Stephen Scouten

Stephen Scouten asked for an estimated securities yield for Q1 2026 after all recent actions. He also inquired about the Atlanta market's contribution to loan growth in the past quarter and its role in the planned 15% increase in lenders, specifically how many might be allocated to the Atlanta MSA. Scouten then questioned the outlook for loan payoffs, considering rate dependency and the impact of Seacoast's prior pullback in construction lending, and finally, asked for management's perspective on potential residential housing weakness in specific Florida markets.

Answer

Michael Young, EVP and Chief Strategy Officer, estimated the Q1 2026 securities yield to be in the 4.40-4.50% range, dependent on prepayment speeds. Charles Shaffer, Chairman and CEO, noted that the Atlanta market has performed exceptionally well, with a team of roughly 10 bankers, and expects to build out to a 5-branch footprint and 15-20 bankers over the next three years. He clarified that the 15% increase in bankers translates to approximately 15 new hires. Regarding payoffs, Michael Young stated they are somewhat rate-dependent, with some low fixed-rate maturities and ARMs resetting, still yielding a positive pickup of 50-100 basis points on new add-on rates. Charles Shaffer added that Seacoast's pullback in construction lending in 2023 means they haven't seen the same level of payoffs as others, with more challenges expected in 2027-2029. On Florida housing, Charles Shaffer characterized it as market-specific, with weakness in the condo market due to retrofit standards and pockets of strength (e.g., Southeast Florida) versus weakness (e.g., Fort Myers/Cape Coral) in the residential market, generally not as weak as advertised.

Stephen Scouten from Piper Sandler asked for the projected securities yield for the first quarter following recent capital actions. He also sought updates on the performance and strategic build-out of the Atlanta market, including its contribution to growth and its role in the planned increase in lenders. Additionally, Mr. Scouten inquired about expectations for loan payoffs in a changing rate environment and Seacoast Banking Corporation's observations on residential housing market conditions in Florida.

Answer

Michael Young, EVP and Chief Strategy Officer, projected the Q1 securities yield to be in the 4.40-4.50% range. Charles Shaffer, Chairman, President, and CEO, provided an update on the Atlanta market, highlighting its success with 10+ bankers and plans for a 5-branch footprint and 15-20 bankers within three years, confirming the 15% lender increase equates to roughly 15 bankers. Mr. Young noted that loan payoffs are rate-dependent, while Mr. Shaffer added that Seacoast's earlier pullback on construction lending mitigated some payoff pressures. Mr. Shaffer also offered a nuanced view on Florida's residential housing, noting market-specific conditions, weakness in condos due to retrofit costs, and pockets of strength and oversupply in residential areas.

Stephen Scouten asked if the previously disclosed $250 million high-level run rate for 2026, related to The Villages, was still on pace or potentially ahead of schedule. He also inquired about any changes to the loan growth strategy, such as pursuing loan portfolio purchases or increasing CRE exposure, given the significant dry powder from the 75% loan-to-deposit ratio. Additionally, he asked about the sustainability of strong SBA performance and the timing of cost saves from The Villages Bancorporation conversion.

Answer

Chief Strategy Officer Michael Young affirmed comfort with the original $2.46 earnings per share target for 2026, noting potential for better book value due to rate movements. He stated that the company would maintain a disciplined, thoughtful approach to lending, focusing on granularity and diversity despite significant lending capacity. CEO Chuck Shaffer clarified that SBA strength was due to improved gain on sales spreads, not new hires. CFO Tracey Dexter confirmed that the majority of cost saves from The Villages acquisition are expected in the second half of 2026, following the early Q3 2026 conversion.

Stephen Scouten inquired about the 2026 high-level run rate number ($250M) disclosed in The Villages slide deck, asking if it remains on pace or is potentially ahead of schedule given recent developments.

Answer

Michael Young (CSO) and Chuck Shaffer (CEO) confirmed comfort with the originally laid out $2.46 number, noting potential for better book value or less dilution due to rate movements, which would be the biggest change on the earnings front. Regarding balance sheet remix, Michael Young (CSO) reiterated a high single-digit loan growth guide, emphasizing discipline, granularity, diversity, and prudent lending despite significant capacity. For fee income, Chuck Shaffer (CEO) clarified no new hires in SBA, attributing strength to returning volumes and focused teams, with Michael Young (CSO) adding that improved gain on sales spreads were a driver. Tracey Dexter (CFO) confirmed The Villages Bank Corporation conversion is planned for early Q3 2026, with the lion's share of cost saves expected in the second half of 2026.

Stephen Scouten asked for clarification on the securities trade related to the Heartland acquisition, the drivers behind the core loan yield increase and net interest margin (NIM) outlook, and the potential for upside to the loan growth guidance given the bank's excess capital.

Answer

Michael Young, Treasurer and Director of Investor Relations, explained the securities purchase was a low-risk move to pre-purchase assets ahead of the Heartland deal, locking in higher yields. He also attributed NIM strength to the loan portfolio's structure, hedge roll-offs, and proactive deposit repricing. CEO Charles Shaffer confirmed a clear path to high single-digit loan growth, driven by recent talent investments, but noted that potential tariffs add a layer of uncertainty.

Stephen Scouten sought clarity on the key drivers for achieving a 1% ROA, the potential for the core NIM to return to pre-rate-hike levels, and the current M&A environment for the bank.

Answer

CEO Charles Shaffer attributed the path to a 1%+ ROA to gaining operating leverage by combining strong organic growth with an expanding margin against a well-invested expense base. Treasurer Michael Young detailed NIM tailwinds from repricing assets and estimated a 2-4 bps core NIM expansion per Fed rate cut. Regarding M&A, Shaffer noted that while conversations continue, the bank remains disciplined, especially given its strong organic growth prospects.

Stephen Scouten inquired about Ameris Bancorp's strong loan production, particularly the impact of unusually high CRE payoffs on net loan growth, and the visibility into future payoff trends. He also asked about the company's strategy for new hiring and talent acquisition in the current market.

Answer

CEO Palmer Proctor explained that Q4 typically sees higher payoffs, which are expected to moderate in Q1 and Q2, and noted strong pipelines. He believes declining rates would accelerate opportunities rather than increase outward refinancing. Regarding hiring, Proctor emphasized upgrading existing talent and selective additions, stating the company hired 21 lenders but had a net increase of only 3, avoiding aggressive headcount growth.

Stephen Scouten from Piper Sandler inquired about the role of potential additional lender hirings in driving organic growth optimism, the company's focus on talent quality, and observations regarding mortgage activity inflection points, including the impact of the 10-year Treasury yield on purchase and refinance demand.

Answer

CEO Palmer Proctor stated that Ameris Bancorp is not dependent on large liftouts for growth, emphasizing existing talent and selective hiring for quality, noting that the commercial group is up three net people this year, including ten new hires. Mr. Proctor observed increased mortgage applications and anticipated accelerated activity if the 30-year mortgage rate reaches a 'five-handle,' which would be a significant tailwind for the industry, particularly for purchase volume.

Stephen Scouten inquired about the source of optimism for loan growth, specifically regarding potential additional hirings and the focus on net versus gross lender additions. He also asked about current mortgage activity, the impact of 10-year Treasury movements, and potential inflection points for both purchase and refinance demand.

Answer

CEO H. Palmer Proctor Jr. stated that the company's focus is on garnering customers rather than relying on large team liftouts, leveraging existing talent in disrupted markets. He noted a net increase of 3 people in the commercial group this year, including 10 new hires, emphasizing quality over quantity. Regarding mortgage activity, H. Palmer Proctor Jr. reported a tremendous increase in applications and anticipates accelerated activity if the 30-year mortgage rate drops to a 'five-handle,' with current heavy purchase volume and potential tailwinds from 10-year Treasury improvements.

Stephen Scouten of Piper Sandler Companies inquired about current loan growth trends, customer activity, and existing pipelines, including the seasonality of mortgage warehouse lending. He also asked about the company's strategy for deploying its rapidly building capital, questioning the preference between new hires, M&A, and share buybacks, and how Ameris differentiates itself to attract new banking talent.

Answer

CEO H. Palmer Proctor addressed the questions, noting a resurgence in market activity and competition, which he expects to continue. Regarding capital deployment, Proctor stated the primary focus is organic growth, followed by stock buybacks, which he considers attractive at current valuations. He characterized M&A as a low priority, requiring a "very special" opportunity to distract from their current organic strategy. To attract talent, Proctor highlighted Ameris's market density, stable work environment, clear business model, and a culture of accountability as key differentiators.

Stephen Scouten asked about the bank's high-level strategy for balancing aggressive growth with patience amid economic uncertainty, the sustainability of its expense control, and the rationale for the reserve build despite strong credit metrics.

Answer

CEO H. Proctor stated the bank will remain 'measured' rather than 'aggressive,' leveraging its strong capital and liquidity for opportunities as they arise. EVP & CFO Nicole Stokes confirmed that strong expense control was broad-based and not due to one-time items, noting that Q2 will include merit increases. Chief Credit Officer Doug Strange explained the reserve build was purely model-driven, prompted by a shift in economic forecast weightings to 2/3 downside due to new information on potential tariffs.

Stephen Scouten from Piper Sandler asked about Renasant's capital deployment priorities, specifically how the sizable share repurchase plan ranks against organic growth and potential M&A, given the stock's perceived undervaluation.

Answer

CFO Jim Mabry stated that organic growth remains the top priority, but near-term, share buybacks are the most attractive capital lever, with activity expected to continue into 2026. COO Kevin Chapman added that debt redemption is also part of the capital plan, and M&A remains an option if the right partner and metrics align.

Stephen Scouten inquired about the strategy balancing investments in growth (e.g., hiring) with ongoing efforts to manage expenses and improve profitability, seeking clarity on this push-pull dynamic.

Answer

Kevin Chapman (COO) explained that the strategy involves both, citing an example of eliminating 12 producers while adding 6, driven by accountability. He stated the goal is to be 'high performing,' ensuring that investments in talent or back-office functions are supported by higher performance to improve ROA, ROE, and efficiency. Stephen Scouten also asked about capital usage, including the share repurchase plan and M&A, to which Jim Mabry (CFO) prioritized organic growth, followed by buybacks, aiming to maintain CET1 around year-end 2025 levels. Kevin Chapman (COO) confirmed M&A remains part of the plan if it meets metrics.

Stephen Scouten inquired about Renasant's strong loan growth, specifically pipeline strength and performance in legacy markets like the Gulf Coast, as well as the expected pace of expense savings and future accretion.

Answer

Kevin Chapman (President and CEO) highlighted broad-based loan growth across all geographies and credit channels, noting success in integrating The First's lending capabilities, especially in the Gulf Coast. Jim Mabry (CFO) detailed expected core non-interest expense decreases of $2-3 million in Q4 and Q1, and confirmed scheduled accretion would track closely to Q3 levels.

Stephen Scouten inquired about Renasant's loan growth drivers, pipeline strength, and specific performance in legacy markets like the Gulf Coast. He also asked about the pace of expense savings from the merger, the amount already realized, and the expected run rate for Q1 2026. Finally, he sought clarification on the baseline assumption for normal accretion, particularly the interest rate component.

Answer

President and CEO Kevin Chapman highlighted that loan growth was broadly distributed across the company's footprint, credit channels, and asset classes, including strong performance in The First's legacy Gulf Coast markets due to expanded lending capabilities. CFO Jim Mabry explained that core non-interest expense increased by $3 million in Q3 due to health/life, occupancy, and FAS 91, but anticipated a $2-3 million decrease in Q4 and another $2-3 million decrease in Q1. Regarding accretion, Mr. Mabry stated that scheduled accretion should track closely to Q3 levels, while accelerated accretion would vary with loan prepayments.

Stephen Scouten from Piper Sandler Companies asked about the company's future appetite for whole bank M&A, the strategy behind the partial sale of the acquired securities portfolio, and the drivers of the higher-than-usual provision for credit losses.

Answer

President & CEO Kevin Chapman stated that it is too early to consider further M&A, as the primary focus remains the successful integration of the First Bankshares merger. Executive VP & CFO James Mabry confirmed the sale of about 50% of the acquired securities portfolio was part of the original plan. Senior EVP & Chief Credit Officer David Meredith clarified that the higher provision was model-driven, influenced by recent charge-offs impacting historical loss factors and strong loan growth.

Stephen Scouten of Piper Sandler inquired about the drivers behind strong wealth management performance, potential strategic shifts in the combined loan book after the First Bancshares merger, and any updates to the deal's financial marks or cost-saving timelines.

Answer

Executive Vice Chairman and CEO Mitch Waycaster attributed the wealth management success to consistent execution and integration with commercial banking. Chief Credit Officer David Meredith stated the acquired loan book is very similar to Renasant's, so no significant changes or de-emphasis of loan categories are planned. Executive James Mabry confirmed that cost-saving timelines remain on track for after the August conversion and that purchase accounting marks are largely unchanged, though the rate mark may be slightly lower due to interest rate shifts.

Stephen Scouten inquired about the pending merger with First, seeking updates on the closing timeline and regulatory approval process. He also asked about potential regulatory changes that could benefit Renasant and whether recent improvements in deposit costs represent a fundamental shift or a temporary pull-forward.

Answer

CEO Mitchell Waycaster confirmed the merger is expected to close in the first half of 2025, noting regulators have been engaged and responsive. Kevin Chapman commented that while specific regulatory impacts are uncertain, he expects upcoming changes to be a net positive for the industry and Renasant. James Mabry added that he believes the favorable trend in deposit costs represents a positive change in direction, not just a temporary effect.

Stephen Scouten asked about the strategy for the securities portfolio and overall balance sheet liquidity, especially on a pro forma basis with The First. He also questioned if the quarter's elevated loan paydowns could be a persistent trend and what other avenues for capital deployment, such as team lift-outs or non-bank acquisitions, are being considered.

Answer

EVP and CFO James Mabry confirmed the pro forma balance sheet will have a 'very healthy liquidity position,' creating significant optionality for capital deployment in late 2025 and beyond. CEO Mitch Waycaster acknowledged that elevated CRE paydowns could be an industry trend but felt Renasant's diversified production could mitigate the impact. Both Mabry and EVP/COO Kevin Chapman highlighted that the enhanced liquidity provides 'optionality' for future growth, including potential team lift-outs or small non-bank deals, once The First integration is complete.

Stephen Scouten asked about the impact of recent M&A activity on Trustmark's talent acquisition strategy, specifically inquiring about the number of new production hires in Q4 2025 compared to Q3, and also sought clarification on the 2026 credit guidance regarding 'normalizing' credit costs and expected net charge-offs.

Answer

President and CEO Duane Dewey stated that Trustmark had 13 new production hires in Q4 2025, following 21 production-oriented hires in Q3. He noted that M&A activity creates disruption and opportunities for talent acquisition. Chief Credit and Operations Officer Barry Harvey clarified that net charge-offs are expected to be in the 13-15 basis points range of average loans, and provisioning is anticipated to be 14-18 basis points of average loans, reflecting substantial credit quality improvement in 2025 with criticized loans down $181 million and classified loans down $57 million.

Stephen Scouten inquired about Trustmark's recent hiring trends, specifically the number of new associates, their roles, and target markets like Houston, Birmingham, and Atlanta. He also asked about the expected incremental expense build in the fourth quarter due to these hires and the company's strategy regarding share repurchases versus potential M&A, considering capital build-up.

Answer

President and CEO Duane Dewey stated that 29 new associates were hired in Q3, with 21 being production-related across various business units in key growth markets. Chief Accounting Officer Tom Chambers noted that Q3 expenses included about $400,000 for new hires, with a full-quarter impact expected in Q4. EVP and CFO Tom Owens explained that while the company is pleased with capital deployment via repurchases, a more proactive approach to share repurchase might be considered in 2026, depending on loan growth, with Q4 expected to maintain the current pace.

Stephen Scouten inquired about Trustmark's recent hiring trends, specifically the number of new associates in the third quarter, their focus markets like Houston, Birmingham, and Atlanta, and future hiring plans. He also asked about the expected incremental expense build in the fourth quarter due to these hires and the company's strategy regarding share repurchases, considering capital build-up and potential M&A.

Answer

Duane Dewey, President and CEO, stated that Trustmark hired approximately 29 new associates in Q3, with 21 being production-related across various business units and key growth markets. Tom Chambers, Chief Accounting Officer, clarified that Q3 expenses included about $400,000 for new hires, with a full-quarter impact expected in Q4, along with some non-routine recruiting fees. Tom Owens, EVP and CFO, indicated that while the company is pleased with capital deployment via repurchases, a more proactive rate might be considered in 2026, with Q4 likely maintaining the current pace of about $50 million for the year.

Stephen Scouten asked about opportunities to expand the Texas team, considering recent M&A activity in the market, and whether current capacity is sufficient for desired growth. He also questioned if mid-single-digit loan growth is the right expectation for 2026 or if higher aspirations exist, especially for the Houston MSA. Lastly, he sought clarification on the Net Interest Margin (NIM) trajectory, potential expansion, and how the balance sheet's asset sensitivity aligns with observed NIM performance.

Answer

John Bordelon, Chairman, President, and CEO, confirmed that Home Bancorp has successfully retained and added to its Texas team, including a new branch in Northwest Houston to support a three-person relationship manager team, expressing excitement for continued growth. Regarding loan growth, Mr. Bordelon expects mid-single digits for the first half of 2026, with potential for higher growth in the second half if interest rates decline further. David Kirkley, Senior VP and CFO, explained that NIM in December was 4.08%, with further deposit cost reductions expected in Q1. He projects NIM to tick up to 4.1%-4.15% in a base case scenario, noting the bank is 4.1% overall asset-sensitive. He clarified that while rate cuts immediately impact loan yields, there's a beneficial lag as CDs reprice, leading to relative NIM stability even with significant rate changes. Mr. Bordelon added that competitive deposit pricing from outliers is a current headwind.

Stephen Scouten asked about opportunities to expand the Texas team given recent M&A activity in the market, the overall loan growth capacity for 2026, and the trajectory of the Net Interest Margin (NIM), including the scale of potential upside and how the balance sheet's asset sensitivity aligns with observed practice.

Answer

John Bordelon, Chairman, President, and CEO, Home Bancorp, expressed excitement about the new full-service branch in Northwest Houston, which will enhance the existing team's capabilities and support continued growth in the Texas market. He projects mid-single-digit loan growth for 2026, with potential for higher growth in the second half if interest rates decline further. David Kirkley, Senior VP and CFO, Home Bancorp, explained that recent rate cuts led to a 9 basis point decline in loan yields, but a lag in deposit repricing is expected to benefit NIM. He noted December's NIM was 4.08% and projects it to tick up to 4.1%-4.15% throughout 2026 in a base case scenario, clarifying that the bank remains asset-sensitive from this base. John Bordelon added that competitive deposit pricing from outliers is a current headwind.

Stephen Scouten of Piper Sandler Companies inquired about Home Bancorp's loan growth trends, the influence of potential rate cuts on demand, and the best-case rate scenario for net interest income (NII). He also asked for details on the rate spread between new and renewing certificates of deposit (CDs).

Answer

Chairman, President & CEO John Bordelon stated that some loan demand is waiting for lower rates and that paydowns impacted Q2 growth. He and CFO David Kirkley explained that NII and NIM can still grow at current rates due to favorable loan repricing. They noted that a steeper yield curve would be optimal. Kirkley specified that new/renewal CD rates are around 3.85%, with new customer CDs at 4.1%, and Bordelon added that CD retention is high at 90%.

Stephen Scouten of Piper Sandler Companies inquired about Home Bancorp's loan growth trends, the potential impact of interest rate cuts on loan demand, the optimal rate environment for net interest income (NII), and the rate spread between new and renewing certificates of deposit (CDs).

Answer

Chairman, President & CEO John Bordelon confirmed that some loan demand is on hold pending rate cuts and that recent growth was tempered by paydowns. He and CFO David Kirkley explained that both NII and Net Interest Margin (NIM) could continue to expand even if rates remain flat, driven by the repricing of existing loans at higher yields. They also noted that the short-term nature of their CD portfolio would allow for quick cost reductions following any Fed rate cuts. David Kirkley specified that the weighted average rate for new and renewing CDs is around 3.85%, with new customer CDs coming in at approximately 4.1%.

Stephen Scouten sought to reconcile the bank's stated asset sensitivity with its practical liability sensitivity in a rate-cut scenario, asked about the potential for deposit betas to 'catch up' on the way down, and questioned the planned aggressiveness of the share repurchase program.

Answer

CFO David Kirkley clarified that while models show slight asset sensitivity, they project a rising NIM even in a rate-cut environment due to the loan portfolio's structure and the bank's lower starting point on deposit costs. Executive John Bordelon added that deposit betas should catch up over time but will be slower due to the tight loan-to-deposit ratio. Regarding buybacks, Bordelon indicated they would be opportunistic, particularly if the stock price is near tangible book value, but likely less aggressive than in Q1.

Stephen Scouten asked about the full-year expense build for 2026 and the additional new hire activities factored into those expectations. He also questioned the deposit beta perspective, asking if the observed 30% range for recent rate cuts is sustainable or if it will become more challenging as deposit costs decline. Finally, Scouten sought to understand the drivers behind the company's confidence in achieving mid to high single-digit loan growth, asking if it stems from the Bank of Houston acquisition, new hires, better customer demand, or a combination of these factors.

Answer

Brent Bates, Chief Credit Officer, explained that 2025 non-interest expense remained flat around $33 million per quarter. For 2026, he anticipates normal salary adjustments and continued hiring of mortgage and commercial loan producers, noting they are about halfway through their original hiring plan. Technology project expenses will eventually decrease, though some capitalization will kick in later in the year. Cory Newsom, President, added that they aim for a six-month or sooner break-even point for new lenders, expecting one to two more in Q1, totaling about nine new lenders over two years. Regarding deposit betas, Bates estimated it's closer to 35%, with some lag due to public funds repricing, and emphasized monitoring to avoid deposit runoff. Newsom highlighted their exception-based pricing strategy to protect NIM. For loan growth confidence, Newsom attributed it to a combination of factors, including the Bank of Houston acquisition augmenting liquidity, successful new hires, and strong organic growth. Bates added that scaling approval processes efficiently supports meeting customer and lender demands.

Stephen Scouten asked about the full-year expense build and what additional new hire activities are built into those expectations. He also inquired about the deposit beta for recent rate cuts, estimating it around 30%, and if that's the right way to think about future betas as costs move lower. Lastly, he asked what gives confidence in the mid to high single-digit loan growth guide, specifically if it's BOH, new hires, better customer demand, or a combination.

Answer

Steve Crockett (CFO and Treasurer) mentioned normal salary adjustments and continued hiring initiatives for mortgage lenders and commercial loan producers, noting they are about halfway through their original plan for commercial lenders. Cory Newsom (President) anticipated 1-2 more new lenders in Q1, aiming for about 9 new lenders over a two-year period, emphasizing a 6-month or sooner break-even point. Steve Crockett (CFO and Treasurer) suggested the deposit beta is closer to 35% due to public funds repricing lags. Cory Newsom (President) highlighted their exception-based pricing to protect NIM. Cory Newsom (President) stated confidence in loan growth is 'all of it,' including BOH's talent, South Plains Financial's ability to augment BOH's liquidity, and organic growth from new hires and existing teams. Brent Bates (Chief Credit Officer) added that they are ensuring efficient approval processes to scale safely.

Stephen Scouten questioned South Plains Financial about its new lender hires, specifically asking if they target C&I versus CRE segments, and the anticipated book of business each new hire is expected to bring. He also inquired about the performance and build-up of business from the lenders already added, who represent 10% of the hiring target. Scouten sought guidance on the net interest margin (NIM) starting point for the next quarter, considering the $3.99 net of recovery, the benefit from sub debt payoff, and potential rate cuts. Lastly, he expressed concern about the downward migration of credit scores in the indirect auto portfolio, asking if this trend is a reason for pulling back and its implications for the consumer book.

Answer

President Cory Newsom stated that a good portion of new hires are still in CRE or real estate, though C&I is desired. He noted that they hire based on ability, not just existing book, with new hires typically carrying portfolios from $75 million to $400 million, and most have been in place for under six months. CFO Steve Crockett indicated that NIM might see a slight decline of a basis point or two in the immediate term due to various factors, despite the sub debt payoff benefit. Chief Credit Officer Brent Bates confirmed that while soft scores in the indirect auto portfolio have shown some downward migration in the bottom half over the last two years, delinquencies and meaningful losses have not risen. Cory Newsom added that less than $20 million of the portfolio is in subprime or deep subprime, and they prioritize higher-end credit.

Stephen Scouten of Piper Sandler inquired about the specific segments of lenders South Plains Financial is targeting (e.g., C&I vs. CRE) with its new hires and the anticipated book of business each new lender is expected to bring. He also asked about the performance and contribution of the recently added lenders and sought guidance on the starting point for the net interest margin (NIM) in the upcoming quarter, considering various factors like sub debt payoff and potential rate cuts. Finally, he expressed concern about the downward migration of credit scores in the indirect auto portfolio and its implications for the consumer book.

Answer

President Cory Newsom stated that a good portion of new hires would still be in CRE, though C&I is also desired. He noted that while they don't assume a specific book size, new hires typically manage portfolios ranging from $75 million to $300-$400 million, and most are already breaking even. CFO Steve Crockett projected that NIM might see a slight decline of a basis point or two in the immediate term due to the timing of Fed rate movements and deposit repricing, despite the sub debt payoff. Chief Credit Officer Brent Bates acknowledged the downward migration of credit scores in the bottom half of the indirect auto portfolio over the last 24 months but emphasized that delinquencies and losses have not risen meaningfully, with less than $20 million in subprime/deep subprime loans.

Stephen Scouten of Piper Sandler Companies inquired about the loan growth outlook for 2025 given high repayments, the strategic balance between organic growth through new hires and M&A, and the reasons for the increase in specific reserves.

Answer

Chief Credit Officer Brent Bates and President Cory Newsom explained that while loan origination is strong, high payoffs are tempering growth expectations to the low-to-mid single-digit range for 2025. Newsom affirmed they will pursue both new hires and M&A concurrently, with a focus on relationship banking. Bates and CFO Steven Crockett clarified that the increase in specific reserves was due to a few smaller loans entering non-accrual status and was not related to the large problem loan that was successfully resolved.

Stephen Scouten asked about the yield on new loans versus those rolling off, the potential for NIM expansion in a stable rate environment, and the economic outlook for Texas, particularly regarding oil and drilling activity.

Answer

Executive Steven Crockett indicated new loan yields are in the 7% range, creating a positive spread over maturing loans in the 4-5% range. CEO Curtis Griffith affirmed his confidence in continued NIM expansion in 2025, even in a stable rate environment. Regarding the economy, President Cory Newsom and CCO Brent Bates highlighted strong optimism in the Permian Basin, which is driving the loan pipeline. Griffith added that stable oil prices and increased drilling would be a positive macro event for markets like Houston.

Stephen Scouten from Piper Sandler & Co. inquired about SouthState Bank's hiring strategy, specifically if there's a target number for new hires, particularly commercial Relationship Managers (RMs), given market disruption. He also asked if the projected 10-15% increase in RMs is already factored into the expense guidance and sought clarity on the sustainability of correspondent banking strength observed in recent quarters.

Answer

John Corbett, CEO, stated that increasing the commercial RM count by 10-15% in the next year or two would be acceptable, given the significant market disruption and $118 billion of bank deposits undergoing conversion in their MSAs. He confirmed this growth is contained within the expense guidance. Stephen Young, COO, explained that correspondent banking strength was driven by rate changes and increased interest rate swaps, suggesting a more normalized annual average of $100 million ($25 million per quarter) for 2026, with variability. He also noted opportunistic hiring in capital markets, including SBA securitization and foreign exchange, which are typically commission-based and not an initial expense drag like commercial RM hiring.

Stephen Scouten inquired about SouthState Bank's hiring activity, specifically if there's a target for new hires within the expense guidance, and if the 10-15% increase in commercial RMs is already factored into the expense outlook. He also asked about the sustainability of the strength in correspondent banking.

Answer

CEO John Corbett confirmed that the company is opportunistic in hiring, aiming to increase commercial RMs by 10-15% in the next year or two, and that this growth is contained within the expense guidance. COO Stephen Young explained that correspondent capital markets strength was driven by rate changes and is expected to average around $25 million per quarter in 2026, with full-year non-interest income projected in the 55-60 basis point range of assets. CFO Jeremy Lucas added that capital markets hires are typically commission-based, reducing initial expense drag.

Stephen Scouten of Piper Sandler Companies asked for an update on interest rate sensitivity, particularly how potential rate cuts would affect the NIM. He also sought commentary on the M&A environment and the bank's willingness to hire teams amidst market disruption.

Answer

Chief Strategy Officer Stephen Young detailed that the bank expects a 1-2 basis point NIM improvement for every 25 bps rate cut, driven by the balance between floating-rate loans and repriceable deposits. CEO John Corbett stated that while the bar for M&A is high, the bank is actively recruiting talent from market disruptions, having added 47 revenue producers in Q2.

Stephen Scouten asked about the net interest margin's sensitivity to potential Fed rate cuts, any surprises since the IBTX deal closing, and the loan production volume needed to achieve growth targets.

Answer

Executive Stephen Young stated the balance sheet is now more neutral to rate changes, expecting only a minor 1-2 basis point NIM increase from a 25 bps cut. CEO John Corbett described the cultural integration with IBTX as exceptionally smooth with no major surprises. Corbett also noted that despite competitive pressures, loan pipelines were up 44% since year-end and that loan growth had resumed in April, suggesting a return to normal growth rates is achievable as the economy settles.

Stephen Scouten of Piper Sandler & Co. inquired about the strategic rationale for the sale-leaseback transaction, alternative uses for the generated capital, and the company's appetite for further M&A.

Answer

CEO John Corbett described the sale-leaseback as a capital management move to harvest off-balance sheet capital at an attractive cost, providing future flexibility. Executive Vice President and Chief Financial Officer Stephen Young and President William Matthews mentioned a securities restructure is a potential use for the capital, pending final merger marks. On M&A, Corbett stated the 2025 focus is on integrating IBTX, viewing the $60-$80 billion asset range as the current sweet spot.

Stephen Scouten from Piper Sandler & Co. sought clarification on the source of higher yields in residential loans and asked about the strategic outlook for the size of the consumer residential portfolio. He also questioned how the pending IBTX merger would affect talent acquisition and resource allocation in new and existing markets.

Answer

Executive William Matthews clarified that the higher yields mentioned were in the 'loans held for sale' category, driven by a new SBA loan pooling business, not the on-balance sheet residential portfolio. Executive Stephen Young stated that the consumer residential loan portfolio's share of the balance sheet will naturally decline to around 21-22% post-merger and will be held relatively constant. CEO John Corbett added that post-merger, the company will leverage its treasury management platform to drive C&I hiring in Texas and Colorado while remaining opportunistic in all markets.

Stephen Scouten sought clarification on the realization of cost savings from the Sandy Spring acquisition and the expected run rate for adjusted expenses in Q1. He also inquired about any plans to accelerate the North Carolina expansion, particularly hiring, given industry dislocation. Finally, he asked about the company's timeline and capital thresholds for entertaining share repurchases as capital generation accelerates.

Answer

John Asbury, President and CEO, indicated that Q1 expenses would be flattish due to seasonality (FICA, bonuses, merit increases) before declining later in the year. Rob Gorman, Executive Vice President and CFO, confirmed that approximately $60 million of the projected $80 million in cost savings were already annualized, with another $5 million expected from Q4, and residual merger-related expenses in Q1 would be less than $5 million. Dave Ring, Executive Vice President, noted a strong pipeline for hiring bankers after bonuses, with 20 bankers already in the Carolinas, and no constraints on hiring. Rob Gorman stated that share repurchases would likely be entertained in the second half of 2026, targeting excess capital beyond a 10.5% CET1 ratio. John Asbury emphasized the 4% tangible capital growth in Q4 and the 12%-15% annualized growth target, supporting future buybacks.

Stephen Scouten sought clarification on the realization of cost savings from the Sandy Spring deal and the expected expense run rate for the first quarter. He also asked about the potential to accelerate North Carolina expansion plans and hiring, and the company's strategy for utilizing building excess capital, specifically regarding share repurchases and capital thresholds.

Answer

CEO John Asbury indicated a flattish expense run rate for Q1, which typically serves as a high watermark due to seasonal factors, with expenses expected to decline thereafter. CFO Rob Gorman confirmed that approximately $60 million of the $80 million projected cost savings are annualized in the numbers, with an additional $5 million expected from Q4, and residual merger-related expenses under $5 million for Q1. Wholesale Banking Executive David Ring noted a strong pipeline for hiring bankers post-bonus season, with existing capacity. Gorman stated the company would entertain share repurchases in the second half of 2026, targeting excess capital beyond a 10.5% CET1 threshold. Asbury highlighted 4% tangible capital growth in Q4 and a target of 12%-15% annualized tangible capital growth.

Stephen Scouten asked about the government contracting loan portfolio, which has been a source of investor concern, inquiring about the theoretical loss-given-default on these loans and the potential loss content if weakness were to emerge in that segment.

Answer

An unnamed executive explained that these are secured loans, often margined against billings for highly desirable contracts, leading to a very low expected loss-given-default. President and CEO John Asbury emphasized the portfolio's 15-year history with zero charge-offs, its focus on national security and defense, and the high-variable-cost nature of the businesses, which allows them to flex expenses easily. He noted that while he doesn't claim they will never have a charge-off, their experience has been excellent.

Stephen Scouten from Piper Sandler asked about the possibility of an earlier closing for the Sandy Spring merger, whether Sandy Spring was seeing similar loan payoff dynamics, and for color on the drivers of the mid-single-digit loan growth guidance.

Answer

President and CEO John Asbury and EVP and CFO Rob Gorman confirmed they will target an April 1 close for accounting simplicity, even if approvals arrive earlier. Head of Commercial Businesses David Ring noted elevated payoffs were mainly refinances and some C&I activity related to private credit. Asbury and Ring attributed the loan growth guidance range to competitive dynamics and a disciplined approach to credit structure, not a desire for excessive growth.

Stephen Scouten asked about other potential natural extension markets for talent acquisition, similar to the Columbus expansion, such as Macon or North Georgia. He also inquired whether achieving the internal challenge goal of a $1 EPS run rate by year-end 2026 requires significant new initiatives or simply a continuation of the current strategy of driving operating leverage and organic growth.

Answer

Billy Carroll, President and CEO of SmartFinancial, mentioned North Georgia (serviced from Chattanooga) and potentially South Georgia (like Macon) as similar markets, but emphasized the current focus on deepening presence in existing strong markets like Nashville and Birmingham. Regarding the $1 EPS goal, he stated it primarily requires continued execution, diligent process, and "grinding," with more operating leverage expected in Q2-Q4, backbook repricing, and sustained balance sheet growth, alongside disciplined expense management.

Stephen Scouten from Piper Sandler asked about other potential natural expansion markets similar to Columbus, Georgia, and what significant improvements are needed to achieve SmartFinancial's internal goal of a $1 EPS run rate by year-end 2026.

Answer

Billy Carroll, President and CEO of SmartFinancial, mentioned North Georgia and potentially Macon as future expansion possibilities but highlighted focusing on deepening presence in existing strong markets like Nashville and Birmingham. He also stated that achieving the $1 EPS goal requires continued execution, diligent process, and maintaining operating leverage, with no special actions needed.

Stephen Scouten asked for clarification on the 45% variable cost deposits, specifically how much is directly indexed versus tied to an internal index. He also inquired about the expected NIM trajectory for 2026, the Q4 overall fee revenue guidance, and the plan for the remaining brokered deposits after significant reductions. Finally, he asked about SmartFinancial's M&A strategy, particularly the focus on 'strategic and/or needle-moving opportunities' mentioned in the slide deck.

Answer

Ron Gorczynski, CFO, clarified that 32% of deposits are directly indexed, with the remainder tied to an internal index, totaling 45% variable cost deposits. He confirmed the NIM trajectory of 5-7 basis points expansion each quarter in 2026 and provided Q4 fee revenue guidance of $7 million. Regarding brokered deposits, Ron Gorczynski detailed the reduction from $268 million to $164 million, with an additional $111 million expected paydown, and stated the long-term objective is to eliminate brokered deposits entirely. Billy Carroll, President and CEO, reiterated that the primary strategy remains organic growth, with M&A being evaluated only for 'needle-moving' opportunities that make the company 'better,' not just bigger. Nathan Strall, Director of Investor Relations, added that M&A is considered 1B or 1C to the organic growth strategy.

Stephen Scouten sought clarification on the composition of SmartFinancial's 45% variable cost deposits (directly indexed vs. internal index) and confirmed the projected NIM trajectory for 2026. He also asked for Q4 fee revenue guidance, the plan for remaining brokered deposits, and the company's stance on M&A given its strong performance and focus on 'needle-moving opportunities.'

Answer

CFO Ron Gorczynski clarified that 32% of variable cost deposits are directly indexed, with the remainder tied to an internal index, totaling 45%. He confirmed the expectation of five to seven basis points of NIM expansion each quarter in 2026 and projected Q4 non-interest income to be $7 million. Ron Gorczynski also stated the goal is to pay down all remaining brokered deposits as they become due, aiming to eventually eliminate them. President and CEO Billy Carroll reiterated that organic growth is the primary strategy, but the company remains open to evaluating 'needle-moving opportunities' in M&A that would make the company better, not just bigger, emphasizing that the current strategy is working well.

Stephen Scouten of Piper Sandler Companies asked about the sustainability of recent low double-digit loan growth, the geographic and vertical focus of new hires, and the company's next strategic targets after achieving its 2025 goals.

Answer

President & CEO William Carroll stated that while low double-digit growth is feasible, he conservatively guides toward high-single-digits due to potential payoffs. He noted new hires are spread across Tennessee, Alabama, and the Gulf Coast. For future strategy, Carroll and Chairman Miller Welborn emphasized getting 'deeper' in existing markets rather than major new market expansion, focusing on growing revenue, EPS, and tangible book value.

Stephen Scouten of Piper Sandler inquired about customer sentiment and the drivers behind the loan growth outlook, the strategy for balance sheet leverage, and the company's stance on share repurchases at current stock prices.

Answer

President and CEO William Carroll, along with executives Rhett Jordan and Miller Welborn, noted strong market conditions and positive client feedback despite tariff concerns, affirming their mid-to-high single-digit loan growth guidance. Carroll and CFO Ronald Gorczynski explained they have flexibility with their 83% loan-to-deposit ratio but will remain prudent, focusing on quality growth. Regarding buybacks, Gorczynski mentioned a remaining authorization of $1.5 million, while Carroll stated they typically consider repurchases closer to book value.

Stephen Scouten of Piper Sandler asked what factors could enable loan growth to reach the 13-14% level again, versus the high-single-digit guidance. He also inquired about the balance between opportunistic hiring and achieving profitability targets, and how NIM expectations might change under different Fed rate scenarios.

Answer

CEO William Carroll and Chief Credit Officer Rhett Jordan attributed strong growth to diversified production and contributions from 17 new producers hired in 2024. Carroll emphasized that hitting profitability targets is the primary goal, and hiring will be balanced to support that. Executive Wesley Welborn added that the best M&A strategy might be organic growth. CFO Ronald Gorczynski explained that NIM expansion is driven by loan repricing and strong new loan yields, and he expects the bank to benefit even in a flat-rate environment.

Stephen Scouten sought confirmation on a long-term expense growth outlook of 5-7% and asked if the bank's CRE concentration, now at 288%, could be a headwind for future growth. He also questioned the feasibility of achieving the $50 million quarterly revenue target by late 2025.

Answer

CFO Ronald Gorczynski affirmed that a 5-7% expense growth range is a reasonable long-term goal. President and CEO William Carroll and executive Rhett Jordan stated the CRE concentration is not a headwind, as they are highly selective and focused on full-relationship business. Carroll also expressed confidence in reaching the $50 million quarterly revenue target on schedule.

Stephen Scouten inquired about the nature of recent loan growth, specifically if there were larger energy loans, the company's ability to fund loan opportunities through deposit growth, and any changes in delinquencies within the Shore Premier book.

Answer

Kevin Hester, President and Chief Lending Officer, clarified that a flagged energy loan was an upsizing of an existing, well-performing credit, not a new market dive. Stephen Tipton, CEO of Centennial Bank, stated the target loan-to-deposit ratio is mid-90s% and expressed optimism for deposit growth from company strength and market presence. Kevin Hester and Chairman John Allison explained Shore Premier delinquencies were due to a few isolated, one-off issues and court system delays, not systemic changes.

Stephen Scouten inquired about a flagged larger energy loan, asking if it indicated a new sector focus. He also questioned the company's ability to drive sufficient deposit growth to fund loan opportunities, the target loan-to-deposit ratio, and the increase in 90-day delinquencies within the Shore Premier book.

Answer

Kevin Hester, President and Chief Lending Officer, clarified the energy loan was an upsizing of an existing relationship, not a new sector dive. John Allison, Chairman, provided historical context on the syndicated credit. Stephen Tipton, CEO of Centennial Bank, stated the loan-to-deposit ratio target was mid-90s (ended Q4 at 89%), expressing optimism for deposit growth through company strength and market opportunities. Kevin Hester and John Allison explained Shore Premier delinquencies were due to one-off issues, such as a specific boat stuck in the court system, rather than systemic problems.

Stephen Scouten inquired about the drivers behind the strong organic loan growth, the company's M&A strategy regarding target size and type (whole bank vs. loan portfolios), and the feasibility of executing a non-dilutive acquisition.

Answer

President & Chief Lending Officer Kevin Hester attributed loan growth to strong markets rather than increased aggressiveness. Chairman & CEO John Allison confirmed the focus is on whole-bank M&A and reiterated a strong aversion to dilutive deals, stating the company has no intention of pursuing transactions that dilute shareholder value, though a minor, short-term dilution for a strategic, EPS-accretive deal might be considered.

Stephen Scouten asked what catalysts, such as lower rates or higher stock prices, are needed to stimulate M&A deal flow. He also inquired if there were any levers for revenue growth that the company could pull, aside from acquisitions, such as new lines of business.

Answer

Executive John Allison opined that educating sellers on relative value and exchange ratios is more critical than absolute stock prices for getting deals done, though he acknowledged that marks on securities portfolios are a hurdle for some potential sellers. On revenue, Allison stated there is no new initiative, and the plan is to 'keep on, keeping on.' He expressed confidence that the next quarter would be as good or better, citing a strong run rate and several anticipated one-time gains.

Stephen Scouten from Piper Sandler asked about the target size for future M&A deals, whether the experience with the Happy State Bank acquisition altered their strategy, what specific regulatory relief would be most beneficial, and the drivers behind their confidence in a 2025 loan growth pickup.

Answer

Chairman John Allison stated that while the Happy deal made them more cautious about culture, they remain active in M&A, considering banks from $750M to over $2.5B. He identified faster M&A approval timelines as the most impactful potential regulatory relief. He and Kevin Hester cited strong pipelines in key markets like Florida and general economic optimism as reasons for their positive loan growth outlook.

Stephen Scouten asked about the current outlook for M&A, including how a potential Trump presidency might affect regulatory approvals and activity, and how the net interest margin (NIM) might trend with future interest rate cuts.

Answer

Chairman John Allison stated that the bank is actively looking at M&A opportunities and believes a Trump administration would be more supportive, potentially boosting activity. Regarding the NIM, CEO Stephen Tipton explained that while their model shows a slight decline in a rate-cut scenario, the goal is to remain flat by aggressively managing deposit costs. Mr. Allison added that early Q4 data shows the margin holding up well.

Stephen Scouten inquired about the expectation for seasonal strength in deposits during the fourth quarter and whether Stellar Bank anticipates a similar trend this coming quarter. He also asked for clarification on why the third quarter's expense ratio was considered an outlier and what expense levels to expect for 2026, considering general inflation.

Answer

Paul Egge (CFO) confirmed seasonal strength from government banking deposits, noting a significant deposit in late 2024, but stated it's hard to predict the exact timing. Bob Franklin (CEO) clarified that this seasonal strength is not reflected in the third quarter's deposit growth. Paul Egge explained that Q4 expenses are expected to be closer to the first half's run rate (around $70 million) than Q3's $73.1 million, attributing the Q3 outlier to severance expenses and elevated medical insurance. He added that the bank is in optimization mode, focusing on holding the line on expenses going into 2026.

Stephen Scouten inquired about the expected seasonal strength in deposits for the fourth quarter, particularly regarding government banking deposits. He also asked for clarification on the third quarter's non-interest expense being an outlier and whether the bank expects to maintain a non-interest expense run rate around $70 million in 2026, considering general inflation.

Answer

Paul Egge, CFO of Stellar Bank, confirmed seasonal strength from government banking deposits, noting a $200 million deposit on the last day of 2024, but stated that Q3's deposit growth did not reflect this. Regarding expenses, Paul Egge clarified that Q4 expenses would be closer to the first half's run rate (closer to $70 million than $73 million), acknowledging some expected inflation but emphasizing the bank's focus on optimizing and holding the line after crossing the $10 billion threshold.

Stephen Scouten questioned whether the positive operating leverage target is on a GAAP or core basis, the expected decline rate for purchase accounting accretion, the use of on-balance sheet liquidity, and how management views its stock as M&A currency.

Answer

CFO Paul Egge stated the bank aims to deliver operating leverage on both a GAAP and core basis, suggesting consensus estimates were light. He confirmed the remaining loan discount is $73.7 million and will diminish over the next year. He also noted that the high year-end cash balance was a temporary 'mirage' due to seasonal government deposits. CEO Robert Franklin described the stock's M&A currency as 'neutral' at current levels—not a benefit, but not a detriment.

Stephen Scouten inquired about United Community Banks' loan growth trends, specifically asking about pipeline strength, the current stage of senior care portfolio runoff, and the drivers behind the growth in the HELAC product.

Answer

President and Chief Banking Officer Rich Bradshaw highlighted strong, balanced loan growth across all geographies, particularly in C&I, and confirmed robust pipelines for Q4. He noted that 100% of branch managers are now lending, contributing to HELAC growth, and indicated approximately $230 million remains in the senior care portfolio with similar runoff expected next quarter. EVP and CFO Jefferson Harralson explained that the improved deposit beta guidance to the 40% range is due to successful rate cuts and continued CD growth, and provided current new loan yields in the 7% range and new CD yields around 3.20-3.30%.

Stephen Scouten asked about United Community Banks' loan growth trends, including pipeline strength, the current stage of senior care portfolio runoff, and the drivers behind the growth in the HELOC product. He also inquired about the updated deposit beta guidance and the expected yields for new CDs and loans.

Answer

Richard Bradshaw, President and Chief Banking Officer, stated that loan growth was strong and balanced across all geographies, with a heavy emphasis on C&I. He expects Q4 pipelines to be similar or slightly better. For senior care, approximately $230 million remains, with $35 million runoff this quarter, and most non-long-term customer portions are expected to run off next year. HELOC growth was attributed to a retail reorg, 100% branch manager lending, and a specific campaign. Jefferson Harralson, EVP and CFO, updated the deposit beta expectation to the 40% range, citing successful rate cuts and CD growth. He noted new loan yields are in the 7% range, and new CD yields are around 3.20%-3.30%.

Stephen Scouten inquired about the bank's hiring strategy, asking whether the focus is on entering markets with lower deposit share or on increasing density in existing strongholds. He also asked how aggressive the bank would be in recruiting high-end talent if M&A-related market dislocation were to create opportunities.

Answer

President & Chief Banking Officer Richard Bradshaw responded that the strategy involves both adding lenders in existing markets and looking at major metro areas for growth, but the primary driver is the availability of top talent. Chairman & CEO H. Lynn Harton affirmed that the bank has the capacity to be 'very assertive' in hiring from competitors experiencing disruption and that Mr. Bradshaw has a 'free hand' to invest in the right people.

Stephen Scouten asked about Cadence Bank's major strategic initiatives going forward, questioning whether the focus would be on blocking and tackling or additional M&A, and if M&A would target market extension or in-market deals. He also inquired about the implied strong organic loan growth rate for Q4 2025 and if that's a palatable expectation for 2026, seeking confidence drivers.

Answer

CEO Dan Rollins reiterated the consistent strategy of expanding within the existing nine-state footprint for more density, expressing pride in the two completed transactions this year. Chief Credit Officer Chris Bagley confirmed solid and diverse loan pipelines across CNI segments and specialty groups, supporting the budget and indicating strong activity. Chief Banking Officer Billy Braddock added that community banking is also seeing growth, with new acquisitions benefiting from expanded product offerings and lending limits.

Stephen Scouten inquired if the implied mid-to-mid-high single-digit organic loan growth for Q4 2025, as suggested by the guidance, is a palatable expectation for 2026, and what factors (pipeline growth, customer demand, behavior) provide confidence in this outlook.

Answer

CEO Dan Rollins, Chief Credit Officer Chris Bagley, and Chief Banking Officer Billy Braddock confirmed solid and diverse pipelines across all CNI segments, specialty groups, and energy. They noted some headwinds from CRE paydowns but strong origination activity. They expressed confidence that new acquisitions will contribute significantly next year due to new products and higher lending limits, supporting their growth thesis.

Stephen Scouten asked about the bank's comfort level with its loan-to-deposit ratio, its outlook on future M&A given the quick closing of the First Chatham deal, and whether there is an inflection point for a material pickup in mortgage income.

Answer

CEO James Rollins expressed comfort with the current loan-to-deposit ratio, aiming to stay in the current neighborhood. On M&A, he stated that while speed is good, the primary focus remains on finding the right cultural fit, which isn't changed by timelines or valuations. Regarding mortgage, CFO Valerie Toalson noted that a significant rate drop of 50 basis points or more would be needed to truly ignite refi activity, though the team has been upscaled and is performing well.

Stephen Scouten sought clarification on the reported net interest margin, specifically reconciling the September spot rate with supplemental information, and confirming the expected margin expansion. He also asked about potential new market expansions, particularly in Texas, and the timing and impact of the recent security sale on fourth-quarter net interest margin.

Answer

EVP and CFO David Sparacio confirmed that the interest reversal accounted for a 31 basis point difference in the margin and reiterated the expectation of 7-10 basis points of margin improvement in the fourth quarter. President and CEO Tom Broughton expressed keen interest in expanding into Texas, contingent on finding the right team, and highlighted the opportunity to manage down deposit costs as the Fed cuts rates. David Sparacio noted the security sale occurred late in Q3, so its full benefit to the run rate of securities yields will be realized in Q4.

Stephen Scouten of Piper Sandler Companies inquired about the future trajectory of the net interest margin (NIM), the strategy for deposit growth amidst municipal outflows, and details on new hires and the merchant card processing initiative.

Answer

EVP & CFO David Sparacio projected the adjusted NIM, starting at 3.06%, could increase by approximately 10 basis points per quarter for the rest of the year, absent Fed rate changes. He also noted the municipal deposit runoff was anticipated and managed. Chairman, President & CEO Thomas Broughton clarified that most new FTEs were interns and the merchant card initiative aims to significantly increase customer penetration from 1% to a target of 8%, boosting non-interest income.

Stephen Scouten inquired about the sustainability of strong Q1 deposit growth, the future trajectory of the net interest margin (NIM) as cash balances normalize, and any shifts in loan demand or pipeline sentiment following recent market uncertainty.

Answer

CEO Thomas Broughton and COO Rodney Rushing explained that the significant Q1 deposit growth was largely driven by temporary municipal and correspondent inflows, which are expected to moderate. CFO David Sparacio added that as these excess cash balances decrease, it should positively impact the NIM. Regarding loan demand, Tom Broughton expressed optimism, stating that 'Main Street is a heck of a lot more durable than Wall Street' and that the bank sees no significant negative impact on its commercial clients, with loan repricing and growth expected to drive earnings.

Stephen Scouten inquired about the drivers behind the strong deposit beta performance, the potential for Net Interest Margin (NIM) upside in different rate environments, and the bank's hiring strategy, particularly regarding opportunistic hires from M&A dislocation.

Answer

CEO Thomas Broughton attributed the deposit discipline to the bank's excess cash position, which allows them to manage interest expenses without significant client pushback. He noted that robust floors on new loans should protect margins if rates fall. On hiring, Broughton confirmed the bank remains opportunistic, not constrained by budgets, and views M&A activity as a significant source of potential talent. He mentioned having a list of about 20 potential expansion markets and leveraging their correspondent network to identify opportunities.

Stephen Scouten of Piper Sandler asked about the potential for loss in the newly designated special mention loans, the focus of recent banker hires, the drivers behind the quarter's loan yield increase, and current pricing for new CDs.

Answer

CEO Thomas Broughton confirmed no loss is expected on the special mention loans, attributing the downgrade to a construction delay on one project and hurricane-related payment timing. He also noted new bankers were hired in Auburn, Nashville, and Florida. CFO Kirk Pressley explained the loan yield increase was driven by ongoing repricing of the fixed-rate portfolio, not onetime items. Broughton added that new CD rates are falling, with a large block of high-rate CDs maturing in Q4.

Stephen Scouten asked about real estate market absorption trends across various asset classes (office, industrial, land) and the timing for recognizing Allowance for Credit Losses (ACL) on two new substandard loans in Chicago and Boston.

Answer

George Gleason, Chairman and CEO, explained the process of charge-offs versus reserves, provided updates on significant OREO asset sales, and highlighted strong sponsor support for modified loans. Brannon Hamblen, President, detailed positive absorption trends in multifamily, office (flight to quality), and industrial sectors, noting the adaptability of life science spaces for traditional office use. Stephen Scouten also inquired about the bullish outlook for 2027 loan growth and fee income, to which George Gleason confirmed expectations for mid-single-digit loan growth in 2026, driven by CIB, and accelerated, diversified growth in 2027 after the RESG payoff wave. Jake Munn, President of Corporate and Institutional Banking, added commentary on CIB's strategic rebalancing for higher utilization rates and capital optimization.

Stephen Scouten inquired about the composition of new hires, particularly in production roles and the Natural Resource Group (NRG), and the potential for M&A to accelerate talent acquisition or become a strategic option for Bank OZK.

Answer

Chairman & CEO George Gleason explained that new hires were broad-based, driven by branch expansion, CIB growth, and new business banking teams. He stated that while competitor M&A creates opportunities, OZK's culture is the primary driver for attracting talent. CFO Tim Hicks added that the bank's strong organic growth sets a very high bar for any potential M&A, which is evaluated conservatively. Hicks also confirmed the CIB group is actively syndicating loans.

Stephen Scouten of Piper Sandler inquired about the demand profile for RESG originations amid market uncertainty and asked about the strategic handoff from RESG to non-RESG loan growth, particularly within C&I lending.

Answer

Paschall Hamblen, President, acknowledged that market uncertainty has led to a pause in RESG origination guidance but noted that sponsors remain focused on high-quality deals. Chairman and CEO George Gleason reaffirmed the bank's overall loan growth guidance, expressing confidence in other business lines to compensate for any RESG slowdown. Jake Munn, President of Corporate and Institutional Banking, highlighted strong momentum in CIB and announced the launch of a new natural resources group to further the bank's diversification strategy.

Stephen Scouten asked about Banco OZK's growth trends, specifically the progress of the strategic handoff to the Corporate and Institutional Banking (CIB), Marine, and RV divisions. He also inquired about the accounting impact of this shift on loan loss reserves for unfunded commitments and the rationale behind the bank's loan modification strategy.

Answer

Chairman and CEO George Gleason, President Paschall Hamblen, and President of CIB Jake Munn confirmed that the growth diversification is on plan. Munn detailed the foundational build-out of CIB in 2024, positioning it for significant growth. CFO Tim Hicks noted that changes in unfunded commitments are one of many factors in the ACL calculation. Gleason emphasized that loan modifications are a positive tool used to strengthen credits by collecting fees, securing paydowns, and replenishing reserves, underscoring the bank's disciplined, credit-first culture.

Stephen Scouten asked for a holistic view of the puts and takes influencing the Net Interest Margin (NIM) inflection expected in late 2025, the strategy for handing off loan growth from the Real Estate Specialties Group (RESG) to Corporate & Institutional Banking (CIB), and the accounting triggers for reclassifying construction loans.

Answer

CFO Tim Hicks and CEO George Gleason explained that NIM dynamics depend on the pace of Fed cuts, with faster cuts creating near-term headwinds but accelerating the inflection point as loan floors are reached. President Brannon Hamblen and CIB President Jake Munn detailed the CIB's significant headcount expansion and strong pipelines, which are timed to offset moderating RESG growth. Hamblen also clarified that loans are reclassified from construction upon project completion and the start of amortization, with no fundamental change to the ongoing risk evaluation process.

Stephen Scouten asked if the current loan loss reserve level is appropriate, questioned the drivers behind the projected Q3 net interest margin (NIM) decline, and sought clarity on the strategy for the new loan syndications and sales division.

Answer

CEO Jerry Plush confirmed the current allowance range of $120M-$125M is a reasonable baseline, contingent on the mix of future loan growth. He explained that the new syndications head will enable prudent risk management on larger deals, allowing the bank to participate without increasing concentration risk. CFO Sharymar Calderón noted the Q2 NIM was inflated by recoveries and the Q3 forecast reflects normalization and the full-quarter impact of a larger securities portfolio.

Stephen Scouten of Piper Sandler questioned if the recent increase in credit downgrades was influenced by the new Chief Credit Officer's arrival. He also asked about the frequency of financial updates from customers, the drivers behind the loan growth shortfall versus the mid-quarter update, and how the experience with the mortgage business pivot influences future strategic expansion.

Answer

CEO Gerald Plush attributed the credit rating changes primarily to the timing of receiving updated 2024 year-end financials from clients, which coincided with the new CCO's start, rather than a change in philosophy. On loan growth, he cited a combination of borrower uncertainty, high rates, and a deliberate 'pruning' of non-relationship loans. Regarding strategy, Plush and CFO Sharymar Yepez explained the mortgage pivot reflects a strategic decision to focus capital on core Florida markets for a better return, rather than scaling a national platform, and to maintain mortgage as a complementary product for relationship clients.

Stephen Scouten of Piper Sandler Companies asked about future plans for the San Antonio market following the American Bank acquisition and questioned if the deal's three-year earn-back period was at the limit of their comfort level. He also inquired about the potential for larger M&A or deals outside of Texas and Oklahoma, and sought clarification on whether the NIM guidance included the pending acquisition.

Answer

Senior Chairman and CEO David Zalman replied "stay tuned" regarding further San Antonio expansion. He defended the deal's pricing, noting the effective tangible book multiple was an attractive 1.8x after AOCI adjustments, making the three-year earn-back reasonable for a high-quality franchise. He confirmed a preference for Texas and Oklahoma but would consider a strategic deal elsewhere. Lastly, he clarified that the provided NIM trajectory guidance does not include the impact from the American Bank deal.

Stephen Scouten of Piper Sandler Companies asked about plans for the San Antonio market post-acquisition, the deal's three-year earn-back period, and the company's appetite for larger or out-of-state M&A. He also clarified if NIM guidance included the deal's impact.

Answer

Senior Chairman & CEO David Zalman responded "stay tuned" on San Antonio plans and defended the deal's earn-back by highlighting the quality of the franchise. He reiterated a preference for Texas but would consider a large, strategic out-of-state deal. He confirmed the provided NIM guidance excludes the accretive impact from the American Bank acquisition.

Stephen Scouten asked about future plans for the San Antonio market following the American Bank acquisition and whether the three-year earn-back period for the deal was at the limit of their comfort level. He also inquired about the potential for larger M&A deals or expansion outside of Texas and Oklahoma, and sought clarification if the forward NIM guidance included the impact of the American Bank deal.

Answer

Senior Chairman & CEO David Zalman responded to the San Antonio question with "stay tuned." Regarding the deal pricing, he explained that after adjusting for AOCI, the price was a very reasonable 1.8 times tangible book, making the three-year earn-back acceptable for a high-quality bank. On future M&A, he reiterated a preference for Texas but would consider a strategic out-of-state deal if it were large enough. He also clarified that the provided NIM trajectory guidance does not include the accretive impact from the American Bank acquisition.

Stephen Scouten of Piper Sandler asked about future strategy, inquiring if the acquisition of American Bank signaled a plan to further deepen the franchise in San Antonio. He also questioned the three-year earn-back on the deal and asked about the potential for larger M&A targets, possibly outside of Texas. Finally, he sought clarification on whether the NIM guidance included the American Bank deal.

Answer

David Zalman, Senior Chairman & CEO, responded with a cryptic "stay tuned" regarding further San Antonio expansion. He defended the deal's three-year earn-back, noting the price was an attractive 1.8x tangible book after AOCI adjustments for a high-quality bank. On future M&A, he reiterated a preference for Texas but confirmed a large, strategic deal outside the state would be considered. He also clarified that his earlier NIM trajectory guidance did not include the accretive impact from the American Bank acquisition.

Stephen Scouten questioned what could lead to an upward revision of the revenue guidance given strong performance, inquired about the outlook for mortgage finance yields, and asked about the drivers of better-than-expected expense control.

Answer

MD & CFO Matt Scurlock detailed that NII momentum, driven by CD repricing and strong deposit growth, could push revenue to the high end of the current guide. He noted mortgage finance yields would dip with a Fed cut but otherwise remain flat. Chairman, President & CEO Rob Holmes attributed the expense discipline to multi-year technology investments that are now enabling greater efficiency and scalability.

Stephen Scouten from Piper Sandler Companies sought clarification on the business mix at BHG between consumer and commercial loans, asked what performance would be required to reach the maximum 125% incentive compensation payout, and requested an update on the growth opportunity in the Richmond market.

Answer

CFO Harold Carpenter stated the BHG mix is roughly 70% consumer and 30% commercial, making the consumer credit improvement highly impactful. He noted that reaching the 125% incentive payout would require hitting the high end of guidance ranges for loan, deposit, and fee growth. President & CEO Terry Turner expressed strong confidence in the Richmond market, targeting a $1 to $1.5 billion bank over five years, driven by an exceptionally experienced new team.

Stephen Scouten of Piper Sandler Companies questioned the current business mix at BHG between consumer and commercial, what performance would be required to reach the maximum 125% incentive compensation payout, and the potential scale of the new Richmond market.

Answer

CFO Harold Carpenter estimated the BHG mix is about 70% consumer, making improvements in that segment highly impactful. He stated that achieving the 125% incentive payout requires hitting the high end of guidance for loan, deposit, and fee growth. CEO Terry Turner projected the Richmond market could become a $1 billion to $1.5 billion asset bank within five years, expressing high confidence in the newly hired team.

Stephen Scouten from Piper Sandler Companies sought clarification on the BHG business mix between consumer and commercial loans, what performance would be required to reach the maximum 125% incentive payout, and an update on the growth opportunity in the Richmond market.

Answer

CFO Harold Carpenter estimated the BHG mix is about 70% consumer and 30% commercial, noting the improvement in consumer credit is most impactful. He stated that achieving the 125% incentive payout would require hitting the high end of the firm's growth guidance ranges. President & CEO Terry Turner added that the goal for the new Richmond market is to build a $1 to $1.5 billion bank over five years, expressing strong confidence in the newly hired team there.

Stephen Scouten of Piper Sandler Companies asked about the drivers of deposit growth, particularly the contribution from new markets, the sustainability of favorable deposit betas, and the firm's approach to C&I lending amid rising economic uncertainty.

Answer

M. Turner (Executive) clarified that while some new markets are strong deposit contributors, the primary driver has been the firm's specialty deposit verticals. Harold Carpenter (Executive) expressed confidence in maintaining aggressive deposit repricing with rate cuts but acknowledged it becomes harder as rates approach zero. He also noted the firm is not afraid of deeper cuts as long as the yield curve is not inverted.

Stephen Scouten asked about the strategy for moving clients from negotiated-rate to indexed deposits and whether this creates outflow risk as rates fall. He also questioned how Pinnacle avoids becoming like the large regional banks it competes against as it continues to grow.

Answer

Executive Harold Carpenter explained that moving clients to indexed deposits is a one-on-one conversation, and he is confident in retaining these clients due to strong relationships. Executive M. Turner added that the bank has been proactively preparing associates and clients for a down-rate environment. On the topic of growth, Turner emphasized that Pinnacle's culture, which is strengthening, not diminishing, is key. He pointed to consistent high rankings as a 'Best Place to Work' and a focus on a geographic, not line-of-business, structure as differentiators. He believes the simple, repeatable model of hiring the best bankers who bring their clients over will continue to drive outsized growth without succumbing to the 'law of large numbers'.

Stephen Scouten from Piper Sandler Companies explored the company's strategic path, asking if the focus would remain on the organic growth story before considering M&A, and if there was upside to hiring plans given market disruption.

Answer

CFO Michael Achary confirmed that focusing on the organic growth plan is a 'very plausible path.' President and CEO John Hairston added that there is no ceiling on hiring good talent opportunistically, stating they would gladly add more 'offensive players' beyond their stated goals if the right people became available.

Stephen Scouten of Piper Sandler sought more detail on the PPNR guidance, asking about the expense base of the incoming Sabal Trust business. He also requested sensitivity analysis for the Net Interest Margin (NIM) guide under different interest rate scenarios and asked what is needed to accelerate loan growth beyond environmental factors.

Answer

CFO Michael Achary declined to provide Sabal's specific expense base but noted its expected accretion is $0.02/share in 2025, growing to $0.08-$0.10 by 2027. He explained that NII is not materially sensitive to the number of rate cuts this year; loan growth is the primary driver. He stated NIM expansion will continue via repricing opportunities. CEO John Hairston added that an upside surprise in loan growth would require the 10-year Treasury yield to remain elevated, an acceleration of new hires, and faster productivity from those hires.

Stephen Scouten from Piper Sandler asked how much of the 2025 loan growth is dependent on new hires, what 'green shoots' support the growth outlook, and why the market might be underappreciating the company's stock.

Answer

CEO John Hairston stated that 2025 growth guidance has minimal impact from new hires, whose contribution will be more significant in 2026. He identified the end of the SNIC portfolio runoff as the biggest tailwind, with green shoots in CRE, healthcare, and business banking. CFO Michael Achary addressed the stock valuation by highlighting the company's achievements in de-risking, improving profitability, and building capital, positioning 2025 as a pivot to growth.

Stephen Scouten of Piper Sandler Companies asked about management's preference between whole-bank M&A versus organic growth from team lift-outs. He also sought color on loan origination volumes, the drivers of the increased provision for unfunded commitments, and current trends in the multifamily lending market.

Answer

CEO Chris Holmes stated the company has no preference between M&A and organic lift-outs, feeling well-positioned to pursue both. CFO Michael Mettee clarified the higher provision for unfunded commitments was driven by the new CECL model's methodology and economic assumptions, not a change in production. Chief Banking Officer Travis Edmonson noted that while multifamily demand has slowed, the bank continues to work with a select group of top-tier operators on new projects.

Stephen Scouten asked about current loan growth trends, particularly in C&I, given market uncertainty. He also inquired about the pace of expansion in newer markets like Nashville and Tuscaloosa, the rate of new producer hires, and the company's strategy for its share repurchase program at current stock levels.

Answer

Executive Christopher Holmes noted some client reticence on major projects but continued business-as-usual activity. Chief Bank Officer Travis Edmondson added that loan pipelines remain robust, supporting a high single to low double-digit growth outlook. Edmondson and CFO Michael Mettee confirmed strong momentum and continued hiring in Tuscaloosa and Nashville. Holmes affirmed the company's intent to maintain its hiring pace and to be active in the market with its $73 million share repurchase authorization if the stock is perceived as undervalued.

Stephen Scouten inquired about the details of recent new hires, the drivers behind the company's optimism for loan growth in 2025, and whether a more favorable regulatory environment for M&A changes the bank's acquisition strategy.

Answer

Executive Christopher Holmes explained that new hires are primarily core C&I frontline bankers and that recruiting momentum is strong. He attributed growth optimism to the maturation of recent hires and strong organic growth in the bank's geography. Regarding M&A, Holmes confirmed that faster regulatory approvals reduce transaction risk and shape their view, allowing for a more constructive approach to deals without getting 'over their skis'.

Stephen Scouten asked for factors that could drive NII growth to the high or low end of its guided range, whether the bank would consider actions to expedite the runoff of its residential loan book, and if the bank is nearing an inflection point for overall balance sheet growth.

Answer

CEO Raj Singh explained that NII is sensitive to loan growth, credit spreads, and the slope of the yield curve, but reiterated confidence in the existing guidance. Regarding the residential book, CFO Leslie Lunak stated that analyses show the earn-back period for a potential sale is too long to be a compelling trade. Raj Singh added that the focus for 2025 remains on balance sheet optimization rather than overall growth.

Stephen Scouten sought to confirm that NII expansion is primarily driven by NIM and mix changes, asked about the expense component of noninterest-bearing deposit growth, and requested more detail on a specific nonperforming office loan.

Answer

CFO Leslie Lunak confirmed that NII growth is driven by margin and balance sheet mix transformation, not asset growth. She declined to disclose specific expense details for deposit-gathering business lines. Regarding the office loan, management stated they are adequately reserved with a specific provision but did not provide further details on the credit.

Stephen Scouten of Piper Sandler & Co. asked about a jump in occupancy and equipment expenses, the long-term potential for the Net Interest Margin (NIM), and what is needed to grow Pre-Provision Net Revenue (PPNR), which was down year-over-year.

Answer

EVP & CFO Leslie Lunak attributed the occupancy expense increase to sporadic repair and maintenance costs. CEO Raj Singh stated the long-term NIM target is over 3% within the current business model. Both Mr. Singh and Ms. Lunak explained that growing PPNR will require a return to balance sheet growth and top-line revenue growth, as the recent shrinkage was a deliberate part of the bank's transformation strategy.

Stephen Scouten inquired about the expected headwind from CRE paydowns versus new production, the balance sheet's response to potential rate cuts, and the bank's appetite for share repurchases at current valuation levels.

Answer

CEO Malcolm Holland stated the bank will manage CRE concentrations just below regulatory guidelines and that new investment is focused on C&I. Executive William Holford explained the balance sheet is now rate-neutral, but rate cuts would cause short-term NIM pressure for 3-4 months before stabilizing. CFO Terry Earley confirmed the bank would continue to be opportunistic with buybacks, especially if the stock trades below tangible book value, and would not expect repurchase volume to decrease.

Stephen Scouten from Piper Sandler inquired about the expected headwind from commercial real estate (CRE) paydowns versus loan production, the size of the unfunded loan book, how the balance sheet would perform in a rate-cut environment, and the company's share repurchase strategy.

Answer

Chairman and CEO Malcolm Holland stated that Veritex will manage CRE concentrations just below regulatory limits and expects payoffs to remain stable, while noting new investments are focused on the C&I space. Executive William Holford explained that the balance sheet is now relatively rate-neutral, with a 3-4 month lag for the Net Interest Margin (NIM) to catch up after a rate cut. He anticipates the NIM will remain in the guided range if there are two rate cuts in the back half of the year. CFO Terry Earley added that the company would be aggressive with share repurchases if the stock trades below tangible book value and does not expect the pace of buybacks to slow.

Stephen Scouten asked about the expected headwind from CRE paydowns versus new production, the current size of the unfunded loan book, how the balance sheet might perform with potential rate cuts, and the bank's strategy for share repurchases.

Answer

CEO Malcolm Holland stated that the bank will manage CRE concentrations just below regulatory limits and that payoffs have been stable, with new investments focused on C&I. Executive William Holford described the balance sheet as rate-neutral, noting a rate cut would cause a 3-4 month lag in NIM recovery as the CD portfolio reprices. CFO Terry Earley confirmed the bank intends to be opportunistic with its remaining $37 million buyback authorization, especially if the stock trades below tangible book value, suggesting the Q1 repurchase pace is a reasonable expectation.

Stephen Scouten asked about Veritex's path to achieving a 1% return on average assets (ROA) in 2025, the primary drivers of this profitability improvement, the outlook for loan growth amidst high payoffs, and the expected repricing of maturing CDs.

Answer

CEO Malcolm Holland confirmed the 1% ROA target for 2025, likely to be achieved in Q3, driven by loan growth and deposit repricing. CFO Terry Earley emphasized that fee income from areas like treasury management, card revenue, and government-guaranteed loans would also be a significant contributor. Regarding loan growth, Holland noted that while payoffs from 2021-2022 loans are a headwind, production pipelines are very strong. Executive Will Holford added that new CDs in Q1 2025 were being issued at a rate of 4.24% with good customer retention.

Stephen Scouten inquired about the performance and outlook for the government-guaranteed lending business, the strategy to reduce CRE concentrations, and the drivers of growth in noninterest-bearing deposits.

Answer

Chairman and CEO Malcolm Holland explained that enhancements in the government lending business, including integrating SBA lending into the USDA team's scope, should produce better results in the second half of the year. He also stated that CRE concentration reduction will be achieved organically through loan payoffs, not asset sales. CFO Terry Earley added that the growth in noninterest-bearing deposits is a direct result of successful new client acquisition efforts by the bank's business and community bankers, who are bringing in granular, low-cost funding.

Stephen Scouten asked about the outlook for structured finance revenues in 2025, the long-term strategy for managing balance sheet asset sensitivity, and the reasons behind the recent quarter-to-quarter volatility in the provision for credit losses.

Answer

Executive William Furr explained that structured finance revenues in 2025 are subject to the decisions of a large state housing authority regarding its down payment assistance program, which has been a significant driver in the past two years. Regarding asset sensitivity, Furr reiterated a long-term target of 2-4% and outlined strategies to achieve this, including reinvesting securities portfolio cash flows, increasing retention of hybrid fixed-rate mortgages, and moving broker-dealer sweep deposits out of the bank. He attributed provision volatility to the adoption of a single economic scenario (Moody's S5) and specific reserve activity related to the auto note portfolio.

Stephen Scouten of Piper Sandler inquired about the drivers behind positive credit trends, such as the drop in non-performing loans, and the outlook for future improvements. He also sought clarification on NIM trends, specifically the expected pace of decline in purchase accounting accretion and the impact of floors on variable-rate loans. Lastly, he asked for an update on talent acquisition.

Answer

EVP and CFO William Furr explained that the NPL improvement was largely due to paydowns on two specific auto loans and that the firm remains cautious on credit due to rate and inflation pressures. He projected that purchase accounting accretion would decline 15-25% annually. He also noted that while 75-80% of variable-rate loans have floors, significant rate cuts would be needed to activate them. President and CEO Jeremy Ford added that the bank had positive but selective recruiting during the quarter to expand its footprint.

Stephen Scouten asked about the moderation in loan growth during the quarter, questioning if it was due to elevated paydowns or other trends, and sought guidance on the growth outlook for 2025. He also inquired about any plans for new deposit verticals and the future trajectory of the loan loss reserve as a percentage of loans.

Answer

Executive Luis de la Aguilera attributed the Q4 loan growth moderation to higher-than-normal payoff activity, especially in correspondent banking, but affirmed the forward pipeline is strong, reiterating guidance for high single-digit to low double-digit growth. Both he and CFO Robert Anderson emphasized optimizing existing scalable deposit verticals rather than adding new ones. Regarding the reserve, Chief Credit Officer William Turner and Anderson explained it will likely grow in line with the portfolio but that the current level of 1.22% is considered very adequate.

Stephen Scouten of Piper Sandler asked about the loan growth outlook for 2025 and whether it could accelerate, if team growth is needed to sustain the pace, and for clarification on why the bank's NIM is expanding despite its asset-sensitive profile.

Answer

CEO Luis de la Aguilera stated the bank is modeling low double-digit growth for 2025, driven by Florida's strong economy and the bank's diversified business lines. He clarified that growth is sustained by selectively hiring top talent rather than mass hiring, noting headcount has remained stable amid significant asset growth. CFO Robert Anderson explained that the NIM is outperforming the asset-sensitive model because the bank has been more effective at repricing its money market deposits than the model's historical assumptions, leading to margin expansion.

Stephen Scouten asked for more detail on the specific dynamics that would prompt a securities portfolio restructuring, particularly concerning the held-to-maturity (HTM) book, and whether current higher rates make such a move more compelling.

Answer

President Jay Brogdon explained that the decision is multi-faceted, focusing on the trade-offs between capital and earnings, as well as the pro-forma impact on the bank's asset/liability management (ALM) profile. He emphasized that the bank runs numerous scenarios to evaluate the long-term earnings impact under various rate environments before committing to a trade, seeking an 'economically viable path' to accelerate its goals.

Stephen Scouten of Piper Sandler sought more specific framing for the 'notable inflection' in the net interest margin (NIM), asking if it could approach 3% in 2025. He also asked about the expected deposit beta on the way down and the timeline for restoring profitability to a 1% ROA.

Answer

President Jay Brogdon suggested that a NIM on a 'glide path toward three' in the latter half of 2025 is a fair expectation, contingent on the Fed's actions. CFO Daniel Hobbs estimated a downward deposit beta around 40%, noting it would be difficult to replicate the 51% beta from the up-cycle. Brogdon described reaching a 1% ROA and 3% NIM as near-term goals, with a longer-term target of 1.25% ROA.

Stephen Scouten asked about the current stage of development for strategic initiatives like capital markets and whether the company has an aspirational goal for its overall size to maximize scale and efficiency.

Answer

CEO Kevin Blair explained that the capital markets strategy is driven by meeting existing client needs rather than a goal to become a global player. He characterized the middle market and CIB hiring as being in the later innings, but noted a significant new focus on reinvesting in the Community Bank to target clients with $5 million to $50 million in revenue, which represents a strategic shift.

Stephen Scouten from Piper Sandler questioned the plausibility of achieving operating leverage in 2025 and asked if there were any signs of a near-term stabilization in the decline of noninterest-bearing deposits.

Answer

CFO Jamie Gregory indicated that operating leverage in 2025 is possible, as higher revenue growth is expected to accompany planned expense growth from strategic investments. CEO Kevin Blair noted that the rate of decline in consumer DDA balances is slowing, which offers hope for a stabilization of the overall noninterest-bearing deposit trend.

Asked about the growth strategy and investment scale for C&I and SBA lending, the impact of the current rate environment on M&A timing, and sought clarification on the seemingly unchanged year-end NIM target despite fewer expected rate cuts.

Answer

Investments in C&I and SBA are being self-funded by reallocating expenses from departing real estate lenders and will not increase the overall expense base. The M&A outlook remains challenging due to the rate environment, with uncertain timing. The year-end NIM target is still approachable, though perhaps not fully reaching 3%, as strong asset repricing provides significant lift even without rate cuts.

Inquired about the significant change in interest rate sensitivity compared to the prior quarter, the size of the indexed deposit portfolio, and the current demand dynamics in the CRE market.

Answer

The increased liability sensitivity is due to an updated deposit study, a remix towards short-duration funding, and indexing a large portion of deposits to Fed Funds. Including promo and brokered CDs, roughly half the deposit book can reprice quickly. New CRE demand is for smaller, granular deals; demand for large projects has dropped. The bank is focusing on C&I and SBA lending to balance its growth.

Asked for specifics on the volume and yield of loan repricing in 2024, and for an update on the recent stability and outlook for noninterest-bearing deposits.

Answer

The bank expects over $2 billion in contractual loan repricing in 2024, with new yields in the high 7s replacing loans around 4%. Noninterest-bearing deposits have shown strong stability since the quarter's end.