Tim Switzer

Tim Switzer with KBW asked for clarification on Butterfield's quarterly expense guidance, inquiring if the $90 million to $92 million range is a sustainable run rate given historical seasonality. He also questioned the drivers behind the strong performance in fee businesses, including asset management, banking, FX, and trust, and whether technology investments contributed to this upside. Finally, he sought insight into the lower non-performing assets (NPAs) this quarter and the outlook for credit migration.

Answer

President and CFO Michael Schrum clarified the expense guidance, attributing higher Q4 expenses to non-recurring incentives and outside services fees, confirming the $90 million to $92 million range as a good run rate, with Q1 typically slightly lower. He detailed the fee business strength, noting asset management growth from improved valuations and money fund volumes, seasonal banking fee increases from card programs, FX revenue growth from new client functionality, and trust business strength from the Credit Suisse integration and fee rebalancing. Chairman and CEO Michael Collins added that trust growth is primarily driven by acquisitions. Regarding NPAs, Michael Collins explained that the shifts were not systemic but related to specific commercial accounts, with 2025 improvements linked to the Elbow Beach Hotel liquidation and successful commercial litigation.

Tim Switzer asked about the factors contributing to the lower non-performing assets (NPAs) this quarter and the outlook for credit migration over the next year.

Answer

Michael Collins, Chairman and CEO, explained that the lower NPAs were not due to systemic shifts but rather specific commercial accounts, primarily in Bermuda. He noted improvements in 2025 from the liquidation of the Elbow Beach Hotel and successful commercial litigation.

Tim Switzer asked about the significant increase in deposit account openings, particularly the 50% rise this quarter, seeking insights into the driving factors and future expectations. He also inquired about trends in non-interest income, specifically gain on sale, in light of the $1 billion SBA origination guidance. Additionally, Switzer requested clarification on net charge-offs for the bank subsidiary and a breakdown of the gain on loans accounted for under fair value between ALP and SBA loans.

Answer

President and CEO Barry Sloane attributed the deposit growth to frictionless digital access for both business and consumer deposits, competitive market rates with zero fees, and strong alliance partner relationships. He noted the bank's NIM at 5.25% allows for generous rates without high attrition. Sloane also discussed the expected pickup in the 7(a) business due to SBA rule changes, such as the shift from SBSS scores and new debt service coverage requirements, which he believes position NewtekOne competitively against fintech lenders. CFO Frank DeMaria clarified that net charge-offs for the bank subsidiary were $8.2 million for the quarter and $23 million for the year, and that approximately 35% of the unrealized gain on loans was from ALP loans, with the remainder from 7(a) loans, alongside a slight loss in NSBF.

Tim Switzer inquired about the significant 50% increase in deposit account openings during the quarter, seeking insights into the driving factors and future expectations for this trend.

Answer

President and CEO Barry Sloane, along with EVP and CFO Frank DeMaria, attributed the growth to frictionless digital access for business deposits, competitive market rates with no fees, and stable deposit relationships. They also noted the positive impact of alliance partners and the current interest rate environment.

Tim Switzer of Keefe, Bruyette & Woods (KBW) inquired about the drivers of the $50 million growth in commercial deposits, future deposit cost expectations, total charge-offs for the held-for-investment portfolio, and a breakdown of the net fair value line item, particularly the gain on Alternative Loan Program (ALP) loans.

Answer

President, Chairman & CEO Barry Sloane attributed deposit growth to integrated solutions like lending and payroll linked to zero-fee, high-rate business accounts, emphasizing the 'Newtek Advantage' platform. EVP & CFO Frank DeMaria stated that quarterly charge-offs were $5.1 million, flat sequentially. DeMaria and Sloane clarified the fair value line was impacted by a $35.1 million reversal of a prior unrealized gain on ALP loans, which was offset by a new $32.4 million gain on the retained securitization interest and other gains.

Tim Switzer asked about Civista Bancshares' plans for capital stack optimization following the Farmers acquisition, their stance on share repurchases, and guidance for leasing revenue within non-interest income for the upcoming year, acknowledging its inherent lumpiness.

Answer

Dennis Shaffer, President and CEO, confirmed that Civista Bancshares still views its stock as a value and will consider share repurchases under their $13.5 million authorization, evaluating opportunities post-acquisition blackout. Chuck Parcher, President, addressed leasing revenue, noting a $500,000 lease disposal gain in Q4. For Q1, he guided total non-interest income to $7.8-$8.2 million, expecting a slowdown in mortgage and leasing gain on sale, with an increase of about $500,000 in Q2.

Tim Switzer asked about Civista Bancshares' capital stack optimization following the Farmers Savings Bank acquisition, particularly regarding potential share repurchases given the company's view of its stock value. He also requested guidance on leasing revenue for the upcoming year, acknowledging its historical lumpiness and the challenges in modeling this non-interest income component.

Answer

President and CEO Dennis Shaffer affirmed that Civista still views its stock as a value and will consider share repurchases under its $13.5 million authorization, especially after emerging from the acquisition blackout period. SVP Michael D. Mulford and President Chuck A. Parcher provided guidance for non-interest income, noting that Q4 included a $500,000 lease disposal gain and a $250,000 Mastercard bonus. They projected Q1 total non-interest income to be in the $7.8 million-$8.2 million range, with a slight slowdown in mortgage and leasing gain on sale, before increasing by approximately $500,000 in Q2.

Tim Switzer from KBW asked whether the loan pricing competition is primarily driven by slowing borrower demand or lower rates from the Federal Reserve, beyond market disruption.

Answer

Ian Whinnem (SVP and CFO, Civista Bancshares Inc) stated that demand has been consistent in Ohio, attributing competition more to lower rates from the Fed and increased confidence in commercial real estate among competitors. Dennis Shaffer (President and CEO, Civista Bancshares Inc) added that customers have adapted to economic conditions, and lower Fed rates should spur activity.

Tim Switzer of Keefe, Bruyette & Woods (KBW) requested guidance on future leasing fee income, excluding the one-time adjustment, and asked about the bank's analysis of its loan book's exposure to potential tariffs.

Answer

EVP & Chief Lending Officer Charles Parcher and CFO Ian Whinnem explained that leasing activity was slower in H1 due to a core system conversion and customer hesitation on CapEx. They anticipate a rebound in H2, partly due to accelerated depreciation benefits. Regarding tariffs, Parcher noted that while manufacturers are optimistic about potential reshoring, they are currently delaying major CapEx decisions pending clarity.

Tim Switzer (KBW) asked for clarification on the trajectory of ConnectOne's expense outlook, specifically the timing of branch rationalization and new hires, and how expenses would trend sequentially. He also questioned the impact of rising deposit competition on the bank's ability to lower deposit rates.

Answer

William Burns, CFO, explained that branch closures would occur by the end of Q1, and staff changes mid-year, leading to a step-up in expenses in Q1 before flattening out. He acknowledged increased deposit competition, stating that the margin projection accounts for potential adjustments to deposit rates, aiming for a 335-340 basis point margin by year-end.

Tim Switzer inquired about the trajectory of ConnectOne Bancorp's expense outlook, seeking clarification on the timing of branch rationalization and new hires, and how these factors would influence sequential quarterly expenses. He also asked about the current competitive landscape for deposits and whether the bank was finding it more challenging to lower deposit rates.

Answer

CFO William Burns explained that branch closures are expected by the end of Q1, with staff changes potentially occurring mid-year, leading to a step-up in expenses in Q1 before flattening out. Regarding deposit competition, William Burns acknowledged a slight increase in pressure but stated that the margin projection accounts for potential adjustments to deposit rates, aiming for a year-end margin in the 335-340 basis point range.

Tim Switzer inquired about the expected seasonality of deposits in Q1 and Q2, the impact on excess cash, and Univest Financial Corporation's plans to deploy any remaining excess liquidity. He also asked about the Net Interest Margin (NIM) trajectory for the year, particularly if there's only one more rate cut, and the competitive landscape for deposits, including pricing and customer reactions. Finally, he requested a review of the ag farmland portfolio, its products, granularity, underwriting, credit performance, and any current areas of concern.

Answer

Brian Richardson, CFO, stated that $100 million-$150 million in public funds outflow is expected per quarter in Q1 and Q2, with a significant portion of excess liquidity being deployed. He anticipates the NIM to be relatively flat to slightly up on a core basis through 2026. Mike Keim, COO, noted that deposit competition remains high but Univest is successful in CD retention by being competitive, not necessarily top-priced. He described the ag book as diversified smaller family farms, secured by real estate, with conservative underwriting and no specific areas of concern.

Tim Switzer inquired about the seasonality of deposits in Q1 and Q2, the impact on excess cash, and Univest's plans to deploy this liquidity. He also asked about the projected Net Interest Margin (NIM) trajectory for the year, particularly with fewer rate cuts, and the current landscape of deposit competition and pricing. Finally, Tim sought details on Univest's ag farmland portfolio, including its structure, underwriting, and credit performance.

Answer

Brian Richardson (CFO) explained that Univest expects $100 million-$150 million in public funds outflow per quarter in Q1 and Q2, with a significant portion of excess liquidity deployed. He projected the core NIM to be flat to slightly up by year-end 2026, with overall expansion for the full year compared to 2025. Mike Keim (COO) stated that deposit competition remains strong, but Univest aims to be competitive without offering the top price, noting success in CD retention and efforts to shift the deposit mix towards operating accounts. Keim described the ag book as diversified smaller family farms, secured by real estate, with conservative underwriting and an experienced team.

Tim Switzer asked for clarification on updated guidance for loan growth and expenses, the drivers behind the revised outlook, the strategy for capital deployment, the state of deposit competition, and the forward trajectory for Net Interest Margin (NIM).

Answer

CFO Brian Richardson provided updated guidance of 1-3% loan growth and 2-4% expense growth for 2025, attributing the loan growth moderation to significant prepayment activity despite strong originations. CEO Jeffrey Schweitzer stated that Univest will remain active with share buybacks and is open to non-bank M&A. Richardson also confirmed the deposit environment remains competitive and projected a slight pullback in Q3 core NIM due to sub-debt repricing and seasonal public funds, followed by stable to slightly up performance.

Tim Switzer inquired about the current state of deposit competition in core markets, its impact on the Net Interest Margin (NIM) outlook, the volume of fixed-rate loans repricing, and trends in the CRE market, including interest in acquiring portfolios.

Answer

Anthony Labozzetta, President and CEO, noted that deposit competition is heightening but universal, with a constant fight for low-cost money. He highlighted the company's strong performance with 16.5% growth in average balances and $479 million in commercial deposits. Thomas Lyons, Senior Executive Vice President and Chief Financial Officer, specified that $5.7 billion in adjustable loans and $4.7 billion in the back book are repricing over the next 12 months, with a 30-40 basis point rate pickup expected to add 4 basis points to NIM. Mr. Labozzetta also stated there is little desire to acquire CRE portfolios, preferring to allocate capital to clients. He observed a healthier CRE market, with Provident's book performing well, and noted that agencies are offering terms (high IOs, high leverage) that Provident avoids.

Tim Switzer asked about the current state of deposit competition in Provident Financial Services' core markets, particularly regarding pricing and specific categories or geographies. He also sought an update on the volume of fixed-rate loans repricing over the next year and the yield gap, and inquired about trends in the CRE market and the company's interest in acquiring CRE portfolios.

Answer

Anthony Labozzetta (President and CEO) and Adriano Duarte (SVP and Investor Relations Officer) described deposit competition as universal and heightening, but noted strong commercial deposit growth. Tom Lyons (SVP and CFO) stated that approximately $5.7 billion in adjustable loans and $4.7 billion in cash flows (amortization and prepays) are repricing over the next 12 months, with a 30-40 basis point rate pickup. Anthony Labozzetta observed a healthier CRE market but expressed little desire to acquire portfolios, preferring to allocate capital to existing clients and relationships.

Tim Switzer of Keefe, Bruyette & Woods (KBW) asked about the company's target capital levels and appetite for share repurchases, the drivers behind the updated NIM guidance, and whether the slight decline in the loan pipeline signaled a potential slowdown.

Answer

CFO Thomas M. Lyons stated he is comfortable with a CET1 ratio around 11.25%. He noted the NIM guidance of 3.35% to 3.45% already incorporates two 25-basis-point rate cuts and is driven by significant asset repricing. President and CEO Anthony Labozzetta clarified that the loan pipeline remains robust and the quarterly decrease was a result of very strong loan closings, not a slowdown in demand, and he views the pipeline as a bright spot.

Tim Switzer asked about the drivers of LoadPay team's growth and factoring outlook, specifically the contribution from Factoring as a Service and assumptions regarding freight market recovery. He also questioned how the 22% cross-selling rate of payments and audit within TPay would change with new agreements and NextGen Audit, and requested an update on the percentage of payments for which a fee was charged in Q4.

Answer

Aaron Graft, Founder, Vice Chairman, and CEO, stated that Factoring as a Service is immaterial to overall growth and the projections assume a flat freight market, with Q1 expected to see a seasonal decline. David Vielehr, President of LoadPay, explained that cross-selling has been historically low due to acquisition legacies but repricing and per-invoice audit fees will increase overlap and revenue. He reported that the percentage of payments charged a fee rose to 35% in Q4, 38% in December, with significant increases expected in Q1.

Tim Switzer asked about the outlook for LoadPay team's growth and factoring, specifically the contribution from Factoring as a Service, assumptions regarding freight recovery, and potential upside. He also inquired about the low percentage (22%) of customers using both payments and audit within TPay, how this might change with new NextGen Audit agreements, and its impact on revenue. Additionally, he requested an update on the percentage of payments for which TriumphPay charged a fee.

Answer

Aaron Graft, Founder, Vice Chairman, and CEO, stated that Factoring as a Service is immaterial to LoadPay team's growth projections and that the outlook assumes a flat freight market for the year, with organic growth driving penetration. Kim Fisk, Chief Operating Officer, TriumphPay, explained that the low cross-sell is a legacy of acquisitions and that repricing and increased overlap will improve this, leveraging existing relationships. She reported that the percentage of payments charged a fee increased to 35% for Q4, 38% in December, with significant increases expected in Q1 due to new contracts.

Tim Switzer from Keefe, Bruyette & Woods inquired about the near-term financial run rate for the GreenScreens acquisition, including revenue, expenses, and the timeline to break even. He also asked for clarification on credit trends, specifically normalized net charge-offs and the provision outlook.

Answer

W. Brad Voss, CFO, confirmed the quarterly run rate estimates of roughly $2.5M revenue and $4.5M expense. Aaron Graft, Founder, Vice Chairman & CEO, acknowledged the near-term earnings drag but projected the intelligence segment would grow fastest among transportation businesses. Regarding credit, Graft stated normalized net charge-offs were under $1 million, and Todd Ritterbusch, President of Payments & Banking, guided that annual credit loss expense would likely be at the low end of the historical $10-20 million range.

Tim Switzer of Keefe, Bruyette & Woods questioned the near-term financial run rate for the GreenScreens acquisition, including revenue, expenses, and the path to profitability. He also asked for details on normalized credit trends and the outlook for loan loss provisions.

Answer

CFO W. Brad Voss confirmed the Intelligence segment's near-term run rate of roughly $2.5M in quarterly revenue and $4.5M in expenses. CEO Aaron Graft added that he expects the segment to grow rapidly and reach profitability. Regarding credit, Graft stated normalized net charge-offs were under $1M for the quarter. President of Payments & Banking Todd Ritterbusch guided that full-year credit loss expense would likely be at the low end of the historical $10M-$20M range.

Tim Switzer asked Northwest Bancshares to clarify the net purchase accounting impact on Net Interest Income (NII) for the quarter, specifically the relationship between the 4 basis points and $4 million figures, and if 4 basis points is a sustainable run rate. He also sought an update on the SBA business, including recent funding, growth expectations, and the strategy for retaining versus selling loan volume, as well as how the bank ensures prudent business practices and talent acquisition amidst industry disruption.

Answer

CFO Doug Schosser confirmed the $4 million and 4 basis points were effectively aligned and that 4 basis points is a reasonable run rate for contractual purchase accounting, already incorporated into the NIM guidance. He explained that Northwest Bancshares opportunistically balance sheets more SBA loans, especially for in-footprint clients, and aims to manage both fee income and balance sheet retention. CEO Lou Torchio added that the bank is in the early stages of scaling the SBA business, focusing on quality national business and customer retention in its four-state footprint, and has invested significantly in infrastructure and talent. Mr. Torchio highlighted recruiting experienced professionals from top industry firms to ensure prudent management.

Tim Switzer asked for clarification on the Net Interest Margin (NIM) purchase accounting impact, its run rate, and sought an update on the SBA business, including recent funding, growth expectations, balance sheet retention versus selling, and how the bank is prudently managing talent acquisition amidst industry disruption.

Answer

CFO Doug Schosser clarified the purchase accounting impact was $4 million and 4 basis points, which is generally a good run rate. He noted the bank opportunistically balance-sheeted more SBA loans due to favorable yields and aims to balance fee income generation with balance sheet retention. CEO Lou Torchio and CFO Doug Schosser highlighted the strategic build-out of the SBA team, focusing on national quality business and in-footprint customer retention, and emphasized recruiting experienced talent from top industry franchises.

Tim Switzer inquired about Northwest Bancshares Inc.'s consumer portfolio trends, including delinquency rates and the impact of the Penns Woods merger conversion on administrative delinquencies. He also asked about broader consumer health indicators from deposit account activity and behavior. Additionally, Switzer sought insight into the bank's strategy for scaling up, including potential target sizes for optimal efficiency and returns, and the preferred methods of growth such as organic expansion, de novo branches, or M&A.

Answer

Doug Schosser, CFO, explained that elevated consumer delinquencies were primarily administrative due to the Penns Woods conversion, with no negative trend in the overall consumer book, and highlighted the high credit quality of the auto loan portfolio. Louis Torchio, President and CEO, emphasized maximizing the Penns Woods integration and efficiency, focusing on improving core organic bank financial returns through de novo branching in high-growth markets like Columbus and Indianapolis. He also noted a dual strategy of organic growth and opportunistic M&A that strategically or geographically adds value to the franchise and shareholders.

Tim Switzer asked about trends in Northwest Bancshares' consumer loan portfolio, particularly regarding delinquencies, and broader consumer health indicated by deposit account activity. He also inquired about the bank's strategy for scaling up, including target size, optimal efficiency, and preferred methods like organic growth, de novo branches, or M&A.

Answer

Douglas Schosser (CFO, Northwest Bancshares Inc) explained that elevated consumer delinquencies were largely administrative due to the Penns Woods merger conversion, not a negative trend, and highlighted the high credit quality of the auto loan book. Louis Torchio (President and CEO, Northwest Bancshares Inc) stated the focus is on maximizing Penns Woods integration and efficiency, emphasizing a dual strategy of organic growth, including de novo branching in high-growth markets, complemented by opportunistic M&A that adds strategic or geographic value.

Tim Switzer inquired about the expected pace of Commercial & Industrial (C&I) loan growth for 2026, given the significant acceleration in Q4 2025. He also asked about the contribution of the Premier Bank team and cross-sales to C&I growth and sought an update on Premier Bank's deposit growth, including confidence in the $2 billion-$3 billion target by the end of 2027.

Answer

Joseph Lebel III, President and COO, indicated that C&I growth rates are expected to remain similar, in the 7%-9% range, acknowledging Q1 seasonality and the positive impact of talent recruitment. He noted that the Premier Bank team generated nearly $200 million in gross closed loans for the half-year, with $64 million outstanding, emphasizing their deposit-heavy nature. Christopher Maher, Chairman and CEO, added that C&I customers demonstrated strong self-funding with deposits. Mr. Lebel attributed the Premier Bank's Q4 deposit slowdown to seasonality and year-end distributions, reaffirming confidence in achieving the 2027 deposit targets.

Tim Switzer from KBW inquired about the expected pace of OceanFirst Financial Corp.'s Commercial & Industrial (C&I) loan growth for 2026, following a significant acceleration in Q4 2025. He also asked for details on the contribution of the Premier Bank and cross-sales to C&I growth and sought clarification on the Q4 slowdown in Premier Bank deposit growth, along with a reconfirmation of the $2 billion-$3 billion deposit target by the end of 2027.

Answer

Joseph Lebel III, President and COO, projected C&I loan growth rates similar to the 7%-9% range for 2026, driven by talent investments. He noted that the Premier Bank generated nearly $200 million in gross closed loans over the half-year, with $64 million outstanding at year-end, emphasizing their deposit-heavy nature. Christopher Maher, Chairman and CEO, added that C&I customers demonstrated strong self-funding. Joseph Lebel III attributed the Q4 Premier Bank deposit slowdown to seasonal factors in the final week of the year and reconfirmed the $2 billion-$3 billion deposit target for 2027, expecting continued growth.

Tim Switzer asked about the acceleration of deposit growth within the premier banking segment, its trajectory towards 2027 targets, and the volume of loan originations from this segment. He also sought clarification on the financial impact of restructuring the residential mortgage business, including revenue headwinds and expense savings.

Answer

Joseph Lebel III, President, attributed premier banking deposit growth to new teams and customer acclimation, expecting a gradual shift to lower-cost transactional balances. He expressed satisfaction with premier banking loan originations. Christopher Maher, Chairman and CEO, and Patrick Barrett, CFO, detailed the residential mortgage restructuring, confirming a $10 million pre-tax benefit from $14 million in expense savings offset by a $4 million revenue headwind, with additional impacts from the title company divestiture.

Tim Switzer inquired about the drivers behind the accelerated deposit growth in OceanFirst Financial Corp.'s premier banking segment, its trajectory towards the $2-$3 billion target by 2027, and expectations for loan originations and the loan-to-deposit ratio (LDR) within this segment. He also sought clarification on the $10 million pre-tax benefit from residential mortgage restructuring, the implied revenue headwind, and other factors affecting the non-interest income guide.

Answer

Joseph Lebel III, President, explained that premier banking deposit growth is driven by new teams and customer acclimation, with initial excess cash followed by operational balances. He expects continued maturation to achieve the 2027 targets and expressed satisfaction with premier bankers' loan activity, though it's too early to forecast an exact LDR. Christopher Maher, Chairman and CEO, confirmed the $4 million residential revenue headwind and detailed the Q3-Q4 transition period for residential outsourcing. Patrick Barrett, CFO, added that the reduction in the title company's operations, previously contributing about $10 million annually in both expenses and revenues, also contributes to the non-interest income headwind while providing an expense benefit.

Tim Switzer asked for clarification on the baseline for non-interest income guidance, the expense impact from recent strategic hires, and the company's current stance on M&A versus other capital deployment options.

Answer

CFO Patrick Barrett confirmed the GAAP number is the appropriate base for non-interest income guidance. Chairman & CEO Christopher Maher quantified the EPS impact from new hire expenses at approximately $0.06 for Q2. Barrett noted that while compensation will rise, a drop in recruiting fees should keep net operating expenses flat. Maher stated that organic growth is the primary focus, and M&A is not a priority given current share valuation.

Tim Switzer with KBW inquired about Pathward Financial's net interest margin (NIM) trajectory for the upcoming quarter and the fiscal year, considering recent adjustments and assuming no rate cuts. He also asked for quantification of a credit recovery, the company's perspective on FinTechs obtaining bank charters, and Pathward's potential role in digital assets.

Answer

CFO Greg Sigrist provided adjusted NIM figures, indicating an upward trajectory, and set the Q2 launch point at 5.31%, expecting it to be flat to up, noting sensitivity to the middle part of the curve. He clarified that the credit recovery amount is aggregated in the ACL roll forward. CEO Brett Pharr addressed FinTech charters, stating that while regulatory environments may relax, building scale takes time, and Pathward's multi-threaded approach often leads chartered FinTechs back for additional services, viewing it as a cyclical, long-term competitive factor. Pharr also mentioned Pathward's involvement in crypto onboarding/offboarding to fiat currency and exploring B2B use cases in digital assets, without holding them directly.

Tim Switzer inquired about Pathward Financial's Net Interest Margin (NIM) trajectory, including the adjusted NIM's starting point for Q2 and its expected path throughout the year, assuming no rate cuts. He also asked for quantification of a credit recovery, Pathward's view on FinTechs obtaining bank charters (ILCs) as a threat or opportunity, and the company's interest in the digital assets space like stablecoins.

Answer

CFO Greg Sigrist provided adjusted NIM figures, noting an upward trajectory (5.11% a year ago, 5.31% last quarter, 5.49% this quarter, adjusted for consumer loan gross-up), with Q2 launching from 5.31% and expected to be flat to up. He stated the specific credit recovery quantification is within the aggregate ACL roll-forward. CEO Brett Pharr addressed ILCs, emphasizing the time and scale needed to replicate Pathward's capabilities, noting some partners still engage Pathward for broader services, and views it as a long-term, cyclical competitive factor. Pharr confirmed Pathward's involvement in crypto onboarding/offboarding to fiat currency, exploring B2B use cases, and viewing digital assets as a future 'additional rail' without holding them currently.

Tim Switzer inquired about the financial and operational specifics of the new Upstart partnership, including balance sheet treatment, revenue recognition, credit indemnification, and loan duration, as well as the drivers behind the quarter's secondary market revenue performance.

Answer

CEO Brett Pharr confirmed the Upstart program aligns with existing marketplace lending, featuring credit indemnifications and an off-balance-sheet approach. CFO Greg Sigrist clarified that these are held-for-sale loans with a hold period of 30 days or less, and the partnership is not exclusive. Sigrist also explained that the higher secondary market revenue was opportunistic, with future expectations returning to the $5M-$7M range, driven by renewable USDA opportunities.

Tim Switzer (KBW) inquired about the new Upstart partnership, specifically its operational structure, balance sheet impact, revenue recognition, credit loss indemnification, loan holding periods, and exclusivity. He also asked about the drivers behind the higher-than-expected secondary market revenue and future targets.

Answer

CEO Brett Pharr confirmed the Upstart program aligns with Pathward's existing marketplace lending model, featuring credit indemnifications and a temporary balance sheet presence. CFO Greg Sigrist added that these loans are held-for-sale with a hold period of 30 days or less, and the partnership is not exclusive. Sigrist explained that the elevated secondary market revenue was due to opportunistic sales, particularly in renewable energy with USDA, but the company anticipates returning to the $5 million to $7 million quarterly range.

Tim Switzer inquired about Pathward's services for crypto-related partners and any internal plans for crypto products, current credit trends in the commercial finance portfolio, the strength of the Banking as a Service (BaaS) partner pipeline, and the company's outlook on share repurchases.

Answer

CEO Brett Pharr confirmed Pathward provides USD access for crypto wallets and is evaluating further use cases, though it's still early. He reiterated that credit is strong, with recent NPL increases being episodic and well-collateralized. Mr. Pharr also described the partner pipeline as 'strong,' highlighting opportunities in consumer lending sponsorship and payments. EVP & CFO Greg Sigrist added that share repurchases will continue, though likely at a more 'muted' pace to build capital, as the stock price is still a 'green light' for buybacks.

Tim Switzer asked about the impact of recent SBA SOP changes on competitors, whether Live Oak is gaining market share in the smaller dollar loan space, and if these changes have affected pricing or yields. He also inquired if competitors are shifting back to Live Oak's traditional larger loan sizes. Additionally, he requested an update on Live Oak's AI initiatives, including tangible use cases and benefits, and sought clarification on future provision expense trends, specifically if they would remain stable or moderate further.

Answer

B.J. Losch (President, Live Oak Bancshares) noted that some competitors, particularly non-bank lenders, are backing away from smaller dollar loans due to credit pressures, potentially allowing Live Oak to gain market share without impacting pricing or yields. He stated no discernible change in competitors moving to larger loan sizes. B.J. Losch also provided an update on AI, mentioning developers using Cursor, educating staff with Copilot and proprietary large language models, and a multi-pronged approach to modernize operations and eventually create an 'AI-native bank.' Walt Phifer (CFO, Live Oak Bancshares) added that provision expense would continue to be driven by growth and stabilizing credit trends, suggesting the reserve percentage might remain level.

Tim Switzer asked about the near-term trajectory for net interest margin (NIM) given the re-entry into a rate cut cycle and the timeline for its rebound. He also questioned the competitive landscape in the SBA space, including the impact of government shutdowns and rule changes, and whether any specific industries are showing more credit stress.

Answer

Walter Phifer, CFO, explained that as an asset-sensitive bank, margin variation is expected with rate cuts, but the short-term funding base allows for quick recovery, emphasizing net interest income growth over margin alone. William Losch III, President and COO, stated that Live Oak's deep expertise in the SBA market allows them to consistently grow despite market changes and competition. He also noted that credit stress is more related to rising rates in 2021-2022 vintages and industries with limited pricing power, rather than broad-based tariff impacts.

Tim Switzer asked about the near-term trajectory of the net interest margin (NIM) in a rate cut cycle, seeking a timeline for its rebound. He also inquired about the competitive landscape in the SBA space, specifically if government shutdowns, credit cycles, or rule changes have eased competition or created opportunities. Lastly, he asked if any specific industries are struggling more than others due to rising rates or tariffs.

Answer

CFO Walter Phifer explained that as an asset-sensitive bank, margin variation is expected with rate cuts, but the short-term nature of funding allows for quick recovery, typically within a year. He emphasized focusing on net interest income growth over just margin. President and COO William Losch III stated that Live Oak's deep expertise in SBA lending allows them to focus on internal improvements, growing verticals, and serving customers, rather than external competitive shifts. He clarified that tariffs had minimal impact, with stress primarily from rising rates in 2021-2022 vintages affecting a handful of industries with limited pricing power.

Tim Switzer from Keefe, Bruyette & Woods (KBW) asked about the recent pickup in USDA loan sales and the outlook for that market. He also questioned what is driving the strong demand and healthy gain-on-sale margins for SBA loans, and whether recent rule changes and credit issues have caused competitors to pull back, creating opportunities for Live Oak.

Answer

CFO Walt Phifer attributed the renewed USDA market activity to investor demand for downward rate protection in the current rate environment, though he noted the market remains choppy. He stated that SBA loan demand remains consistently strong due to attractive spreads and prepayment characteristics. President William C. Losch III confirmed that competitors have pulled back, particularly on smaller dollar loans following SOP changes, which has driven more activity to Live Oak due to its consistent execution and market presence.

Tim Switzer asked for clarification on VersaBank's non-interest expense guidance for fiscal year 2026, specifically the base number for the "flat expenses year over year" projection. He also inquired about investment areas within the expense base, the cost allocation for the RealBank Deposit Token program, and the impact of fixed costs in the U.S. business on future expenses. Additionally, Mr. Switzer questioned the timeline for deploying elevated liquidity that is currently impacting the Net Interest Margin (NIM) and sought to understand the normalized liquidity level. Finally, he asked for insights into the verticals driving growth in the U.S. RPP and their similarity to Canadian operations.

Answer

President David Taylor indicated that the budget for non-interest expenses is around $72 million, excluding one-time realignment costs and the $10 million associated with DRT Cyber, which is expected to be shed. He noted that fixed costs for the U.S. business are largely in place, and future U.S. spending will likely decrease. Mr. Taylor stated that spending on the RealBank Deposit Token program is insignificant, as most development costs were incurred years ago. Regarding liquidity, he explained that it is already decreasing as new partners are being funded, aiming for a normalized level of 6%-6.5% of total assets. For the U.S. RPP, Mr. Taylor confirmed that growth verticals are quite similar to Canada, including home improvement, HVAC, energy-saving initiatives, recreational vehicles, and small business equipment.

Tim Switzer asked for an explanation regarding the increase in diluted shares, observing that the end-of-period share count did not rise proportionally.

Answer

CFO Drew LaBenne explained that the primary factor was the share price, as a higher share price results in greater dilution on outstanding equity grants when applying the treasury stock method for calculating diluted shares. He confirmed there was no fundamental step change in the vehicles contributing to the diluted share count.

Tim Switzer asked about the funding cost benefits from new deposit products, the sustainability of the 100% deposit beta, and the potential impact of Fed rate cuts on NIM.

Answer

CEO Scott Sanborn clarified that the new LevelUp checking product is strategically focused on borrower engagement and lifetime value rather than near-term funding cost reduction. CFO Drew LaBenne added that while deposit costs should move down with the Fed, the beta may be less than 100% on future cuts to ensure continued deposit growth. Scott Sanborn also noted that rate cuts could benefit loan sale prices.

Tim Switzer inquired about the net interest margin (NIM) trajectory given anticipated Fed rate cuts, seeking a rule of thumb for the impact of 25 basis point cuts. He also asked about the competitive landscape for both loan and deposit pricing, identifying the types of competitors and specific geographies or categories where competition is most intense. Furthermore, Switzer probed whether loan competition is driven by competitors re-entering markets or by more tepid loan demand.

Answer

Tom Quinn, President and CEO, indicated that two 25 basis point cuts wouldn't substantially impact the NIM, with competitive pricing being a larger factor. He expressed hope to maintain the NIM around the current level, potentially 5 basis points lower, with purchase accounting accretion impacting the range of 4.0% to 4.15%. Quinn clarified that while a static model shows NIM contraction with rate cuts, proactive steps can offset this. Bob Coradi, Chief Risk Officer, noted that competition varies by growth markets like Baltimore, Lancaster, and Harrisburg, and is a mix of factors, but Orrstown's relationship model helps secure desired pricing.

Tim Switzer from Keefe, Bruyette & Woods (KBW) asked about the potential impact of Fed rate cuts on the Net Interest Margin (NIM) outlook and for more details on growth initiatives within the wealth management business.

Answer

EVP & CFO Neelesh Kalani explained that as an asset-sensitive bank, rate cuts would negatively impact net interest income, though they would try to offset this by lowering deposit costs. President & CEO Thomas Quinn added that pricing their strong loan pipeline appropriately will be critical. Regarding wealth management, Quinn and Senior EVP & COO Adam Metz highlighted talent acquisition and expansion in key growth markets like Maryland, Lancaster, and Harrisburg as primary drivers for the $3 billion AUM business.

Tim Switzer of Keefe, Bruyette & Woods (KBW) inquired about the new partnership with Block's Cash App, the drivers behind lower deposit balances, credit quality in the 'Rebel' and SBL loan portfolios, the resolution timeline for the Aubrey property's earnest money dispute, and The Bancorp's capacity for future growth.

Answer

CEO Damian Kozlowski explained that the Block partnership is a significant expansion for card issuance, aiming to replace the current issuer over time. He stated that the Q2 deposit decline was a deliberate balance sheet management action. Regarding credit, Kozlowski noted that issues in the Rebel portfolio have likely peaked and are being managed, while the small increase in SBL non-performing assets was isolated. He expressed confidence in resolving the earnest money dispute in the next quarter and affirmed that the company's infrastructure is built to handle multiples of its current transaction volume.

Tim Switzer requested details on the overall profitability of the small ticket leasing business, including its current return on assets (ROA), and asked about the company's review of its loan portfolio for potential exposure to tariffs, including specific industries or markets of concern.

Answer

Kathryn Bailey, EVP & CFO, acknowledged that the leasing business's profitability has tightened significantly but is on a path to recovery. Tyler Wilcox, President, CEO & Director, added that its infrastructure is being restructured to align with its smaller portfolio size. Regarding tariffs, Wilcox described a comprehensive review of the commercial portfolio, with a deep dive into auto and manufacturing sectors. He noted a temporary spike and subsequent drop in indirect auto applications but stated no material credit impacts have been observed to date.

Tim Switzer of Keefe, Bruyette & Woods (KBW) requested details on the current profitability of the small ticket leasing business, including its ROA and expense structure. He also asked about the bank's assessment of its portfolio's exposure to potential tariffs, specifically which industries and markets are being monitored most closely.

Answer

CFO Katie Bailey acknowledged that the leasing business's profitability has tightened considerably but is on a path to improvement. President & CEO Tyler Wilcox added that the unit's infrastructure is being restructured to align with its smaller portfolio size. Regarding tariffs, Wilcox confirmed a broad portfolio review was conducted, with a deep dive into the auto and manufacturing sectors. He stated that no material impacts on credit or loan growth have been observed to date.

Tim Switzer of Keefe, Bruyette & Woods (KBW) questioned the current profitability of the small ticket leasing business, asking for an update on its ROA compared to prior years. He also asked about the company's review of its loan portfolio for tariff exposure and which industries or markets were most at risk.

Answer

CFO Kathryn Bailey stated that the leasing business's profitability has 'tightened and reduced significantly' but is on a trajectory to improve. President & CEO Tyler Wilcox added that the business's infrastructure is being restructured to match its smaller size. Regarding tariffs, Wilcox confirmed a broad portfolio review was conducted, with deep dives into auto and manufacturing, but no material impacts have been observed on credit metrics or loan health to date.

Tim Switzer of Keefe, Bruyette & Woods (KBW) questioned the current overall profitability of the small ticket leasing business, asking about its expenses and return on assets (ROA). He also asked about the company's review of its loan portfolio for tariff-related risks and which industries or markets are most exposed.

Answer

CFO Katie Bailey and CEO Tyler Wilcox acknowledged that the leasing business's profitability has significantly tightened but stated they are restructuring its infrastructure to align with its smaller portfolio size and restore its positive contribution. Regarding tariffs, Mr. Wilcox confirmed a broad portfolio review was conducted, with a deep dive into the auto and manufacturing sectors. He noted that while there was a temporary spike in indirect auto applications, no material impact on credit metrics or loan health has been observed to date.

Tim Switzer asked about the current profitability and return on assets (ROA) of the small ticket leasing business, given its historical performance. He also requested details on the bank's portfolio review for tariff exposure, specifically asking which industries and geographic markets are most exposed.

Answer

CFO Kathryn Bailey acknowledged that the leasing business's profitability has tightened significantly but is on a trajectory to improve. CEO Tyler Wilcox added that the business's infrastructure is being restructured to align with its smaller portfolio size. Regarding tariffs, Wilcox stated that a broad review, with a deep dive into auto and manufacturing, has not revealed any material impact on the portfolio's health, though they continue to monitor it closely.

Inquired about credit performance within the SBA portfolio, asking if specific industries or borrower types are under pressure. Also asked about the potential impact of a 'higher for longer' interest rate environment and the drivers of growth in fintech deposits.

Answer

The executives stated there are no specific industry trends causing SBA pressure, aside from some lingering hurricane and pandemic-related build-out issues. They believe the current rate environment is manageable as loans were underwritten with stress tests, but a rate increase would be problematic. Fintech deposit growth is primarily from existing customers, and while the pipeline is good, new partner onboarding is slow and cautious due to heightened regulatory scrutiny.

Asked about the drivers for the 2025 SBA origination growth target, secondary market pricing expectations, and the net interest margin (NIM) trajectory into 2025 considering Fed rate cuts and balance sheet dynamics.

Answer

The SBA growth target for 2025 is around $600 million, supported by a strong team. The bank has the flexibility to hold loans if secondary market pricing is weak. The NIM is expected to expand significantly in 2025, driven by the repricing of high-cost CDs and deposits outweighing the impact on variable-rate loans, with potential for 10 bps of expansion per quarter. This could drive EPS from a target of $4 to $5.