2025, excluding the Bank of Idaho acquisition.

Matthew Clark from Piper Sandler & Co. asked about the trend in core loan yields, the portion of the loan book that is floating rate, and the net interest margin for the month of September.

Answer

Treasurer Byron Pollan stated that approximately 7% of the loan portfolio is floating and indexed to prime. He expects loan yields to continue increasing due to the repricing of the back book, with about 20% of the portfolio repricing annually. Mr. Pollan also provided the net interest margin for the month of September, which was 2.88%.

Matthew Clark asked about the company's comfort zone for the loan-to-deposit ratio and the status of criticized and classified loans at year-end compared to the previous quarter.

Answer

Ivan Seda (EVP and CEO) stated comfort with a loan-to-deposit ratio in the low 90s, noting the current 88% and excess liquidity. Chris Merrywell (Co-President) explained that special mention loans were lower, while substandard loans were slightly higher due to migration, resulting in a net-net relatively flat criticized/classified loan profile.

Matthew Clark asked about the bank's comfort zone regarding its loan-to-deposit ratio. He also inquired about the status of criticized and classified loans at year-end, particularly after the sale of special mention loans acquired from Pacific Premier, and how these metrics compared to the previous quarter.

Answer

Ivan Seda, EVP and CFO, stated that the bank is comfortable with its current loan-to-deposit ratio of 88%, with a comfort zone extending into the low 90s (90-94%). Chris Merrywell, Co-President, explained that special mention loans were lower, while substandard loans were slightly higher due to migration, but overall, criticized and classified loans were relatively flat quarter-over-quarter, not necessarily due to degrading performance but an elongated downturn.

Matthew Clark from Piper Sandler Companies asked for clarification on purchase accounting accretion, the rationale for the Q2 increase in securities and borrowings, the outlook for deposit growth and pricing, and the company's appetite for simplifying its capital stack.

Answer

EVP & CFO Ronald Farnsworth stated the credit mark accretion was 3 basis points, consistent with Q1, and the securities purchases were made to reduce the pro-forma company's asset sensitivity post-acquisition. EVP Christopher Merrywell noted that deposit repricing has slowed and pricing is stable. CEO Clint Stein confirmed his preference for a clean capital stack and expects the Pacific Premier deal to provide the flexibility to optimize it.

Matthew Clark from Piper Sandler Companies asked for clarification on purchase accounting accretion, the rationale for recent securities growth, the deposit growth outlook, and the company's appetite for optimizing its capital stack.

Answer

EVP & CFO Ronald Farnsworth clarified that the credit mark accretion was 3 basis points and confirmed that recent securities purchases were a strategic move to reduce the pro forma company's asset sensitivity post-acquisition, funded temporarily with wholesale borrowings. Senior EVP Christopher Merrywell noted deposit pricing has stabilized. President & CEO Clint Stein affirmed his desire for a clean capital stack, stating that accelerated capital generation from the Pacific Premier deal will provide flexibility for future optimization.

Matthew Clark of Piper Sandler sought specifics on funding repricing rates, the potential for further deposit rate cuts, the strategy for the transactional loan portfolio, and clarification on the 2025 expense guide.

Answer

Executive Christopher Merrywell and CFO Ron Farnsworth confirmed that maturing CDs and debt are expected to reprice lower into the 3.75% and mid-4% ranges, respectively. Farnsworth affirmed the bank can continue reducing deposit costs and feels good about a 55% down-rate beta. CEO Clint Stein reiterated that the transactional loan portfolio will be amortized rather than sold, as the economics of a sale are unfavorable. Farnsworth clarified the 2025 operating expense guide is a tight range of $1 billion to $1.01 billion.

Matthew Clark inquired about the core net interest margin (NIM) outlook following the recent Fed rate cut, the achievability of the adjusted expense run-rate guidance, and the potential timing for initiating stock buybacks.

Answer

CFO Ron Farnsworth stated that while there are tailwinds for the NIM from repricing CDs, the ultimate driver will be deposit flows, which are seasonally variable. He affirmed confidence in hitting the low end of the expense guidance range. CEO Clint Stein indicated that 2025 is the likely window to consider capital returns like buybacks, as the bank is above its regulatory capital targets, but noted it's too early to specify timing.

Matthew Clark of Piper Sandler questioned the impact of recent deposit rate cuts on customer retention, the outlook for reducing wholesale funding, and the trend in FinPac's net charge-offs.

Answer

President of Consumer Banking Christopher Merrywell confirmed that deposit rates have been lowered since late February with strong retention of 80-85% on CDs. EVP and CFO Ron Farnsworth explained that wholesale funding levels depend on loan and deposit flows, with the bank targeting $1.5 billion in cash at the Fed. Chief Credit Officer Frank Namdar reported that FinPac charge-offs were on track with expectations and that significant improvement is anticipated for the rest of the year, citing a 12% decline in key delinquency buckets.

Matthew Clark sought clarification on Preferred Bank's expense guidance for 2026, specifically whether it excludes OREO costs and if the Q1 run rate implies significant growth later in the year. He also asked about share repurchases during the quarter and an update on the bank's appetite for M&A opportunities.

Answer

Edward J. Czajka, CFO, confirmed that expenses are expected to grow throughout the year and that some OREO-related expenses will remain. Li Yu, CEO, stated there were no significant share repurchases this quarter, with Mr. Czajka adding a nominal amount was repurchased in October. Mr. Yu mentioned that the bank has reviewed a few M&A deals but found the pricing structures unsatisfactory, indicating they will continue to evaluate opportunities.

Matthew Clark inquired about the bank's net interest margin visibility, specifically asking for the spot rate on deposit costs and the average margin for December. He also questioned the future deposit beta given potential rate cuts, the expected pace of loan and deposit growth, and the non-interest expense run rate for the first quarter.

Answer

CFO Edward J. Czajka stated that the December margin was 3.66% and the total cost of deposits was 3.17% for the month. He anticipated a similar pattern of 5-6 basis points reduction per month for deposit costs, noting continued strong competition. Chairman and CEO Li Yu and CFO Edward J. Czajka confirmed expectations for loan and deposit growth to be at a similar pace and projected Q1 non-interest expenses to be in the range of $21.5 million to $22.5 million.

Matthew Clark of Piper Sandler Companies asked about Preferred Bank's net interest margin for June, details on upcoming CD repricing, the expense run rate for the second half of 2025, and specifics of the Q2 share repurchase program.

Answer

An unnamed executive provided the June margin (3.83%) and cost of deposits (3.41%), noting their stability. He detailed the $1.4 billion in CDs maturing in Q3 at 4.21% with new rates around 4%. He also projected an expense run rate of 21.8% to 22.6% for future quarters, excluding one-time OREO costs. Regarding the buyback, he confirmed the $56 million purchase was at ~$80.81/share and mentioned a new $125 million authorization, which is being approached cautiously due to the higher current stock price, a point echoed by Chairman & CEO Li Yu.

Matthew Clark of Piper Sandler asked for the year-end spot rate on deposits, the expected expense run rate for Q1, and details on both the quarter's charge-offs and the outlook for criticized loans.

Answer

CFO Edward Czajka reported the December spot rate on deposits was 3.63%. He projected Q1 noninterest expense at approximately $23 million, influenced by wildfire relief donations, seasonal payroll taxes, and elevated legal fees. Executive Nick Pi explained that the charge-offs were related to previously identified and fully reserved impaired loans. He anticipates the criticized loan balance will decline in Q1 through payoffs, resolutions, and upgrades.

Matthew Clark inquired about Preferred Bank's net interest margin for September, the specifics of its floating-rate loan portfolio, the outlook for loan and deposit betas in an easing cycle, and recent stock repurchase activity.

Answer

Executive Edward Czajka reported that the net interest margin for September, excluding interest recovery, was 4.03%, with a spot cost of deposits at 3.96%. He detailed that 99% of floating-rate loans have floors, with about 22-23% being close to their current rate. Czajka also noted that a steady pace of rate cuts would be ideal for margin stability. He and Chairman & CEO Li Yu confirmed the repurchase of 110,000 shares, adding that buybacks have paused due to the current stock price.

Matthew Clark inquired about Preferred Bank's net interest margin (NIM) outlook, the specifics of a $66 million nonperforming loan relationship, the forward-looking expense run rate, and the bank's appetite for share repurchases.

Answer

Executive Edward Czajka provided a normalized Q1 NIM of 3.94% and a March spot rate of 3.84%, noting the margin was holding up better than expected. Executive Nick Pi detailed the two nonperforming loans, stating one ($20.5M) is under contract to be sold at par and the other ($37M) is in bankruptcy court with resolution expected in 1-2 quarters. Czajka projected a normalized quarterly expense run rate of $21.5M to $22M. Chairman and CEO Li Yu clarified that share repurchases occurred in April, with $23 million remaining under the buyback program.

Matthew Clark inquired about the spot rate on deposits at year-end December and the average margin for the month of December. He also asked for insights into the core expense run rate for Q1 2026, considering unusual items in the current quarter, and sought color on the drivers behind the increase in special mention and substandard loans.

Answer

Rob Butterfield, Chief Financial Officer, reported that spot deposit costs for December averaged 139% and the margin for December was approximately 4.03%, consistent with the quarter. Regarding expenses, he noted Q4 increases in IT (new system rollout), medical claims (back-end loaded for the year), and legal expenses (one matter concluded), along with lower capitalized loan origination costs. For 2026, he advised expecting normal inflationary increases (around 3%) over the full year 2025 expenses. Jill Rice, Chief Credit Officer, explained that the special mention increase was primarily due to downgrades of a couple of alcoholic beverage-related enterprises with declining cash flows. The modest increase in substandard loans was driven by idiosyncratic downgrades within commercial and construction segments, with no specific industry or segment concerns.

Matthew Clark asked for the spot rate on deposits and the average net interest margin for December, inquired about the core expense run rate for the first quarter of 2026, and sought color on the increase in special mention and substandard loans.

Answer

Rob Butterfield, Chief Financial Officer, reported that spot deposit costs for December were 139 basis points and the December margin was around 4.03%. Regarding expenses, he advised looking at the full year 2025 expenses and adding a normal inflationary increase of about 3% for 2026, noting some Q4 2025 increases were due to IT, medical claims, and legal expenses, with a non-recurring $1 million software write-off. Jill Rice, Chief Credit Officer, explained that the increase in special mention loans was primarily due to downgrades of a couple of alcoholic beverage-related enterprises, while the modest increase in substandard loans was idiosyncratic across commercial and construction segments, with no specific industry or segment of concern.

Matthew Clark inquired about the observed seasonality and mixed changes in noninterest-bearing deposits, specifically asking if there was a behavioral shift among customers seeking higher rates. He also asked about the sustainability of higher line utilization driving non-dairy and livestock loan growth and requested an update on the Heritage Bank of Commerce merger.

Answer

David A. Brager, President and CEO, and E. Allen Nicholson, EVP and CFO, clarified that the decline in noninterest-bearing deposits was primarily due to normal year-end seasonality (bonuses, tax accruals) rather than a behavioral change or large relationship movements, emphasizing that average balances are more indicative. They noted that non-dairy and livestock loan growth, including higher line utilization, is normalizing and expected to remain stable, with strong pipelines and cautious optimism for 2026. Regarding the Heritage deal, they confirmed it is progressing well, with a Q2 close and systems conversion anticipated.

Matthew Clark inquired about the drivers behind the decline in noninterest-bearing deposits, specifically if it was seasonal or due to customers seeking higher rates, and asked for an update on non-dairy and livestock loan growth, including line utilization and the outlook for the year. He also requested an update on the Heritage Bank of Commerce merger.

Answer

President and CEO David A. Brager clarified that the decline in noninterest-bearing deposits was primarily normal seasonality, not a behavioral shift, and emphasized that average balances are more informative. He noted that non-dairy and livestock loan growth was up over 4% annualized, with line utilization normalizing, and expressed cautious optimism for 2026 loan growth. Regarding the Heritage deal, Mr. Brager stated that everything is progressing well, with a Q2 close and systems conversion anticipated.

Matthew Clark inquired about the trajectory of interest-bearing deposit costs, the current deposit beta cycle, and the bank's strategy for managing deposit rates. He also asked for an update on M&A dialogue and the company's stance on potential acquisitions.

Answer

President and CEO David Brager, along with EVP and CFO Allen Nicholson, explained that deposit rate reductions would continue to match Fed funds decreases, noting a slight increase in deposit costs due to a mix shift in individual accounts. Brager confirmed ongoing M&A conversations but no imminent deals, while announcing the hiring of a new team of four bankers and the opening of a de novo office in the Temecula-Murrieta area.

Matthew Clark asked about the trajectory of interest-bearing deposit costs, the deposit beta cycle, and the portion of the deposit base where the bank can be more aggressive with pricing. He also inquired about any updates on M&A dialogue and the status of potential opportunities.

Answer

President and CEO David Brager and EVP and CFO Allen Nicholson explained that the last rate cut was late in Q3, impacting the full benefit. They noted a slight increase due to the mix of individual accounts and repurchase agreements, but confirmed plans to match Fed funds decreases with reductions in money market rates over 1%. David Brager stated that while there's a lot of M&A dialogue, nothing is imminent, but the company is continuing conversations. He also announced the hiring of a team of four bankers and the opening of a de novo office in the Temecula-Murrieta area.

Matthew Clark of Piper Sandler Companies inquired about the factors weighing on loan yields, specifically prepayment income and line utilization, and asked for a quantification of the impact. He also questioned the outlook for line utilization and the cost of customer repurchase agreements.

Answer

CEO David Brager stated that line utilization has not yet increased but expects a seasonal rise in Q4, particularly in dairy and livestock. CFO E. Allen Nicholson clarified that elevated loan payoffs impacted volume more than yield, with the primary yield pressure coming from lower utilization of higher-yielding loans. He noted that without these factors, loan yields would have increased by five basis points. Nicholson also specified that customer repurchase agreements, viewed as sweep deposits, had a cost of approximately 1.70% during the quarter.

Matthew Clark of Piper Sandler Companies inquired about the factors weighing on loan yields, specifically prepayment income and line utilization. He asked for a quantification of prepay income versus a typical quarter and whether line utilization had increased in July. Clark also asked about the cost and outlook for customer repurchase agreements.

Answer

CEO David Brager explained that line utilization has not increased, as customers are using their cash to pay down higher-cost debt, but he anticipates a seasonal increase in Q4. CFO E. Allen Nicholson added that elevated payoffs impacted loan volume more than yield, and that without lower utilization on high-yielding loans and reduced prepayment penalties, loan yields would have risen by five basis points. Nicholson also clarified that customer repos, which are swept from checking accounts, averaged around $400 million for the quarter with a cost of approximately 1.70%.

Matthew Clark of Piper Sandler Companies inquired about the factors impacting loan yields, specifically requesting quantification of prepayment income versus the prior quarter and its typical levels. He also asked about recent trends in loan line utilization and the cost and outlook for customer repurchase agreements.

Answer

President & CEO David Brager explained that line utilization has not increased as customers are using their own cash, but he anticipates a seasonal rise in Q4. EVP & CFO E. Allen Nicholson added that elevated payoffs impacted loan volume more than yield, and lower utilization of higher-yielding loans was the primary drag on yields, which otherwise would have increased by five basis points. Nicholson clarified that customer repos, which are swept from checking accounts, averaged around $400 million for the quarter with a cost of approximately 1.70%.

Matthew Clark of Piper Sandler Companies inquired about the factors weighing on loan yields, specifically requesting quantification of prepayment income versus the prior quarter and asking about line utilization trends into July. He also asked for details on the cost and outlook for customer repurchase agreements.

Answer

President & CEO David Brager explained that line utilization has not increased as customers are using their own cash, but he anticipates a seasonal rise in Q4 for dairy and livestock loans. EVP & CFO E. Allen Nicholson added that elevated payoffs impacted loan volume more than yield, with the primary yield pressure coming from lower utilization of higher-yielding ABL and dairy loans. He noted that without these factors, loan yields would have increased by five basis points. Nicholson also clarified that customer repos, which averaged around $400 million, are viewed as core deposits and had a cost of approximately 1.70%.

Matthew Clark inquired about the mechanics of the Bank Term Funding Program (BTFP) repayment, specifically asking for the yield on securities sold and other moving parts to calculate the net interest margin impact. He also asked for the outlook on deposit costs and the company's current thinking on M&A versus share buybacks.

Answer

CEO David Brager and Executive E. Nicholson explained that the book yield on the securities sold to repay the BTFP was under 3%, with cash from deposit growth also contributing. Regarding deposit costs, David Brager noted a ~50% beta on the first rate cut but anticipates a beta closer to 100% on future cuts, suggesting costs have stabilized. He confirmed that M&A remains the primary focus for capital deployment, but share buybacks are being actively evaluated, with a potential announcement coming shortly.

Matthew Clark inquired about WaFd's near-term margin outlook, specifically the plan for $800 million in borrowings repricing soon, the exact dollar amount of interest income reversals this quarter, details on the two new C&I non-accruals, and the expected operating expense growth for the year, including plans for SBA platform build-out and C&I lender hiring.

Answer

President and CEO Brent Beardall stated that the $800 million in borrowings would be replaced with current borrowings, potentially at a lower rate if the Fed cuts. EVP and CFO Kelli Holz clarified that non-accrual interest amounted to just over $5 million for the quarter. Regarding the C&I non-accruals, Mr. Beardall and EVP and Chief Credit Officer Ryan Mauer described them generically as a manufacturing business impacted by market conditions and a real estate-related entity, with optimism for resolution. Mr. Mauer added that absent annual merit increases and production-driven bonus compensation, the bank is at a solid run rate for expenses, with strategic technology investments planned but no significant large team hires.

Matthew Clark sought clarification on the drivers behind the core loan yield decrease and the proportion of WaFd's loan portfolio that reprices with rate cuts. He also asked about the significant increase in loan production, inquiring if any large, chunky originations contributed to the $1.4 billion figure, and requested an outlook on the expense run rate. Finally, he asked for WaFd's view on stablecoin and any potential partnerships or threats.

Answer

Kelli Holz, CFO, attributed the core loan yield decrease primarily to an increase in non-accrual loans, impacting the margin by approximately 3 basis points, and noted that over 40% of earning assets reprice within six months. Brent Beardall, President and CEO, and Ryan Mauer, Chief Credit Officer, clarified that the production increase was broad-based across commercial real estate, C&I, and multifamily, with no particularly lumpy items, and largest loans typically under $50 million. Brent Beardall stated the expense run rate was clean, with some health insurance increases, and expects it to remain stable until annual increases next year. Regarding stablecoin, Brent Beardall indicated WaFd is monitoring it as a potential opportunity, but currently sees no significant client demand or threat to deposits.

Matthew Clark from Piper Sandler requested additional details on the 8-K situation, including when the problem was first discovered, whether the two specific credits were previously adversely rated, and Zions Bancorporation's general collateral monitoring practices. He also inquired about the loan growth outlook, specifically addressing the CNI runoff, the related pipeline, and the strategy to restore growth in that segment.

Answer

Chief Credit Officer Derek Steward stated that upon learning the facts during the quarter, a review was commenced, and the 8-K was filed for transparency. Chairman and CEO Harris Simmons acknowledged that the issue was not identified as early as desired, prompting an external review, while affirming historical strong monitoring. President and COO Scott McLean noted consistent loan growth around 3% for seven quarters, emphasizing thoughtful lending, strong call programs, increased SBA lending, new products, and revamped marketing to drive future moderate single-digit growth. CFO Ryan Richards added that CNI spot balances were down due to paydowns in NDFIs, healthcare, and pharmaceuticals, despite good production.

Matthew Clark sought more color on the 8-K event, asking about the timeline of discovery, whether the two specific credits were previously adversely rated, and the bank's general collateral monitoring practices, especially concerning collateral movement. He also inquired about the loan growth outlook, specifically the predominant commercial growth, the recent CNI runoff, and strategies to restore growth in the pipeline.

Answer

Chief Credit Officer Derek Steward explained that upon learning the facts during the quarter, a review was commenced, and the 8-K was filed for transparency. Chairman and CEO Harris Simmons acknowledged that the issue was not identified as early as wished, prompting an external review, but affirmed the bank's historical strong track record in collateral monitoring. President and COO Scott McLean noted that loan growth has been around 3% for seven quarters, reflecting a thoughtful approach to lending in a cautious economy, but highlighted offensive strategies like strong call programs, SBA lending, new products, and revamped marketing. CFO Ryan Richards added that CNI runoff was due to paydowns and payoffs, particularly in NDFIs, healthcare, and pharmaceuticals, despite good production.

Matthew Clark requested details on the specific C&I credit that led to a significant charge-off and asked about the pipeline for capital markets fees, questioning if the strong Q4 performance is sustainable.

Answer

Chief Credit Officer Derek Steward explained the charge-off was related to a longtime retail client that was acquired by a private equity firm and faced challenges from rapid growth and management issues. President and COO Scott McLean noted that the capital markets business saw strong results from loan syndications, interest rate products, and real estate capital markets. He expressed optimism for continued progress due to investments in infrastructure and people. CEO Harris Simmons added that the year is starting with a solid pipeline.

Matthew Clark of Piper Sandler asked for clarification on credit migration, noting that the smaller increase in criticized loans relative to classified loans implied a decrease in special mention loans. He also inquired about the outlook for wholesale borrowings after the recent reduction.

Answer

President and COO Scott McLean clarified that the change was not due to upgrades out of special mention, but rather that loans already in special mention were downgraded further into the classified category. Regarding borrowings, an executive explained that their level is managed in concert with core deposit trends, brokered deposit levels, and asset growth, using cash flows from the maturing securities portfolio to either pay down wholesale funding or invest in new loans.

Matthew Clark of Piper Sandler Companies questioned the reasons behind the recent management turnover, including the CBO, COO, and Chief Credit Officer, and asked about the company's plans to further reduce its high-cost ECR deposits.

Answer

CEO Thomas Shafer attributed the turnover to the significant changes in the company's operating model, stating that the skills required for the next phase are different and that the changes create opportunities. On deposits, Mr. Shafer confirmed the focus is on replacing high-cost funds. CFO James Britton added that they aim to reduce concentration in the remaining $500M ECR portfolio, potentially by another couple hundred million by year-end, and noted the full benefit of recent MSR deposit exits will appear in Q3.

Matthew Clark asked about the planned use of proceeds from the loan securitization, the dollar amount of brokered CDs, the percentage of the loan book that is floating rate, the spot rate on deposits at quarter-end, the net interest margin for September, and the target peer reserve ratio.

Answer

Executive Scott Kavanaugh stated that proceeds from loan sales will be used to reduce wholesale funding, such as brokered deposits and FHLB advances. Executive Jamie Britton confirmed the brokered deposit figures and noted that about 20% of the loan book is adjustable, with repricing periods typically between 3 to 6 months. Britton also shared that the interest-bearing deposit cost for the month of September was 4.15%. Kavanaugh provided the September NIM at approximately 1.32% and confirmed the peer reserve ratio target is between 65 and 70 basis points.

Matthew Clark from Mediobanca asked if deposit outflows from the Q1 German campaign were still expected in Q3. He also questioned why Q3 Commercial NII is guided to be flat, rather than positive, given tailwinds from volume and a potential rebound in FX rates.

Answer

CEO Steven van Rijswijk confirmed that some deposit outflow from the German campaign is still expected in Q3, consistent with past trends where about one-third of promotional funds leave. CFO Tanate Phutrakul explained the flat Q3 NII guidance is because the full negative impact of the Q2 foreign exchange movement will be felt in Q3, offsetting other positive drivers.

Matthew Clark of Mediobanca S.p.A. asked for an updated revenue outlook for the Corporate Center, which was previously guided to be zero but has been positive in H1. He also inquired about the bank's mid-term expectation for group-level risk-weighted asset (RWA) growth.

Answer

CFO James von Moltke advised modeling zero revenue for the Corporate Center in Q3 and Q4, meaning the bank would retain the upside generated in H1. For RWA growth, he suggested an increase of around €10 billion by year-end is a good assumption, with further growth expected in the coming years to support business and client activity, offset by capital generation and efficiency measures.

Matthew Clark from Mediobanca asked about potential RWA impacts from April's market volatility, the outlook for U.S. commercial real estate (CRE) provisions, and the timeline for receiving more concrete financial targets for the years beyond 2025.

Answer

CFO James von Moltke confirmed that the RWA impact from April's volatility has been managed and is not a current concern. He also stated the CRE outlook is unchanged, with provisions expected to steadily improve. CEO Christian Sewing added that concrete long-term targets will be provided in the second half of 2025, ensuring a smooth transition with the incoming CFO.

Matthew Clark of Piper Sandler Companies requested details on the $50 million increase in classified loans, asking about the credit type and situation. He also asked for two housekeeping items: the basis point contribution from prepayment fees to the Q2 net interest margin and the expected tax credit amortization for Q3 and Q4.

Answer

EVP & CFO Heng Chen clarified that the increase in classifieds was almost entirely due to one large commercial relationship in the high-$40 million range that had cash flow issues but is now in the process of becoming current. He also stated that prepayment fees contributed 3 basis points to the NIM, down from 6 basis points in Q1, and projected tax credit amortization to be approximately $11 million per quarter for the remainder of the year.

Matthew Clark of Piper Sandler Companies requested details on the $50 million increase in classified loans. He also asked for clarification on the amount of prepayment fees in the quarter's margin and the outlook for tax credit amortization in Q3 and Q4.

Answer

EVP & CFO Heng Chen attributed the increase in classifieds to a single commercial relationship in the high-$40 million range that experienced cash flow issues but is now catching up on payments. He also confirmed that prepay fees contributed 3 basis points to the margin, and tax credit amortization is expected to be around $11 million per quarter for the remainder of the year.

Matthew Clark of Piper Sandler Companies requested details on the $50 million increase in classified loans. He also asked for housekeeping items, specifically the amount of prepayment fees in the quarter and the expected tax credit amortization for Q3 and Q4.

Answer

EVP, CFO & Treasurer Heng Chen clarified that the increase in classifieds was almost entirely due to one large commercial relationship (in the high $40 million range) that experienced temporary cash flow issues but is now in the process of becoming current. He also confirmed that prepayment fees contributed 3 basis points to the net interest margin and that tax credit amortization is expected to be approximately $11 million per quarter for the remainder of the year.

Matthew Clark of Piper Sandler inquired about key financial metrics, including the net interest margin for December, the spot rate on deposits at year-end, and the volume and rates of CDs maturing in Q1 2025. He also asked about the expected low-income housing tax credit amortization, the size of the Shared National Credit (SNC) portfolio, its criticized portion, and the recent departure of the Chief Risk Officer.

Answer

EVP & CFO Heng Chen provided specific figures, stating the December NIM was 3.11%, the year-end deposit spot rate was 3.52%, and $4.2 billion in CDs are maturing at 4.6% with renewal rates around 4.0-4.1%. He also noted the SNC portfolio is about 4% of total loans and has been shrinking. President & CEO Chang Liu explained the CRO's departure was a planned retirement and that a new CRO was hired to elevate the bank's risk management maturity.

Matthew Clark of Piper Sandler Companies asked for details on the macroeconomic assumption changes in the CECL model that impacted C&I reserves and which asset classes drove the increase in criticized non-multifamily CRE loans.

Answer

EVP & CFO Christopher Del Moral-Niles and EVP & Chief Risk Officer Irene Oh explained the reserve change was macro-driven by degradation in the Moody's model outlook, not a change in weighting. For CRE, Irene Oh noted the downgrades were broad-based, some related to cash flow shortfalls, but she does not currently see them moving to non-accrual status.

Matthew Clark requested details on the volume and rates of CDs maturing in Q2 and Q3, and asked about the property types driving the increase in criticized non-multifamily commercial real estate loans.

Answer

CFO Christopher Del Moral-Niles specified that $10 billion in CDs mature in Q2 and $8 billion in Q3, with repricing offering a potential 18 basis point benefit in a flat rate environment. Chief Risk Officer Irene Oh noted the increase in criticized CRE was broad-based across industrial and retail properties, without a specific concentration.

Matthew Clark of Piper Sandler asked about the deposit beta assumption the bank is using for the current interest rate easing cycle. He also inquired about the outlook for noninterest expense growth and whether the current 6-8% range would be sustained.

Answer

CFO Christopher Del Moral-Niles confirmed the bank has assumed a 50% or better deposit beta through the cycle. Regarding expenses, he indicated that he expects the bank to continue making necessary investments, likely resulting in a spend rate "slightly faster than longer-term historical averages" as it prepares for future growth.

Matthew Clark of Piper Sandler Companies inquired about the drivers behind the 2025 fee income guidance, the deposit spot rate at the end of June, the percentage of floating-rate loans post-acquisition, and the remaining cost savings from the Territorial Bancorp transaction.

Answer

EVP & CFO Julianna Balicka explained that fee income growth is driven by customer swap fees and loan-related fees. She stated the June deposit spot rate was 2.93% and is continuing to improve. Balicka confirmed that approximately 42% of the loan portfolio is floating rate and noted that while integration continues, the most significant upfront cost savings from the Territorial acquisition have already been realized.

Matthew Clark of Piper Sandler Companies inquired about the drivers for the second-half fee income guidance, the end-of-quarter spot rate on deposits, the assumed deposit beta, the percentage of floating-rate loans, remaining cost savings from the Territorial acquisition, the nature of recent net charge-offs, and the expected tax rate for 2026.

Answer

EVP & CFO Julianna Balicka explained that fee income growth is driven by customer swap fees and loan-related fees. She provided the June deposit spot rate as 2.93% and noted that 42% of loans are floating. Balicka also stated that most upfront M&A cost savings have been realized and projected a 20-21% tax rate for 2026. SEVP & COO Peter Koh added that recent net charge-offs were manageable and part of routine portfolio cleanup.

Matthew Clark of Piper Sandler Companies inquired about the drivers for the updated fee income guidance, the end-of-period spot rate for deposits, the percentage of floating-rate loans post-acquisition, and the remaining cost savings from the Territorial deal. He also asked about net charge-offs and the 2026 tax rate outlook.

Answer

EVP & CFO Juliana Balicka explained that fee income growth is driven by customer swap fees and loan origination fees. She provided the June deposit spot rate as 2.93% and noted that 42% of loans are floating. She also clarified that major cost saves from the Territorial deal were already realized and projected a go-forward tax rate in the 20-21% range. SEVP & COO Peter Koh added that the increase in net charge-offs was related to ongoing portfolio cleanup and remains at manageable levels.

Matthew Clark inquired about the drivers for the full-year fee income guidance, the end-of-quarter spot rate for deposits, the percentage of floating-rate loans, remaining cost saves from the Territorial acquisition, the 2026 tax rate outlook, and details on Q2 net charge-offs.

Answer

EVP & CFO Julianna Balicka explained that fee income growth is driven by customer swap fees and loan-related fees. She stated the June deposit spot rate was 2.93% and that about 42% of loans are floating. Balicka noted most Territorial cost saves are complete, with the 2026 tax rate projected around 20-21%. SEVP & COO Peter Koh added that net charge-offs were slightly up due to portfolio cleanup but remain manageable.

Matthew Clark of Piper Sandler Companies inquired about the fee income guidance for the second half, the deposit spot rate and beta assumptions, the percentage of floating-rate loans post-acquisition, remaining cost saves from the Territorial deal, and details on the quarter's net charge-offs.

Answer

CFO Julianna Balicka explained that fee income growth will be driven by customer swap fees and loan origination fees. She provided a June deposit spot rate of 2.93% and noted that about 42% of loans are floating-rate. Balicka also clarified that major cost saves from the Territorial acquisition are complete, with minor integration costs remaining. COO Peter Koh added that the increase in net charge-offs was due to manageable portfolio cleanup and that overall asset quality remains stable.

Matthew Clark inquired about Hope Bancorp's deposit beta outlook for the current rate cycle, the drivers behind the low double-digit expense growth guidance for 2025, and the expected loan growth mix for the legacy Hope portfolio. He also asked for details on the elevated net charge-offs in the fourth quarter.

Answer

CFO Julianna Balicka stated that the company aims for a better deposit beta than in past cycles, noting the 42% beta already achieved is a strong start. She explained the 2025 expense guidance reflects a transitional period for the Territorial Bancorp acquisition and continued investment in talent and technology. Chairman, President and CEO Kevin Kim added that legacy Hope's loan growth will be in the low single-digits, driven by C&I, with nominal CRE growth. Regarding credit, Mr. Kim noted that while Q4 charge-offs were elevated, the full-year 2024 rate of 19 basis points was manageable and lower than 2023.

Matthew Clark of Piper Sandler & Co. sought clarification on the composition of the variable-rate loan portfolio and asked for the adjusted net interest margin for the month of September.

Answer

CFO Julianna Balicka confirmed that the variable-rate loan figure represents 'truly variable' loans, distinct from the hybrid loan category. She also disclosed that the adjusted net interest margin for September was 2.51% and was trending upward in October.

Matthew Clark asked about the probability of the bank tendering its preferred stock this year. He also sought details on the recently implemented change in risk-rating methodology and inquired about the outlook for ECR deposit balances.

Answer

President and CEO Jared Wolff stated he could not handicap the probability of a preferred tender, as it depends on market conditions. He explained the more disciplined risk-rating approach was an internal decision to be more proactive, not due to external influence. He noted the HOA deposit business, which drives ECR balances, has been stable and is a target for growth.

Matthew Clark questioned the average margin for December, the impact of compensation accrual reversals, the average ECR deposit balance, and the bank's stance on share buybacks.

Answer

CFO Joseph Kauder stated the December margin was close to the quarterly average and that Q1 comp expense would likely increase around 10% from Q4's seasonally low base. CEO Jared Wolff and Kauder confirmed the average ECR deposit balance was about $3.65 billion. Regarding capital, Wolff mentioned the bank is actively considering all options, including buybacks.

Matthew Clark of Piper Sandler & Co. inquired about the average balance of ECR deposits in the prior quarter and the growth outlook for HOA balances. He also asked for the spot rate on borrowings and an update on the year-end cost of funds improvement target.

Answer

CEO Jared Wolff confirmed the bank's intent to grow its HOA deposit business, noting the all-in cost is slightly above 3% and will decline with interest rates. CFO Joe Kauder stated that the Q4 NIM guidance of 3.0% to 3.10% already incorporates the expected reduction in funding costs. Jared Wolff added that the initial deposit beta on the recent rate cut is around 50%, though it is still early.

Matthew Clark of Piper Sandler & Co. inquired about the expected normalization of FDIC assessment costs, noninterest expense relief from the CIVIC portfolio sale, the use of sale proceeds for debt reduction, and specifics on credit quality, including office loan charge-offs and the rise in classified loans.

Answer

CEO Jared Wolff and CFO Joe Kauder explained that FDIC costs are expected to decrease to a $10-$12 million quarterly run-rate by Q4, a figure included in their expense guidance. Wolff noted the CIVIC sale provides about $2-$3 million in expense relief, materializing late in the year. Kauder added that over half of the sale proceeds will pay down brokered CDs. Regarding credit, Wolff stated the increase in classified loans was a proactive measure on rate-sensitive real estate, and recent office-related charge-offs were on previously identified and largely reserved-for loans.

Matthew Clark of Piper Sandler & Co. asked for the spot rate on deposits after the January paydown of brokered CDs, the total exposure to syndicated loans, the portability of the Deferred Tax Asset (DTA), and the status of M&A discussions.

Answer

CFO John Michel provided the December 31 spot deposit rate (2.39% excluding brokered CDs) and confirmed plans to pay down the rest. CEO Mark K. Mason estimated syndicated loan exposure at just under $200 million. Both executives confirmed the DTA is portable and included in the tangible book value calculation, subject to Section 382 limitations. Regarding M&A, Mason stated the Board is continuously reviewing all strategic alternatives.

Inquired about the spot deposit rate after the brokered CD paydown, exposure to syndicated loans, the portability of the Deferred Tax Asset (DTA) in a sale, and the status of conversations with potential buyers.

Answer

The spot deposit rate was 2.65% at year-end, dropping to 2.39% excluding brokered CDs, which are being paid down. Syndicated loan exposure is just under $200 million. The DTA is portable and already included in the tangible book value calculation. The board is continuously reviewing strategic alternatives but offered no specific update on buyer conversations.

Matthew Clark of Piper Sandler Companies inquired about HomeStreet's ability to engage with previous bidders, the nature of a potential alternative regulatory structure for the merger, and whether regulatory feedback implied issues with combined CRE concentration. He also asked for specifics on the multifamily loan portfolio's yield and duration, current origination rates, and the spot rate on deposits.

Answer

Executive Mark K. Mason explained that the current merger agreement restricts soliciting other offers, but they could consider a superior proposal. He declined to detail alternative regulatory structures but confirmed any new plan must be 'meaningfully different.' Mason clarified that HomeStreet's standalone CRE concentration was not a regulatory issue. He stated the current CRE concentration is ~600%, which would fall to ~500% after a potential $800 million loan sale. He estimated the multifamily portfolio's duration at ~2.5 years with a yield around 4%. Management did not have the spot deposit rate available.

Matthew Clark asked about the net interest margin for December and the outlook for Q1 and full-year 2025, details on a Q4 compensation expense reversal, color on the loan purchase strategy, and the plan for upcoming subordinated debt repricing.

Answer

CFO Ronald Nicolas provided the December net interest margin (3.03%) and expects Q1 to be similar before improving. He explained the Q4 compensation expense benefit was due to lower staffing and expects a ~$2M increase in Q1 from merit increases. CEO Steven Gardner described loan purchases as tactical supplements to organic growth, focusing on non-CRE assets where the bank has expertise. Regarding subordinated debt, which has a tranche repricing in June, Gardner stated they are evaluating all options, including refinancing or repayment.

Matthew Clark asked about the net interest margin for December, the outlook for Q1 and full-year 2025, the details behind the Q4 compensation expense, and the strategy for future loan purchases.

Answer

CFO Ronald Nicolas stated the December net interest margin was 3.03% and expects the Q1 margin to be at a similar level before improving throughout 2025. He explained that lower Q4 compensation expense was due to lower overall staffing, which reduced incentive and benefit costs, and anticipates a ~$2 million increase in Q1 from merit increases and payroll taxes. CEO Steven Gardner added that loan purchases are a tactical tool to supplement organic production, focusing on non-CRE assets within their areas of expertise.

Matthew Clark asked for the Q3 swap revenue figure, the appetite for new swaps, the rationale for not executing a loss trade, the sustainability of the dividend, and a breakdown of the C&I loan decline.

Answer

CFO Ronald Nicolas reported Q3 swap revenue was just under $7 million, with Q4 guidance of $3-4 million, and noted new swaps are unlikely given the rate outlook. CEO Steven Gardner explained that decisions on loss trades are dynamic, weighing book value impact against payback periods. Gardner also expressed confidence in maintaining the dividend, even with a temporary payout ratio over 100%, due to strong capital. He attributed the C&I decline primarily to clients using excess liquidity to pay down debt, not market share loss.

Matthew Clark of Piper Sandler sought details on several financial metrics, including the contribution of swap revenue to net interest income, the expected trajectory of deposit costs following potential Fed rate cuts, and plans for FHLB borrowings. He also asked about the scope of a potential securities portfolio restructuring and the source of the quarter's net charge-offs.

Answer

CFO Ronald Nicolas quantified the swap revenue's impact (16 basis points to NIM) and stated it would be consistent in Q3. CEO Steven Gardner and CFO Ronald Nicolas addressed deposit costs, suggesting stability in Q4 as competitive pressures and deposit mix shifts might offset the impact of a small rate cut. Gardner confirmed plans to pay off the remaining $200 million in FHLB borrowings in Q4 and stated that all options, including restructuring the AFS, HTM, and low-yielding loan portfolios, are being considered. Both executives confirmed that nearly all of the $10.3 million in net charge-offs were related to the sale of two substandard loans.

Matthew Clark asked for the net interest margin for the month of March, the spot rate on deposits, the outlook for borrowing costs, the potential for a securities loss trade, and the company's openness to share buybacks.

Answer

Executive Steven Gardner noted the March NIM was slightly down from the quarterly average and confirmed the board is assessing various tactics, including securities trades and share buybacks, given the bank's very high capital levels. CFO Ronald Nicolas provided the end-of-March spot rate on total deposits at 1.66% and stated the dollar value of swap income for the quarter was $6.7 million. Gardner added that borrowing costs should remain stable as the remaining FHLB advance is fixed-rate.

Matthew Clark asked about the cost and repayment plans for $148 million in borrowings maturing in Q4, the expected deposit beta for the current easing cycle, and the outlook for overall loan yields amid potential Fed rate cuts.

Answer

CFO Donald Hinson disclosed the maturing borrowings have a 5.40% weighted average rate and that costs will decline significantly, though repayment plans depend on deposit growth and other factors. He suggested the deposit beta in the easing cycle could be similar to the 30% seen during tightening but with a lag. Hinson expects a near-term dip in loan yields in Q4 due to rate cuts but anticipates expansion in 2025 as new, higher-rate loans replace maturing ones.