Stephen Moss

Stephen Moss inquired about current business confidence and activity levels compared to 6 or 12 months prior, especially in the context of SBA originations. He also asked about the expected cadence of ALP originations throughout the year, considering the strong recent quarter. Finally, Moss sought insight into the company's approach to investments and the projected cadence of expenses, given the focus on upgrading systems.

Answer

President and CEO Barry Sloane noted a K-shaped economy, with businesses serving the middle to upper market performing well, while those serving the lower end struggle. He observed that business confidence is generally good, with willingness to invest, particularly in technology. Regarding ALP originations, Sloane explained that the first quarter is typically weaker for lending, but expressed bullishness on ALP loans (C&I held for sale) due to their larger size and the company's reputation for providing long-term, patient capital. On expenses, Sloane stated that while there's a push and pull, he doesn't anticipate explosive growth, with investments focused on business deposit functionality and gathering, and a stable C-suite team.

Stephen Moss asked about current business confidence and activity levels compared to the past 6 to 12 months, especially in light of recent SBA rule changes and economic challenges.

Answer

President and CEO Barry Sloane described a K-shaped economy, with varying performance across market segments. He noted that while rate cuts were helpful, commodity prices are rising. Overall business confidence remains good, with a willingness to invest in technology for efficiency.

Stephen Moss followed up on SBA loans, asking how long the company plans to hold the loans that generated fair value gains. He also questioned what provides comfort that recent loan vintages will perform better than the tougher NSBF portfolio, requested another breakdown of the fair value gain, and asked about the expected earnings ramp through the year.

Answer

Executive Barry R. Sloane stated that the SBA loans held on the balance sheet would not be held for an extended period. He expressed confidence in the credit quality of recent vintages because they are underwritten in a much higher interest rate environment, and he emphasized that the bank is well-provisioned for expected credit migration. CFO Frank DeMaria reiterated that the majority of the fair value gain, outside of the SBA portion, came from ALP loans. Sloane confirmed the projected earnings ramp is driven by the historical seasonality of higher loan origination volumes in the second half of the year.

Stephen Moss questioned the drivers of the ~2% charge-off expectation for 2025, asking for color on vintage performance as the bank portfolio seasons. He also asked about the cause of the negative loan servicing asset revaluation and the drivers for the 2025 expense guidance.

Answer

Executive Barry R. Sloane stated the charge-off forecast incorporates the SBA loss curve, with expectations for it to flatten, and emphasized the company's ability to absorb higher credit costs due to strong margins. CFO Scott Price added that vintage analysis is fully baked into projections, with default rates from Q3/Q4 2024 expected to continue. Price explained the servicing asset revaluation is a non-cash charge driven by the runoff of the NSBF portfolio. Sloane noted that 2025 expense growth is for prudent investment in compliance, risk, and technology to support growth.

Stephen Moss inquired about the drivers of demand deposit growth, asked for a quantification of annual revenue from the insurance business, and questioned the company's plans for its new share repurchase authorization.

Answer

CEO Barry R. Sloane explained that deposit growth is driven by integrating account opening with lending, payroll, and payments, leveraging their automated portal and trained staff. He estimated the insurance business generates "$3 million to $4 million" in annual revenue. Regarding the buyback, Sloane described it as a "tool" to be used opportunistically, emphasizing that Newtek remains a growth-focused company. CFO Scott Price noted he would follow up separately on a request to quantify fair value marks.

Stephen Moss followed up on SBA activity, asking about the expected originations for 2026, and then inquired about the drivers of the expense growth outlook and how new loan origination coupons are holding up amidst potential spread compression.

Answer

President and Chief Banking Officer Matthew McNeill projected approximately $100 million in SBA originations for 2026, up from $68 million in 2025, noting $25 million in Q4 2025. CEO Christopher Gruseke attributed expense growth drivers to investments in people and technology, increasing headcount by over 10% in 2025, emphasizing that these investments are made while profitability is growing. He also stated that while there's no recent spread compression, origination coupons for floating-rate and fixed-rate loans adjust with indices and treasuries, respectively, but credit spreads are generally maintained due to loan demand.

Stephen Moss inquired about Bankwell's 2026 SBA origination targets, the primary drivers behind the projected expense growth, and the current trends in new loan origination coupons and spread compression.

Answer

Matthew McNeill, President and Chief Banking Officer, indicated a target of approximately $100 million in SBA originations for 2026. Christopher Gruseke, CEO, explained that expense growth is driven by investments in people and technology, including a 10%+ increase in headcount in 2025. He also noted no recent spread compression on loan pricing, with coupons adjusting based on falling indices and treasuries, but credit spreads remaining stable due to loan demand.

Stephen Moss asked about the progress of the SBA loan pipeline and the potential for gain-on-sale income for the remainder of the year. He also questioned whether, after three quarters of charge-offs, a reserve build should be expected or if the allowance would remain stable.

Answer

Executive John Buran did not provide specific guidance on gain-on-sale income but noted activity in real estate-based SBA 504 loans and premiums of around 7% on term loan sales. In response to the reserve question, Executive Susan Cullen stated that given the uncertain environment, including pending tariffs, she would expect to see some level of reserve build going forward.

Stephen Moss asked about the company's interest rate sensitivity positioning, the expected evolution of the loan composition with a focus on the new SBA team's production and sales, details on the largest nonperforming asset and C&I charge-offs for the quarter, and the primary drivers for the projected 5-8% expense growth in 2025.

Answer

Executive John Buran stated the company's interest rate position is largely neutral and that the new SBA business will be a significant part of the portfolio restructuring, with initial loan sales expected in Q1. Executive Susan Cullen explained the quarter's largest charge-off was on a loan that had been fully reserved in prior periods. She identified drivers for 2025 expense growth as investments in the business, including compensation, the full-year impact of the SBA team, and new branches, while still expecting positive operating leverage.

Stephen Moss asked for details on the $50 million securities sale, the net interest margin (NIM) for September, and the potential for deposit betas in a rate-cutting environment. He also inquired about the specifics of the quarterly charge-off and the bank's NIM outlook if the Fed were to cut rates by another 150 basis points.

Answer

Executive Susan Cullen clarified the securities sold were adjustable-rate CLOs with a minimal gain. Executive John Buran stated the September NIM was 2.10% excluding a significant recovery. He also noted that after cutting deposit rates on October 1, the bank is seeing customers prefer 1-year 4% CDs over shorter-term, higher-rate specials. Susan Cullen explained the charge-off was a previously reserved-for C&I loan. John Buran added that a 200 basis point yield curve steepening would increase net interest income by $4 million in year one and $20 million in year two, based on a static balance sheet.

Stephen Moss asked for details on the tightening of loan pricing in the auto market, the resolution timeline for a specific nonperforming loan, the near-term revenue outlook for the Employee Benefit Services business, and the growth strategy for municipal deposits.

Answer

Executive Dimitar Karaivanov noted that auto loan pricing has tightened by about 50 basis points amid aggressive competition. Executive Joseph Serbun stated the nonperforming loan is expected to face foreclosure in Q2, with a significant charge-off anticipated. Dimitar Karaivanov projected low-to-mid single-digit growth for the benefits business, dependent on market values, and described the municipal deposit growth as relationship-driven with a favorable blended rate in the low 2s.

Stephen Moss inquired about the current loan pipeline, expectations for loan growth moderation in 2025, and current pricing for commercial loans. He also asked about the trajectory for net interest margin (NIM) and the outlook for full-year expense growth, considering the planned branch expansions.

Answer

Executive Dimitar Karaivanov stated the commercial and mortgage pipelines remain solid and reiterated mid-single-digit loan growth guidance for 2025, with new commercial loans priced around 7%. Executive Joseph Sutaris added that NIM is expected to continue expanding in 2025, driven by higher new loan yields compared to the existing portfolio. For expenses, Sutaris projected mid-single-digit growth, potentially higher, with a seasonal increase in Q1. Karaivanov also noted $4-5 million in temporary marketing expenses in Q2/Q3 for new branches, which will be offset by consolidations by year-end.

Stephen Moss asked about the forward expense run rate considering recent hires, whether a specific reserve was tied to the uptick in nonperforming loans (NPLs), and if the strength in fee income was sustainable.

Answer

Executive Joseph Sutaris reiterated guidance for mid-single-digit full-year expense growth, noting 2024's investment pace is more indicative of the long-term rate. He clarified that no specific reserve was tied to the new NPL, as it's a paying loan from a long-standing client undergoing restructuring. He also confirmed that the strong fee income was not idiosyncratic and represents a fair run rate due to newly embedded services and capital markets activities.

Stephen Moss of Raymond James questioned the outlook for cubiX deposit balances and future growth opportunities in that segment. He also suggested the loan growth guidance appeared conservative after a strong quarter and asked for an update on the deposit pipeline from new hires, including the blended rate.

Answer

President and CEO Sam Sidhu explained that while they are not actively seeking to expand cubiX deposits, they will support client payment needs. He emphasized these are operating accounts held 100% in cash. Regarding loan growth, Sidhu acknowledged market volatility but confirmed the loan backlog remains strong and highlighted the granular, relationship-based nature of the growth. He stated the low-cost deposit pipeline remains over $2 billion at a blended rate of approximately 2.5% with up to 30% noninterest-bearing, and noted that recruitment of new deposit-focused teams is ongoing.

Stephen Moss asked about the 2025 loan growth guidance, particularly expectations for the next one to two quarters, and whether the full-year guide could be conservative. He also inquired about the drivers of noninterest-bearing deposit growth, the status of the bank's 15% cap on instant payment deposits, and the rate cut assumptions embedded in the net interest income (NII) guidance.

Answer

EVP and CFO Philip Watkins acknowledged strong loan pipelines but noted Q1 is typically slower and mentioned the impact of unexpected payoffs. President and CEO Samvir Sidhu added that significant payoffs in 2024 provide confidence for future net growth, highlighting the bank's diversified lending verticals. Regarding deposits, Sidhu confirmed the growth in noninterest-bearing accounts was primarily from the cubiX platform due to increased client activity, which the bank supported by holding the excess balances in cash. He stated management is re-evaluating its deposit concentration limits. Watkins concluded by stating the NII guidance's base case assumes two rate cuts.

Stephen Moss inquired about the mechanics of reducing asset sensitivity, asking if it was achieved through swaps or securities portfolio changes. He also asked for early trends in deposit pricing and details on the average size and granularity of the newly opened deposit accounts.

Answer

CFO Philip Watkins explained the reduction in asset sensitivity was driven by both organic fixed-rate lending and, more significantly, forward-starting swap hedges and a securities portfolio repositioning that traded floating-rate securities for longer-duration fixed-rate assets. CEO Samvir Sidhu added color on deposit pricing, noting new deposits came in at a low 3% blended rate while runoff deposits were at 5.25%. He described the new accounts as highly granular, with an average size in the "couple of hundred thousand-ish" range.

Stephen Moss from Raymond James inquired about the bank's expected deposit beta in a potential rate-cut scenario, the current level and future plans for brokered deposits, and the expected mix of noninterest-bearing deposits from newly acquired teams.

Answer

President and CEO Sam Sidhu projected a downward deposit beta similar to the upward peak of 55-60%, aided by a positive mix shift that is already lowering deposit costs. He stated that while brokered deposits might see a slight near-term increase, they have peaked and are targeted for significant reduction. He also confirmed that new deposits are coming in with a favorable 30% noninterest-bearing mix, exceeding the bank's overall average.

Stephen Moss questioned the timing of loan growth, asking if it would be more weighted towards the second half of the year. He also asked for the outlook on consumer credit charge-offs for the full year and sought clarification that the guided margin expansion was based on the adjusted NIM.

Answer

CEO Aurelio Alemán-Bermúdez stated that while the mid-single-digit loan growth guidance is unchanged, the timing is uncertain due to potential economic policy changes affecting client decisions, though he previously noted a second-half weighting. He expects the consumer charge-off rate to improve year-over-year. CFO Orlando Berges-González confirmed the 5-7 basis points of guided margin expansion is based on the Q1 adjusted margin of 4.48%.

Stephen Moss inquired about expected securities portfolio cash flows beyond Q1 2025, the coupon on those maturing securities, the pace of deposit repricing after the recent rate cut, and the primary drivers of strong commercial loan originations.

Answer

EVP & CFO Orlando Berges-González estimated full-year 2025 securities cash flows between $1.0 billion and $1.1 billion, with maturing coupons around 1.50% to 1.60%. He detailed that deposit repricing will have a lag but will be aided by maturing high-cost broker CDs. President & CEO Aurelio Alemán-Bermúdez identified construction, auto industry, C&I, and government-related activity in both Puerto Rico and Florida as key drivers of commercial demand.

Stephen Moss from Raymond James Financial, Inc. asked about the current loan pricing environment, borrower sentiment for C&I loans, and the expense outlook for the second quarter.

Answer

CEO Paul Perrault stated that loan pipelines and quality are strong, with good pricing and less pressure from larger banks. CFO Carl Carlson added that Q1 originations had a weighted average coupon of 7.18%, well above the portfolio average of 5.91%. He also projected Q2 expenses would be stable with Q1, as the company is managing costs carefully ahead of its planned merger.

Stephen Moss from Raymond James followed up on the net interest margin, asking for full-year expansion guidance. He also questioned the future pace of deposit rate cuts, the loan growth outlook for 2025, and sought details on a $10.8 million classified loan in a Central Business District.

Answer

CFO Carl M. Carlson declined to provide full-year margin guidance due to market volatility but noted that a slower pace of Fed rate cuts could be beneficial. He indicated deposit pricing will remain responsive to market changes. For loan growth, Mr. Carlson reiterated a low single-digit forecast for 2025, tempered by a planned reduction in commercial real estate. Regarding the classified loan, he projected a resolution in late Q1 or early Q2, with Chairman and CEO Paul A. Perrault adding that any charge-off is already covered by existing reserves.

Stephen Moss asked about the drivers of net interest income and margin, specifically recent trends in deposit rates, the impact of Fed rate cuts on funding costs, and the projected net interest margin trajectory into 2025.

Answer

CFO Carl M. Carlson explained that the bank is proactively managing funding costs, having immediately cut rates on certain deposit products following the Fed's September rate cut. He detailed significant liability repricing opportunities in Q4, with CDs and borrowings rolling off at high rates and repricing lower. He noted the market is competitive but rational, giving them confidence in their ability to manage liability costs down to support margin expansion. For 2025, he stated the company's model suggests the net interest margin could reach the 3.40s by Q4.

Stephen Moss asked for the current level of criticized and classified loans. He also questioned what provides comfort for the lower charge-off guidance given current NPL levels and requested more color on the quarter's C&I charge-offs.

Answer

Chief Credit Officer Mark Saeger noted a slight increase in criticized migration but at a reduced pace from 2024, highlighting very low early-stage delinquencies (11 bps) as a sign of portfolio health. CEO Ira Robbins added that some classifications are tied to guarantor issues, not asset quality. Mark Saeger specified that the quarter's C&I charge-offs were related to two unique situations involving fraud and were not indicative of systemic weakness.

Stephen Moss sought clarification on the commercial real estate loan sale size being phrased as 'at least $2 billion,' asked about the recent decline in construction loan balances, and inquired about the drivers for the full-year allowance for credit losses (ACL) guidance of 1.20% to 1.30%.

Answer

EVP and CFO Rob Gorman clarified the CRE sale target remains $2 billion and they are not planning to upsize it. Regarding construction loans, Gorman and Head of Commercial Businesses David Ring explained the decline was largely due to projects completing and converting to term loans, though new project starts have slowed. On the ACL guide, Gorman noted it includes the Sandy Spring portfolio and the CECL 'double count,' and could be lower if recession probabilities decline. President and CEO John Asbury added that the final Q2 reserve will be their best assessment for the combined firm at that time.

Stephen Moss of Raymond James asked about the average life of the CRE loans being sold, the calculation of the sale mark, new loan origination yields, whether the company was hedging the sale, and recent deposit cost trends.

Answer

CFO Rob Gorman stated the duration of the loans for sale is slightly shorter than the total portfolio's 4-year average and confirmed the sale discount is included in the total mark. He noted new loans are originating in the 7.00-7.05% range. While hedging has been evaluated, nothing is definitive due to cost. Gorman also confirmed the bank is aggressively lowering deposit rates, modeling a mid-40s deposit beta for the down cycle.

Stephen Moss inquired about Camden National's core net interest margin (NIM) outlook for Q2, the expected run rate for purchase accounting accretion, the potential earnings benefit from a Fed rate cut, and drivers of loan growth.

Answer

EVP & CFO Mike Archer projected continued core NIM expansion of 2-5 basis points in Q2 and suggested the current $5 million in net purchase accounting accretion is a good midpoint. President & CEO Simon Griffiths added that a 25-basis-point rate cut would benefit earnings by approximately $1.5 million. Griffiths also reaffirmed a low single-digit loan growth forecast, noting strong pipelines in residential and commercial lending, particularly in New Hampshire.

Stephen Moss inquired about the lending environment outlook post-Northway merger, plans for 2025 investments and expenses, and the trajectory for net interest margin.

Answer

President and CEO Simon Griffiths projected low single-digit organic loan growth, emphasizing selectivity and strength in the New Hampshire market. He noted that 2025 investments in wealth and digital platforms would be self-funded through efficiencies. Griffiths also guided to a core NIM around 2.60% for Q1 2025. EVP and CFO Mike Archer added that the GAAP NIM will see a significant lift from purchase accounting related to the merger.

Stephen Moss inquired about the impact of Fed rate cuts on deposit pricing and net interest margin, the specifics of a recent debt restructuring, and the outlook for loan growth and strategic hiring.

Answer

CEO Simon Griffiths stated that Camden National remains disciplined on pricing and expects 1-3% loan growth in 2025, driven by strategic hires in high-growth markets. CFO Michael Archer detailed the paydown of BTFP borrowings, using swaps to lower funding costs from 4.76% to 4.09%, and projected a 2-5 basis point NIM expansion for Q4 2024.

Stephen Moss inquired about the composition of the expanded loan pipeline, the expected pace of deposit growth, the cost of new deposits from recently hired teams, and the outlook for the credit reserve build.

Answer

Executive Stuart Lubow detailed the loan pipeline, highlighting approximately $350 million in C&I, $185 million in owner-occupied CRE, and $250 million in healthcare. CFO Avinash Reddy added that new teams have brought in $1.9 billion in deposits at a cost around 2.10% and that the bank continues to see steady growth in new accounts. Regarding credit, Reddy stated the CECL model is unchanged and the bank is targeting a reserve of 90 basis points to 1% over the medium-to-long term.

Stephen Moss from Raymond James requested a breakdown of the loan repricing schedule for 2H 2025 and 2026, asked about the cost of marginal deposits, and sought details on Q4 credit charge-offs.

Answer

CFO Avinash Reddy provided a detailed breakdown of the $1.9 billion in loan repricings, stating that approximately $600 million at a 4.25% rate will reprice in the second half of 2025, with the remaining $1.3 billion at 3.85% repricing in 2026. Reddy also noted that the marginal cost of new deposits is a blended 2-2.5%, aided by new teams bringing in 40% DDA. Regarding credit, he explained that Q4 charge-offs were diversified across portfolios with no large concentrations, and the full-year 2024 charge-off rate was a low 17-18 basis points.

Stephen Moss inquired about the sustainability of core deposit growth, sought clarification on the timeline for the $1.9 billion loan back book repricing, and asked for details on recent nonaccrual loans and the outlook for the multifamily portfolio.

Answer

CFO Avinash Reddy detailed the success of recent deposit-gathering hires, noting a remix of the balance sheet away from FHLB borrowings and brokered deposits. He confirmed the $1.9 billion back book repricing window is for the second half of 2025 through 2026. Reddy and CEO Stuart Lubow explained the nonaccrual loan uptick was due to isolated incidents, including a partnership dispute, and not indicative of a broader trend. Lubow added that multifamily prepayment activity is expected to accelerate in late 2025 as interest rates decline.

Stephen Moss asked for confirmation on low-double-digit loan growth expectations, trends in loan pricing for new originations, clarification on whether operating expense guidance includes new hires, and for more detail on the nature of the new nonperforming loans.

Answer

CEO Thomas Broughton and COO Rodney Rushing affirmed that low-double-digit loan growth is a reasonable expectation, driven by steady, granular demand. Tom Broughton noted that loan pricing is steady but 'already too tight.' CFO David Sparacio clarified that the expense guidance of $46M-$46.5M is a baseline that excludes potential expansion-related hires. Chief Credit Officer Henry Abbott specified the two main nonperforming relationships were C&I loans related to a hospital and a doctor, both considered well-collateralized.

Stephen Moss asked for the 2025 loan growth outlook, the profile of recent producer hires, details on fixed-rate asset repricing, near-term margin trends, and an update on the resolution of a specific nonperforming asset.

Answer

CEO Thomas Broughton expressed caution on loan growth, noting 2024's inconsistency and expecting no substantial improvement due to high rates impacting new projects. Interim CFO Edison Woodie detailed that approximately $1.5 billion in fixed-rate loans are set to reprice from the high 4% range to the high 6% range. Woodie also stated the margin is around 3% but is negatively impacted by excess liquidity. Regarding the nonperforming asset, CCO Henry Abbott and CEO Thomas Broughton confirmed it is under contract and they do not anticipate a loss, though the final resolution will take time.

Stephen Moss inquired about the loan pipeline outlook for Q4 and early 2025, current pricing on new loans, and the size and details of a large borrower recently downgraded to special mention.

Answer

CEO Thomas Broughton stated that while the loan pipeline is strong and Q4 is typically a good closing period, it's difficult to say if it will match the outstanding second quarter. CFO Kirk Pressley and Broughton noted new loan rates are near 8%, and highlighted the benefit of $126 million in low-rate loans (4.89%) paying off. Chief Credit Officer Henry Abbott clarified the special mention relationship totals $97 million across eight projects and the downgrade was a precautionary measure.

Stephen Moss asked for clarification on the lowered loan growth guidance despite a robust pipeline, current loan pricing trends, and the status of a specific nonperforming office loan regarding leasing and borrower cooperation.

Answer

Executive Jeffrey Tengel clarified that the low single-digit loan growth forecast is a net result of intentional commercial real estate (CRE) runoff muting strong C&I growth. CFO Mark Ruggiero added that stable C&I line utilization also impacts outstanding balance growth. Regarding pricing, Ruggiero noted it is competitive, with new deals in the mid-6% range. On the specific loan, management confirmed occupancy is around 80%, but negotiations are complex due to the syndicated nature of the loan, free rent periods, and tenant improvement costs.

Stephen Moss inquired about the drivers for the 2025 loan growth outlook, sought clarification on the interest rate assumptions for new loans, and asked for details on the composition of past-due office loans.

Answer

Executive Jeffrey Tengel attributed the loan growth forecast to the productivity of 10 new C&I bankers and market share gains rather than a broad economic upswing. CFO Mark Ruggiero clarified that new loan volumes are originating around 7%, while maturing loans are in the low-to-mid 5% range. He also detailed that the past-due office loan bucket primarily consists of three previously discussed loans: a $30 million syndicated loan, a $7 million loan pending a note sale, and an $11 million loan in short sale negotiations.

Stephen Moss of Raymond James & Associates inquired about the workout process for a $30 million classified commercial real estate (CRE) credit, the borrower's cooperation on a separate $54.6 million nonperforming loan, the current reserve level for the office portfolio, and the bank's perspective on a securities restructuring versus a stock buyback.

Answer

Executive Jeffrey Tengel explained that the $30 million loan's resolution is complicated by its syndicated nature and an unexpected tenant loss. For the $54.6 million loan, he noted the sponsor appears unwilling to contribute more capital, prompting the bank to explore all options, including a note sale or foreclosure. CFO Mark Ruggiero stated the office portfolio reserve is now nearly 5% including specific reserves, but closer to 2.5% for the remainder of the portfolio. Ruggiero also expressed a preference against a securities restructuring, arguing it doesn't create superior long-term value compared to their focus on growing tangible book value organically.

Stephen Moss of Raymond James inquired about net interest margin trends, specifically the repricing of the $2 billion in annual cash flows. He also asked about the forward-looking expense run rate, drivers for the loan loss reserve ratio, and details on a specific commercial real estate nonperforming loan.

Answer

CFO Annette Burns confirmed that approximately $2.2 billion in loans are expected to reprice at higher rates and provided an expense run rate of $97-$99 million per quarter for the first half of 2025. Executive Scott Kingsley added that the loan loss reserve was impacted by the runoff of higher-reserve consumer portfolios and described the nonperforming loan as a new multifamily project with a slow lease-up.

Stephen Moss inquired about NBT Bancorp's deposit pricing strategy following the recent 50-basis point rate cut and the potential impact through a full cutting cycle. He also asked for an update on fixed-rate asset repricing dynamics and the drivers behind the strong C&I loan growth and the current loan pipeline.

Answer

CFO Annette Burns explained that approximately 40% of the deposit book is price-sensitive, and the bank is actively managing rates on money market accounts and CDs. She noted that $2 billion in annual loan cash flows are currently repricing higher. Executive Scott Kingsley added that the midpoint of the yield curve, which is higher than at the start of the year, is the key driver for asset repricing, leading to a positive spread on new originations. He also confirmed a concerted effort to grow the C&I portfolio, which also helps bring in complementary funding, and highlighted the bank's flexibility to selectively pursue CRE opportunities based on geographic market spreads.

Stephen Moss from Raymond James questioned the expected pace of expense growth for 2025, asking if mid-single digits was a reasonable assumption. He also inquired if the strong Q4 loan growth included any pull-forward of production that might lead to a seasonally softer first quarter.

Answer

CEO William Carroll indicated the Q4 expense run rate is a good proxy for 2025. CFO Ronald Gorczynski specified a 2.5% to 3% growth rate off the annualized Q4 2024 base, primarily in salaries and IT. Regarding loan growth, Carroll acknowledged that a couple of deals expected in Q1 2025 were accelerated into late December, and while the pipeline remains strong, he does not project another quarter of 20% annualized growth.

Stephen Moss inquired about current pricing levels for new loans amid recent interest rate volatility and expectations for Fed cuts. He also asked about the outlook for investments and expenses in 2025 as the bank aims for positive operating leverage.

Answer

CFO Ronald Gorczynski noted that new loan origination yields were around 7.40% for Q3 and are expected to remain above 7% in Q4. President and CEO William Carroll and Gorczynski both confirmed a continued focus on expense control, with future increases primarily driven by strategic talent hires, which should support ongoing operating leverage.

Inquired if the rise in multi-family nonperformers was due to the forward-looking analysis and if more increases are expected, and asked about the potential for accelerated prepayments in the multi-family portfolio due to market conditions.

Answer

The increase was a combination of completing more of the portfolio review and another quarter of loans entering the 18-month forward-look window. This repricing pathway will continue to drive nonperformer trends. The company is optimistic about refinancing activity picking up, which would lead to payoffs, and notes renewed investor interest in both office and rent-regulated multi-family assets.

Posed several detailed credit questions regarding debt service coverage on reset loans, the characteristics of new non-performing loans, the methodology of the 18-month look-forward review, appraisal cap rates, and the size of the interest-only (I/O) loan portfolio.

Answer

The bank responded that debt service coverage on reset loans is getting 'pretty thin,' often in the 1.0x-1.1x range. Downgrades are broad-based across the portfolio, not concentrated in one area. The 18-month look-forward implies future risk if rates remain high. Appraisal cap rates are generally in the 6-9% range, and all loans are underwritten on a fully amortizing basis for risk rating purposes.

Inquired about the bank's strategy for managing commercial real estate (CRE) concentrations relative to capital, the outlook for the loan portfolio mix, and whether the large Q4 reserve build for the office portfolio should be seen as a one-time true-up.

Answer

The bank plans to reduce its CRE concentration by shrinking the loan portfolio and focusing on relationship-based lending, allowing non-relationship loans to refinance elsewhere. They did not provide a specific concentration target. The 800 basis point reserve coverage on the office portfolio is a level they are comfortable with, reflecting a deep dive on the portfolio's risk, and they are not seeing other significant negative trends at this time.

Stephen Moss of Raymond James & Associates, Inc. inquired about the primary drivers of C&I loan growth during the quarter and the outlook for growth drivers in the coming year. He also asked if the bank's commercial real estate and construction concentration ratios had reached a bottom, and whether the pace of M&A discussions had changed recently.

Answer

Executive Christopher Holmes described the C&I growth as broad-based and not reliant on single drivers, highlighting wins from larger regional banks. Executive Travis Edmondson added that recently hired revenue producers are contributing. On concentrations, Holmes stated they are comfortable with current levels (CRE at 245%, C&D at 69%) and expect them to remain in that relative range. Regarding M&A, Holmes noted that while conversations are constant, the 'intensity' and 'direct nature' of some discussions have picked up, suggesting increased intent from potential partners.