Terry McEvoy

Terry McEvoy questioned the health of First Merchants Corporation's multifamily construction portfolio and the expected run rate for charge-offs in the near term.

Answer

Chief Credit Officer John Martin stated that the multifamily portfolio is generally in decent shape, with isolated issues related to higher interest rates and partner disagreements, not a widespread problem. He noted that assets are stabilizing and moving into the permanent market. He expects charge-offs to be in the 15-20 basis points range, making the $6-7 million run rate appropriate for the near term.

Terry McEvoy asked about First Merchants' deposit costs at the end of the quarter compared to the average, and the expected trend for Q4. He also inquired about the nature of First Savings' SBA lending portfolio (guaranteed vs. unguaranteed loans), the strategy for managing the higher-risk unguaranteed portion, and the potential for growing this business within the First Merchants franchise.

Answer

EVP and CFO Michele Kawiecki confirmed deposit costs declined a few basis points at quarter-end due to anticipated rate cuts and expects further reductions in Q4. CEO Mark Hardwick and President Mike Stewart explained that the unguaranteed portion of SBA loans is on the balance sheet, yielding about 275 basis points over prime. Mike Stewart highlighted the First Savings SBL team's self-contained workout capabilities and strong track record of low losses, projecting about $150 million in annual SBA volume. Mark Hardwick clarified that the unguaranteed portion of a $150 million origination would be around $37.5 million annually, noting the higher risk but attractive yields.

Terry McEvoy asked Michele Kawiecki about the quarter-end deposit costs relative to the average and her expectations for Q4 trending. He also inquired about the nature of First Savings' SBA lending portfolio, specifically whether the on-balance sheet loans are guaranteed or unguaranteed, and the strategy for managing the higher-risk unguaranteed portion going forward.

Answer

Michele Kawiecki, EVP and CFO, confirmed that deposit costs declined a few basis points at quarter-end due to proactive rate adjustments and expects further reductions in Q4 with anticipated rate cuts. Mark Hardwick, CEO, clarified that the unguaranteed portion of SBA loans is on the balance sheet, yielding about 275 basis points over prime. Mike Stewart, President, added that First Savings' dedicated SBA team has a strong track record of low losses and an infrastructure that generates about $150 million in annual SBA volume, which First Merchants plans to leverage across its footprint for fee income and community relevance.

Terry McEvoy from Stephens Inc. asked about the flat year-over-year performance in wealth management fees and the overall outlook for total fee income. He also requested specific examples of benefits realized from the prior year's technology upgrades.

Answer

EVP & CFO Michele Kawiecki projected mid-single-digit growth for noninterest income, noting mortgage activity was softer than expected. President Michael Stewart clarified that while investment management fees grew, flatness in other private wealth categories muted overall results. CEO & Director Mark Hardwick detailed how technology upgrades improved account opening speed, treasury management products, and the private wealth platform, providing bankers with superior, competitive tools.

Terry McEvoy of Stephens Inc. questioned the strategic benefits versus costs of Wintrust operating 16 banking charters, and also asked about the outlook for the mortgage warehouse portfolio, considering it was a significant driver of recent loan growth and forward interest rate curves.

Answer

President and CEO Tim Crane defended the 16 charters, stating they keep the company closer to the market, with most infrastructure centralized, and provide benefits like deposit insurance (MaxSafe product). He confirmed the net balance remains positive. Regarding the mortgage warehouse business, Tim Crane and Vice Chairman and Chief Lending Officer Richard Murphy highlighted its zero-loss nature, attractive dynamics, and the team's expertise, expecting it to move with mortgage volume. Vice Chairman and COO David Dykstra added that the mortgage market is likely near its bottom, suggesting more upside than downside for the portfolio.

Terry McEvoy inquired about the strategic benefits of Wintrust Financial Corporation operating 16 banking charters versus the associated costs and the potential for leveraging the Wintrust brand. He also asked about the outlook for the mortgage warehouse portfolio, which contributed significantly to recent loan growth, and its expected impact on 2026 growth.

Answer

President and CEO Tim Crane affirmed that the 16 charters remain a benefit, fostering market proximity and strong local market share, with centralized infrastructure managing costs. He highlighted benefits like deposit insurance (MaxSafe). Regarding mortgage warehouse, Tim Crane and Vice Chairman and Chief Lending Officer Richard Murphy noted its growth due to team expertise and attractive dynamics, with Vice Chairman and COO David Dykstra seeing more upside than downside given current low mortgage market volumes.

Terry McEvoy questioned the decline in commercial loan growth, excluding premium finance receivables, from the prior quarter. He also asked Timothy Crane to elaborate on Wintrust's strategy to capitalize on competitors focusing on other geographies, specifically regarding increased hiring and marketing.

Answer

Dave Dykstra, Vice Chairman and Chief Operating Officer, attributed the commercial loan growth fluctuation to timing rather than market competition or selectivity, noting consistent overall commercial pipelines. Timothy Crane, President and Chief Executive Officer, affirmed Wintrust's focus on its attractive Midwestern markets (Chicagoland, Northwest Indiana, West Michigan, Wisconsin), where it consistently gains market share from peers. He indicated a continued commitment to these regions, leveraging a relationship-based approach rather than expanding to other geographies like Texas or the Southeast.

Terry McEvoy of Stephens Inc. asked about performance in the Western Michigan market post-acquisition and sought details on the mortgage finance portfolio's size, growth contribution, and expected volatility.

Answer

President, CEO & Director Timothy Crane expressed positive sentiment on the Western Michigan market, noting the Macatawa conversion is complete and prospecting is strong. Vice Chairman & Chief Lending Officer Richard Murphy stated the mortgage warehouse portfolio now stands at $1.2 billion and is gaining market share, contributing significantly to growth.

Terry McEvoy noted that the annualized Q4 2025 fee income was at the high end of the 2026 outlook and asked if the outlook incorporates conservatism or an expectation for mortgage income to normalize. He also requested details on incremental repricing benefits for new loan production yields and securities repricing.

Answer

John Moran, CFO, acknowledged some Q1 seasonality in mortgage income but expressed cautious optimism for 2026 due to a more constructive rate backdrop, identifying mortgage and capital markets as potential upside areas. He detailed a 70 basis point spread on the loan side ($5 billion over 12 months) and $2.9 billion in investment portfolio cash flow over 12 months, with new money yields 94 basis points above the back book yield.

Terry McEvoy followed up on the impact of proactive portfolio actions on accretion or NII in Q3. He also asked Jim Ryan to elaborate on Old National's approach to banking, specifically why they avoid high-growth areas like NDFI loans, contrasting it with some peers, and how this reflects the company's business philosophy.

Answer

CFO John Moran confirmed that proactive portfolio actions did not materially impact total accretable NII. CEO Jim Ryan described Old National's approach as 'old-fashioned basic banking,' focusing on bread-and-butter activities within their footprint for known clients, rather than chasing national specialty businesses or rapid, multi-billion dollar growth. He emphasized doubling down on small business, business banking, and CNI, and prioritizing long-term deposit relationships to fund these loans.

Terry McEvoy followed up on the previous question, seeking clarification on how Old National Bancorp's proactive portfolio actions specifically impacted accretion or Net Interest Income (NII) in the third quarter. He also asked Jim Ryan to elaborate on the company's minimal exposure to Non-Depository Financial Institution (NDFI) loans, highlighting how this reflects Old National's 'old-fashioned basic banking' approach and differentiates it from peers who pursued such growth.

Answer

CFO John Moran confirmed that proactive portfolio actions did not materially impact total accretable NII in Q3. CEO Jim Ryan explained that Old National Bancorp practices 'old-fashioned basic banking,' focusing on bread-and-butter loans within their footprint for known and trusted clients, rather than chasing national specialty businesses like NDFI loans. He emphasized their commitment to doubling down on small business, business banking, and CNI, and continuously seeking long-term deposit relationships to fund these loans.

Terry McEvoy asked why the net interest income (NII) outlook for the second half of 2025 was not increased despite retaining the CRE loans, and requested commentary on technology investments following the hiring of a new CIO.

Answer

CFO John Moran clarified that the income from the retained CRE loans is expected to offset the lower-than-anticipated income from purchase accounting accretion marks, resulting in a neutral impact on the NII forecast. CEO & Chairman James Ryan discussed technology, noting the new CIO came from Bremer and that the bank feels good about its tech stack, with ongoing investments in the wealth management ecosystem, treasury management, and data infrastructure, including AI exploration.

Terry McEvoy from Stephens Inc. asked about the competitive landscape for deposits, the recent increase in cost of funds, and whether anticipated loan growth would further drive up deposit costs. He also inquired about the sustainability of the strong Q4 FX trading revenue guide and its projected run rate for 2026.

Answer

Archie Brown, President and CEO, and Jamie Anderson, Chief Financial Officer, acknowledged a modest increase in cost of funds but noted decisive actions taken to reduce deposit costs, expecting a reduction in Q4. They highlighted BankFinancial's lower funding costs and the liquidity expected from its acquisition and the multifamily portfolio sale. Regarding FX trading, Archie Brown stated Q4 would be a peak, with a long-term expectation of 5-10% annual growth. Jamie Anderson clarified that the 2026 run rate for FX trading is projected to be around $65 million-$70 million, not an annualization of the Q4 peak.

Terry McEvoy asked about the competitive landscape for deposits, the recent increase in cost of funds, and how anticipated loan growth might further impact deposit costs. He also sought clarity on the sustainability of the higher Q4 FX trading revenue guidance into 2026.

Answer

Archie Brown, CEO and President, stated that deposit costs were modestly up but expected to decrease in Q4 due to decisive actions and anticipated Fed rate cuts. He noted that the BankFinancial acquisition would bring lower funding costs and more rational pricing. Jamie Anderson, CFO and COO, added that BankFinancial's liquidity (low loan-to-deposit ratio and multifamily portfolio sale) would help mitigate pressure on deposit costs from loan growth. Regarding FX trading, Archie Brown indicated Q4 would be a peak, with a typical annual growth rate of 5-10%. Jamie Anderson projected a 2026 run rate for FX income of $65-70 million, advising against annualizing the Q4 peak.

Terry McEvoy from Stephens Inc. asked for more detail on the company's ongoing efficiency initiatives and sought to understand the underlying loan growth rate when excluding the impact of elevated payoffs in commercial real estate.

Answer

President & CEO Archie Brown explained that the efficiency initiative is a comprehensive, bank-wide review of processes and technology, which is about 80% complete. He stated that the company's long-term normalized loan growth target is 6-7%. While CRE payoffs have recently muted overall growth, he noted that other business lines are performing well and their growth will become more apparent as CRE payoffs subside.

Terry McEvoy from Stephens asked about the timing of cost savings from the Farmers merger, following the early February systems conversion, and if they are expected to be fully realized in the run rate by the second half of next year.

Answer

Ian Whinnem (SVP and CFO, Civista Bancshares Inc) confirmed that cost savings, including reduced contract expenses for processing and staffing reductions, are anticipated to follow the system conversion.

Terry McEvoy from Stephens Inc. asked for details on the specific markets and sectors driving loan demand, whether loan growth was intentionally moderated due to the loan-to-deposit ratio, and the potential impact of new deposit-gathering initiatives.

Answer

President & CEO Dennis Shaffer confirmed that CRE loan growth had been muted due to concentration concerns, which the new capital will help alleviate. He and EVP & Chief Lending Officer Charles Parcher highlighted strong, broad-based demand across Ohio's major cities. Shaffer also detailed new deposit initiatives, including the Mantle digital platform and plans to hire more treasury management officers to support future growth.

Terry McEvoy asked for an overview of business sentiment within Equity Bancshares' operating footprint and how this sentiment is factored into the company's loan growth outlook.

Answer

Rick Sems, Bank CEO, reported strong business sentiment across markets, with no significant impact from tariffs, and expressed a bullish outlook for the market's future performance.

Terry McEvoy with Stephens Inc. inquired about Equity Bancshares' deposit pricing strategy, including actions taken before and after the recent Fed rate cut, and how the market has responded to these changes. He also asked about the current business sentiment within Equity Bancshares' operating footprint and how this outlook is integrated into the company's loan growth projections.

Answer

CFO Chris Navratil explained that Equity Bancshares has maintained a consistent pricing strategy, aligning higher-end deposit rates with FOMC rate cuts, and has not observed significant shifts from competitors. Bank CEO Rick Sems concurred, noting no backlash from these adjustments. Rick Sems further elaborated that business sentiment across their markets remains strong, with no significant impacts from tariffs, leading to a bullish outlook for loan growth due to the local nature of their businesses.

Terry Mcevoy of Stephens Inc. inquired about Equity Bancshares' plans for the NBC Bank bond portfolio, overall securities management, potential stress in the QSR portfolio beyond a previously discussed relationship, and the drivers of the projected Q4 decline in noninterest expenses.

Answer

EVP & CFO Chris Navratil explained that NBC Bank's bond portfolio was sold prior to the acquisition, converting it to cash for deployment. He noted the bank's securities portfolio is managed for liquidity and pledging needs. Chairman & CEO Brad Elliott added they constantly seek rebalancing opportunities. On credit, EVP & Chief Credit Officer Krzysztof Slupkowski confirmed some softness in the broader QSR sector but stated the portfolio is granular and diversified, with no other significant classified relationships. Finally, Chris Navratil attributed the anticipated Q4 expense reduction primarily to cost savings from the NBC merger.

Terry Mcevoy from Stephens Inc. asked about Byline's strategy for staying ahead of regulatory expectations, particularly concerning the potential impact of crossing the $10 billion asset threshold. He also inquired about the bank's ability to further lower its interest-bearing deposit costs, especially for CDs, in the second half of the year.

Answer

President & Director Alberto Paracchini stated that the company takes a long-term, even-keeled view on regulatory changes and is proactively planning to be well ahead of expectations for crossing the $10 billion threshold. On deposit costs, EVP, CFO & Treasurer Thomas Bell and Mr. Paracchini explained that while there is some room for CD repricing, the primary focus is on ongoing strategic pricing initiatives to optimize costs across the entire deposit portfolio, a continuous effort on both the consumer and commercial sides.

Terry McEvoy from Stephens Inc. asked for details regarding the $24 million CRE office loan that moved to nonaccrual, questioning what specifically happened. He also requested information on other large CRE credits and sought clarity on the revised expense guidance, including investments in operational efficiencies and hiring.

Answer

SVP & Chief Credit Officer Gary Sims detailed that the suburban Minneapolis loan, originated in 2022, saw the sponsor stop making payments, prompting legal action. He noted the next largest office loan is a performing $12 million credit. CEO Charles Reeves explained the higher expense guidance is due to strategic hires in the Twin Cities and Denver, alongside technology investments in workflow management and digital banking.

Terry McEvoy from Stephens Inc. asked for details regarding the large CRE office loan that moved to non-accrual and questioned the revised expense guidance, particularly around investments and new hires.

Answer

SVP & Chief Credit Officer Gary Sims detailed that the sponsor of the $24 million CRE loan stopped making payments, prompting the bank to initiate a receivership and move the loan to non-accrual. CEO Charles Reeves explained that the increased expense guidance reflects strategic talent acquisitions in the Twin Cities and Denver, alongside ongoing technology investments in workflow management and digital banking.

Terry McEvoy of Stephens Inc. asked if the Q1 mid-single-digit loan growth guidance is a reasonable run rate for the full year and sought the outlook for fee income, particularly wealth management. He also inquired about the health of the agricultural loan portfolio.

Answer

President and COO Len Devaisher confirmed that mid-single-digit loan growth is the model for the full year and that the company targets continued double-digit growth in wealth management. CEO Charles Reeves added that loan growth could accelerate if interest rates decline. Chief Credit Officer Gary Sims noted that while the ag sector faces pressure, the bank's producer portfolio is resilient and well-positioned to manage through challenges.

Terry McEvoy of Stephens Inc. requested management's updated perspective on M&A, considering the company's strong stock performance and growing capital. He also asked for an explanation for the rising allowance for credit losses (ACL) in the C&I portfolio, which increased from $136 million to $150 million.

Answer

President and CEO Andrew Harmening stated that while the company is in a strong position, the primary focus remains on executing its strategic plan. Any M&A deal would need to be a compelling strategic, financial, and cultural fit. On the ACL, EVP & Chief Credit Officer Patrick Ahern explained the increase in the C&I allowance is primarily a "growth story" directly tied to the significant growth in that loan portfolio, rather than a deterioration in credit quality.

Terry McEvoy of Stephens Inc. asked about the company's appetite for another transaction, specifically if they would consider a deal before the Evergreen integration is complete. He also inquired about a recent share repurchase, its timing relative to the deal, the seller's identity, and the ongoing appetite for buybacks.

Answer

Management, primarily COO & CFO Bradley Adams, indicated that while they are always opportunistic, the ideal timing for another deal would be after the Evergreen integration is complete in October, citing the significant workload of acquisitions. Adams confirmed the repurchase of 327,000 shares was from a private equity investor, occurred after the deal closed at $18 per share, and that buybacks remain a viable option for capital return.

Terry McEvoy from Stephens Inc. questioned the year-over-year decline in interchange fee revenue and asked for an outlook on deposit competition and costs for the remainder of the year.

Answer

CEO Thomas Prame attributed the lower interchange revenue to a slight decrease in transaction volume and average spend per swipe, reflecting more conservative consumer behavior. On deposits, he noted that while the consumer market is stable, the public funds space remains competitive, but the bank successfully managed funding costs down slightly from Q1 by letting some higher-priced CDs run off.

Inquired about how the significant investments for the HTLF 3.0 plan are being funded, the scope of the 'footprint review', and whether the increase in nonperforming loans was due to a specific company issue rather than broader sector weakness.

Answer

The HTLF 3.0 investments are funded by attacking the cost structure, primarily through optimizing oversized and outdated real estate and associated personnel costs. The 'footprint review' is a comprehensive analysis of entire markets and regions, not just individual branches. The increase in nonperforming loans was confirmed to be a company-specific issue with a well-collateralized credit.

Asked about the charter consolidation savings, specifically how much would be realized versus reinvested, and how it connects to the HTLF 3.0 strategy. Also questioned the expected decline in service charges and the confidence in a rebound in capital markets fees.

Answer

The ~$20 million in savings has already been realized in the expense run rate, and these savings will fall to the bottom line. Reinvestment funds for HTLF 3.0 will come from future optimizations. The service charge decline in Q4 is estimated at $600k. Confidence in capital markets fees comes from a growing pipeline, particularly from advising clients on interest rate swaps.

Speaking on behalf of Terry McEvoy of Stephens Inc., Brandon Rud asked for details on the bank being more selective in loan production and whether it was concentrated in specific areas. He also inquired about the target size for the equipment finance portfolio and the outlook for net interest income dollars in 2023.

Answer

Executive Jeffrey Ludwig stated that the increased selectivity in loan production is broad-based, though he noted the commercial real estate portfolio did decline slightly in the quarter. Executive Eric Lemke indicated the equipment finance portfolio, currently 17-18% of total loans, would ideally be kept in the 15-20% range. He also clarified that the focus is on growing net interest income dollars, which they believe is achievable through asset repricing and managed deposit costs, even with a stable NIM.

Terry McEvoy of Stephens Inc. asked for clarification on the potential impact of the commercial mortgage servicing rights sale on deposits, the near-term outlook for the net interest margin (NIM), and whether future expense growth from strategic hires would be absorbed or lead to an increased expense run rate.

Answer

CFO Eric Lemke explained that while they hope to retain the $200 million in deposits associated with the servicing sale, they are preparing for the possibility of the buyer moving them, which would cause the deposits to either reprice or be lost. President and CEO Jeffrey Ludwig added that recent growth came at a slightly lower spread, so the NIM could be flat to slightly up or down. Regarding expenses, Ludwig stated they aim for cost saves to offset investment-related increases, targeting a net 3% expense growth rate.

Terry McEvoy of Stephens Inc. questioned the outlook for deposit growth, funding sources for loans, the size and beta of FHA-related escrow deposits, and the strategy for the wealth management business, including potential investments and M&A.

Answer

President and CEO Jeff Ludwig highlighted strong deposit growth from the Community Bank group and a continued focus on gathering deposits to fund loan growth, given the loan-to-deposit ratio is around 90%. He confirmed FHA servicing deposits are approximately $800 million and are high-beta. Regarding wealth management, Ludwig explained the current priority is organic growth through building out the sales team, with M&A being a lower priority until organic growth accelerates.

Terry McEvoy of Stephens Inc. inquired about the primary drivers of the strong Commercial Real Estate (CRE) portfolio growth, the methods used for stress testing this portfolio against rising interest rates, and how the company balances revenue growth initiatives with its goal of maintaining flat expenses. He also asked for clarification on the significant increase in equipment finance yields during the quarter.

Answer

President and CEO Jeff Ludwig explained that CRE growth was concentrated in multifamily, senior care, and industrial warehouse properties. He noted that the portfolio is stress-tested on a deal-by-deal basis for interest rates and cap rates, with a full portfolio stress test conducted annually. Ludwig also stated that expense control is being achieved by enhancing the productivity of the existing commercial banking team through tools like Salesforce and by continuously finding operational efficiencies. CFO Eric Lemke added that equipment finance yields rose because the business prices on the five-year curve, which saw a significant lift, allowing for higher rates on new contracts.