Timothy Switzer

Timothy Switzer from Keefe, Bruyette and Woods inquired about LendingClub's expense trajectory, specifically the increase in marketing and other line items, and whether this reflects higher investment costs or one-off events. He also asked about the efficiency of marketing spend for targeted originations and the expected efficiency ratio trend in 2026 given accounting changes. In a follow-up, he asked about the forward-facing applications of AI, including its role in growth, pricing, and demand, and sought clarity on the path to achieving the 18%-20% medium-term Return on Tangible Common Equity (ROTCE) target.

Answer

CEO Scott Sanborn clarified that increased marketing spend was the primary driver, representing strategic investments for 2026 growth, with other expenses being largely noise. He noted that early-stage marketing channels are less efficient but crucial for future growth, and investment costs should moderate in the second half of 2026. VP, Head of FPandA, and Investor Relations Artem Nalyvailo confirmed that the efficiency ratio is expected to increase in 2026 due to fair value accounting transition and investments, then normalize, leading to higher bottom-line pull-through. Regarding AI, CFO Drew LaBenne and Artem Nalyvailo detailed over 60 initiatives across various departments, highlighting AI's role in evolving the DebtIQ experience for customer intelligence and improving document verification. Scott Sanborn outlined a goal of a steady increase in ROTCE towards medium-term targets, with the CECL to fair value transition largely complete by 2027, and future growth driven by business line expansion, originations, and balance sheet growth, leading to positive operating leverage.

Timothy Switzer inquired about LendingClub's expense trajectory, specifically if increases in marketing, equipment, and other expenses were one-offs or indicative of higher investment costs, and later asked about marketing efficiency and the expected trajectory of the efficiency ratio.

Answer

CEO Scott Sanborn and VP, Head of FP&A, and Investor Relations Artem Nalivayko explained that marketing spend was the primary driver of increased expenses, reflecting continued investment for 2026 growth, with other expenses being largely 'noise.' They anticipate further investments in Q1 for the home improvement business and rebrand, moderating in the second half of 2026. Scott Sanborn clarified that new, less efficient test marketing programs are being pulled into Q4/Q1 to set up for sustained future growth. Artem Nalivayko confirmed the efficiency ratio is expected to rise in 2026 due to the fair value accounting transition's 'tailwind' being reinvested, with normalization expected post-2026.

Timothy Switzer sought clarification on whether the increased loan reserve captures recent macro uncertainty, asked about the cause of lower servicing fees, and inquired about the future outlook for deposit costs.

Answer

CFO Andrew LaBenne confirmed the qualitative reserve increase was a late-quarter decision that incorporates recent macro uncertainty. He also stated that lower servicing fees were primarily due to higher prepayments and should rebound. On deposit costs, LaBenne and CEO Scott Sanborn explained that the major improvement has already occurred, and they expect Net Interest Margin to remain stable around 6% absent further Fed actions.

Timothy Switzer asked about the customer response to lower deposit costs, expectations for managing those costs, and the rationale for potentially holding fewer than $600 million in HFI loans in future quarters.

Answer

CFO Andrew LaBenne detailed that deposit costs improved due to the exit of a high-cost commercial customer and repricing deposits at an 80% beta to Fed rate changes, noting the competitive environment was rational. CEO Scott Sanborn highlighted the success of the LevelUp savings product, which attracted $1.2 billion and improved marketing efficiency. LaBenne clarified that while HFI retention might be slightly under Q4 levels, the overall balance sheet will grow, with a focus on building the HFS portfolio to meet buyer demand.

Timothy Switzer asked about the drivers behind the significant improvement in loan sale pricing and inquired about the types of loans bank partners are purchasing, such as seasoned versus whole loans.

Answer

CFO Drew LaBenne attributed the improved pricing to three consecutive quarters of better loan performance, a favorable interest rate environment, and the resulting positive mark on the held-for-sale portfolio. He added that banks have different risk profiles, and the extended seasoning program allows LendingClub to meet bulk purchase demand quickly, helping to jumpstart programmatic buying relationships.

Timothy P. Switzer with KBW inquired about the primary drivers behind the increased guidance for non-interest income and expenses, and whether this reflects a change in the company's strategic direction. He also sought clarification on the net interest margin (NIM) trajectory for the year, specifically regarding the pace of purchase accounting accretion decline.

Answer

Neelesh Kalani, CFO, explained that the increased guidance is not a change in strategy but a continuation of investing in talent to drive future earnings, citing new hires like Matt Alpert for wealth management and investments in lending and OFA. He noted that non-interest income reached a historical high of $14.4 million in the quarter, driven by talent, but cautioned that swap fees and wealth revenue can fluctuate. Adam Metz, COO, and Neelesh Kalani, CFO, clarified that purchase accounting accretion is expected to decline by 2-3 basis points quarterly, with loan production offsetting some impact. They project NIM in the 3.90%-4% range for 2026, assuming 75 basis points in rate cuts, and remain focused on managing funding costs.

Timothy P. Switzer with KBW inquired about the primary drivers behind the increased guidance for non-interest income and expenses, and whether these changes reflect a shift in the company's strategic approach compared to the previous quarter.

Answer

CFO Neelesh Kalani clarified that the guidance reflects a continuing strategy of investing in talent across lending, wealth management (with the hiring of Matt Alpert), and OFA to drive future earnings. He noted that non-interest income had consistently achieved higher run rates, breaking $14 million in the quarter, the highest historically, driven by new talent. COO Adam Metz further explained the NIM trajectory, stating that purchase accounting accretion is expected to decline by 2-3 basis points quarterly, with loan production replacing this impact at slightly lower rates. He also mentioned that projections assume three 25 basis point Fed rate cuts in 2026, which could impact the margin.

Inquired about the future trajectory of Net Interest Income (NII) and Net Interest Margin (NIM), the sustainability of purchase accounting accretion, and the outlook for expenses, including potential further savings and planned investments.

Answer

Purchase accounting accretion is expected to be around $6 million going forward, slightly lower than the current quarter. Core NIM is projected to be around 3.50%, with potential upside from managing deposit costs and deploying excess cash. On expenses, about $1 million in reductions are expected in the next quarter, targeting a core run rate of $35.5 million to $36 million, which includes known future investments.

Timothy Switzer asked about the trajectory for Net Interest Income (NII) and Net Interest Margin (NIM), the sustainability of purchase accounting accretion, and the expense outlook, including the potential for further cost savings post-integration.

Answer

EVP & CFO Neelesh Kalani projected the core NIM to be around 3.50% with upside potential from managing funding costs and redeploying cash. He noted purchase accounting accretion was slightly elevated but should normalize around $6 million quarterly. On expenses, Kalani expects another $1 million in run-rate savings, targeting a core expense base of $35.5 million to $36 million, while noting the bank will continue to invest in talent.

Timothy Switzer asked about the impact of SBA SOP changes on competitors and Live Oak's market share in smaller dollar loans, as well as any changes in pricing or yields. He also inquired about competitors moving to larger loan sizes, an update on AI development, and the future trajectory of provision expense.

Answer

William C. Losch III, President, noted some competitors backing away from smaller dollar loans, allowing Live Oak to differentiate through ease of business and technology, without significant impact on pricing or yields. He hasn't observed competitors shifting to larger loan sizes. He detailed AI initiatives, including developers using Cursor, educating staff with Copilot, and building proprietary LLMs, with a multi-pronged approach to modernize operations and create an 'AI-native bank.' Walter Phifer, CFO, added that growth will continue to drive provision expense due to CECL, but stabilizing credit trends suggest a relatively level reserve percentage.

Timothy Switzer asked for clarification on recent SBA rule changes, specifically the impact of reinstating the 55 basis point lender's annual service fee and how the rollback of eased underwriting requirements affects the profitability of the Live Oak Express small-dollar loan program.

Answer

Executive William C. (BJ) Losch III explained that the reinstated borrower fees do not impact existing loans and are a return to previous standards, which could be a competitive advantage. He further stated that enhanced underwriting requirements for Live Oak Express will not materially impact profitability due to technology and automation investments, though it may slightly increase the time to close loans.

Timothy Switzer asked about the impact of the new political administration on small business sentiment and loan pipelines, and also questioned if recent interest rate movements have affected SBA secondary market demand or margins.

Answer

Executive BJ Losch stated that while it's early, small business sentiment has been significantly higher, which is reflected in near all-time high loan pipelines. Chairman and CEO James Mahan added that a familiar professional was appointed to a key SBA office. Executive Walter Phifer confirmed that secondary market demand remains strong and has not been negatively impacted by rate moves, noting that premiums have actually ticked up and demand is increasing with more pool assemblers entering the market.

Timothy Switzer asked about the primary challenges borrowers are currently facing and how lower interest rates might provide relief. He also inquired about the expected trajectory for deposit betas during the easing cycle and the initial customer reaction to lower deposit rates.

Answer

Executive Michael Cairns stated that the main challenge for borrowers has been the high-interest-rate environment and that declining rates should provide 'breathing room.' He confirmed there isn't one specific area of stress across the portfolio. Executive Walter Phifer addressed deposit betas, referencing the 2019 easing cycle as a model. He noted that CDs reprice quickly, while savings products are slower to adjust. Phifer mentioned that customer reaction to initial rate drops has been minimal, as the cuts were widely expected, and the bank is avoiding 'bait and switch' tactics used by some competitors.

Timothy Switzer of Keefe, Bruyette & Woods inquired about the new partnerships with Crypto.com and Samsung, asking which segments their revenue would fall under and what the ramp-up period looks like. He also asked for details on the economics of the renewed Walmart MoneyCard deal and questioned how the company's different tech stacks might influence potential divestitures of certain divisions.

Answer

Executive Chris Ruppel explained that revenue from the new partnerships will flow through the BaaS or Money Movement channels and will scale significantly over time, but declined to provide specific forecasts. Regarding Walmart, Ruppel noted the long-term opportunity to innovate using the TailFin JV, and Executive Jess Unruh confirmed no other economic changes to the MoneyCard program. CEO William Jacobs addressed the divestiture question, stating that the ongoing strategic review is meant to evaluate all options for maximizing shareholder value, acknowledging that some divisions like the Tax business are on more autonomous tech stacks.

Inquired about the source of new partnerships (competitors vs. new programs), the catalysts driving partner interest, and the outlook for deposit growth and its impact on revenue.

Answer

New partnerships are a mix of competitive takeaways and greenfield opportunities. The company is not opportunity-constrained but is focused on onboarding partners safely and soundly. Deposit growth is primarily driven by the B2B segment and new partners, which is seen as the largest opportunity for growth in deposits, fees, and overall revenue.

Timothy Switzer from KBW asked about the origin of new partnerships—whether they are competitive takeaways or new programs—and the catalysts driving new partners to Green Dot. He also inquired about the outlook for deposit growth.

Answer

Chief Revenue Officer Chris Ruppel stated that new partnerships are a mix of both competitive takeaways and greenfield opportunities, particularly in the financial services, gig economy, and SMB verticals. CEO George Gresham emphasized that Green Dot's focus on compliance and risk management is a key differentiator attracting diligent partners. Regarding deposits, CFO Jess Unruh confirmed that recent growth was driven by the B2B segment and the PLS partnership, and he expects this momentum to continue, providing a significant opportunity for earnings and fee growth.

Timothy Switzer asked for a detailed breakdown of the components driving the $18 million in fair value gains, questioning the increase given lower ALP originations. He also inquired about the impact of recent SBA rule changes, including the return of the lender service fee and stricter underwriting for smaller loans.

Answer

Executive Barry R. Sloane and CFO Frank DeMaria clarified that the fair value gains included approximately $8 million from temporarily holding government-guaranteed portions of SBA loans on the balance sheet. Sloane declined to provide his internal valuation model for ALP loans but pointed to public data in SEC filings. Regarding SBA rule changes, Sloane stated the 55 basis point lender service fee is already factored into their projections and could impact gain-on-sale margins in Q3 and Q4. He views the return to full underwriting as a competitive advantage, as Newtek never loosened its standards.

Timothy Switzer sought clarification on the 2025 credit outlook, asking for the denominator of the <2% charge-off guide and why Q4's rate appeared higher. He also questioned if the current pace of loan deterioration aligns with historical patterns and requested details on how the $500M in ALP originations will impact noninterest income.

Answer

CFO Scott Price clarified the denominator for the charge-off guide is the average bank loan balance, projected around $1 billion for 2025. He attributed the lumpy Q4 charge-offs to a few larger loans but noted no systemic concerns. Executive Barry R. Sloane acknowledged a deterioration in the credit cycle due to rate stress but emphasized the company's comfort with its risk/reward model. Regarding ALP revenue, Sloane declined to provide specific model inputs but directed analysts to public information on past securitizations to model the high-margin revenue stream.

Timothy Switzer asked for the expected timeline for the allowance for credit losses to normalize towards its 3.5% target and questioned what drove the recent inflection in gathering low-cost business deposits.

Answer

CFO Scott Price stated that the allowance level, currently near 5%, is heavily influenced by the concentration of 7(a) loans and that it could be at its peak, with a more meaningful decline expected in 2025 as more traditional bank loans are added. CEO Barry R. Sloane and CFO Scott Price both attributed the deposit growth to intensive sales efforts, including staff training, refining sales scripts, and demonstrating the value proposition of Newtek's zero-fee accounts and integrated technology platform.

Timothy Switzer from KBW asked about the observed impact of economic uncertainty on consumer and SMB behavior, the potential effect of a recession on the CFTPay debt resolution business, and opportunities arising from disruption in the Banking-as-a-Service (BaaS) market.

Answer

CFO Tim O’Leary noted no material shifts in consumer behavior, citing the resilience of their merchant portfolio. CEO Thomas Priore stated that while there is a typical 6-month lag, leading indicators like rising consumer debt suggest a future growth opportunity for their countercyclical CFTPay business. He also confirmed that the turmoil in the BaaS space has created a 'target-rich environment,' and Priority is winning new clients due to its stable platform and strong regulatory posture, with deposit growth from these wins helping to offset potential interest rate headwinds.

Timothy Switzer of KBW asked about the key factors that would drive financial results to the higher or lower end of the 2025 guidance range. He also inquired about customer reaction to the bundled B2B offering of Plastiq with CPX and its impact on sales activity.

Answer

CEO Thomas Priore identified three main drivers for potential upside: successful cross-selling into the SMB segment, strong momentum in B2B buyer and supplier-funded strategies, and higher-than-projected win rates in the high-margin Enterprise segment. Regarding the B2B bundle, Priore noted a positive customer reaction, as the combined offering provides a more comprehensive toolset for extending working capital. CFO Tim O'Leary added that B2B volume trends are strong and the company is successfully moving upmarket.

Timothy Switzer inquired about the potential impact of the new Trump administration on Priority's business outlook and the primary revenue drivers for 2025, including levers in the B2B segment and Plastiq.

Answer

Executive Thomas Priore stated the company is well-positioned for either election outcome, seeing potential upside from eased regulation in sectors like debt resolution, while noting interest rates are the main factor being watched. For 2025, Priore highlighted high growth in the B2B segment and significant upside from the convergence of payments and banking (embedded finance), which is not fully built into models. Executive Tim O'Leary added that the faster growth of higher-margin B2B and Enterprise segments is driving up EBITDA guidance.

Timothy Switzer inquired about the full run-rate impact of the May recapitalization on Q3 results, the preferred dividend outlook, the pace of expense acceleration in the second half of 2024 and into 2025, and the potential effects of an economic slowdown and interest rate changes on the business.

Answer

Executive Tim O'Leary confirmed the Q3 preferred dividend would be approximately $4.8 million and stated that increased operating expenses for SOX compliance and cloud migration would be spread across Q3 and Q4 before normalizing in 2025. O'Leary also explained that while rate cuts would impact EBITDA, the company is nearly perfectly hedged on a free cash flow basis. Both O'Leary and executive Thomas Priore addressed the macro environment, noting that while SMB could see some impact from a slowdown, they expect to continue gaining market share to offset potential softness.

Timothy Switzer inquired about potential changes to the tangible book value dilution and purchase accounting accretion for the Penns Woods acquisition due to interest rate shifts. He also asked about credit trends related to tariffs and which commercial loan categories are gaining market share.

Answer

CFO Douglas Schosser explained that while current market conditions would likely lead to a better outcome than originally announced, specific guidance on the acquisition's financial impact is being withheld until closer to the deal's close due to volatility. Regarding credit, Schosser identified manufacturing, transportation, and hospitality as most exposed to tariffs, representing about 8% of the loan portfolio, but noted impacts are not yet significant. He also confirmed continued market share gains in newer verticals like sports and franchise finance.

Timothy Switzer asked for clarification on the 2025 noninterest income guidance, specifically if it excludes the Penns Woods acquisition and what factors are driving the expected growth. He also inquired about the impact of recent interest rate changes on the Penns Woods deal's tangible book value dilution and purchase accounting marks. Finally, he requested an update on the credit quality of the remaining healthcare loan portfolio and any other areas of concern.

Answer

Douglas Schosser, Chief Financial Officer, confirmed all 2025 guidance excludes the Penns Woods acquisition. He explained the noninterest income growth is driven by a strategic focus on generating more consistent fee income performance. Schosser declined to update guidance on the acquisition's financial impact until closer to the closing date. Regarding credit, he stated that most stress in the long-term healthcare portfolio was addressed through derisking actions, with remaining credits in held-for-sale expected to be resolved in Q1. He expressed confidence in the overall stability of the remaining loan book.

Timothy Switzer of Keefe, Bruyette & Woods inquired about the post-merger integration progress, the impact of new banker hires on growth, and customer sentiment regarding the macroeconomic outlook and potential tariffs.

Answer

President and CEO Anthony Labozzetta confirmed the merger integration is complete and the company is operating as a single entity. He noted that new hiring in Pennsylvania and Westchester markets has significantly boosted the loan pipeline. Regarding the macro environment, Labozzetta stated that while uncertainty exists, they have not yet seen a negative impact on their portfolio or a pullback from clients. CFO Tom Lyons added that this uncertainty is reflected in their updated guidance, which now provides a range for loan and deposit growth.

Timothy Switzer sought more clarity on the expense outlook, asking what would drive improvement later in 2025 and what could push costs to the high end of the range. He also asked about the sustainability of purchase accounting accretion and whether a securities restructuring was being considered.

Answer

CFO Tom Lyons attributed future expense improvement to typical seasonality, such as lower payroll taxes and utility costs after Q1. He noted that only new investments or costs from resolving nonperforming assets would push expenses to the high end of the guide. Lyons described the current purchase accounting accretion as a good base but cautioned it is unpredictable due to cash flow volatility. He confirmed the company is not considering a broad securities restructuring, believing it's better to hold the assets, but did highlight the recent decision to exit the non-relationship equipment lease business as a strategic restructuring.

Timothy Switzer of KBW inquired about the dynamics of purchase accounting accretion on the margin, the forward run rate for amortization expense, and the potential impact of different Federal Reserve rate cut scenarios on the bank's net interest income.

Answer

CFO Tom Lyons explained that purchase accounting accretion was stable due to lower-than-expected loan prepayments and suggested modeling it as stable going forward. He confirmed the ~$12 million quarterly amortization expense is a good run rate and is added back for ROTCE calculations. Regarding Fed cuts, Lyons stated that while the bank is fairly neutral to interest rate risk, more aggressive cuts would create greater opportunities to reprice $4.5 billion in maturing funding at lower rates.

Timothy Switzer inquired about the customer messaging for the Premier Bank initiative, the proportion of new versus legacy customers it would attract, and the company's plans for refinancing its subordinated debt.

Answer

CEO Christopher Maher described the Premier Bank as a 'concierge' service model for clients valuing a primary relationship, emphasizing it's about customer preference and will focus on attracting net new customers. Regarding debt, Maher stated there is no rush to refinance the subordinated debt after redeeming the more expensive preferred stock. CFO Patrick Barrett added that the cost savings from the preferred redemption largely offset the increased cost of the sub debt.

Timothy Switzer asked for quantification of the typical Q1 seasonal operating expense increase, the company's strategy for new banker hires, and its plans for refinancing upcoming subordinated debt.

Answer

CFO Patrick Barrett indicated a typical Q1 operating expense increase of $1 million to $1.5 million due to compensation-related items. CEO Christopher Maher added that full-year guidance depends on the success of the current hiring season for revenue-producing talent, with updates likely in April. Maher also explained that for the upcoming debt maturities, the company is considering multiple options, including redemption using its current robust capital position.

Timothy Switzer sought clarification on the expected impact of the recent acquisitions on noninterest income and expenses. He also asked if the Spring Garden deal would materially increase loan balances and what the yields are on its portfolio.

Answer

CEO Christopher Maher clarified that the expense guidance incorporates both deals and that the Spring Garden loan portfolio was already largely on the balance sheet, resulting in a net pickup of about $60 million. President Joseph Lebel stated that the yields on the Spring Garden loans are currently attractive at 10.5% to 11%.

Timothy Switzer inquired about the Q1 margin trajectory, specifically why deposit costs remained relatively stable while loan yields declined, and if a catch-up was expected. He also asked about the decline in the take rate on Gross Dollar Volume (GDV) and whether recent disruption in the Banking-as-a-Service (BaaS) space presented acquisition opportunities for The Bancorp.

Answer

CEO Damian Kozlowski attributed the stable deposit costs to a mix issue, specifically a temporary $500 million increase in higher-cost deposits from insurance settlements that are expected to roll off. He explained the lower GDV take rate was also a mix anomaly due to tax season and advised looking at the combined card and ACH fee growth (13%) relative to GDV growth (18%) for a clearer picture. Regarding BaaS disruption, Kozlowski stated The Bancorp is focused on expanding relationships with its existing large partners rather than acquiring smaller programs, and expects to sustain high GDV growth.

Timothy Switzer requested details on the consumer fintech loan agreements, specifically how the reimbursement for credit provisions works, the nature of the collateral, and the timing of cash receipts. He also asked if the strong deposit growth was related to this collateral.

Answer

CEO Damian Kozlowski detailed a multi-layered risk protection structure for these loans, where the bank holds all program interchange, receives a partner backstop, and has posted collateral, making the risk profile very low. CFO Paul Frenkiel noted the provision and income offset is a technical accounting matter they are working to simplify in future agreements. Kozlowski also clarified that future product diversification will include higher-yield loans. Both executives confirmed that the strong deposit growth was primarily driven by overall business volume (GDV), not collateral from the new loan programs.

Timothy Switzer asked for details on the structure of consumer fintech loan agreements, specifically how The Bancorp is reimbursed for credit losses, the nature of the collateral held, the economic trade-offs between interest income and fees, and the source of the strong deposit growth.

Answer

CEO Damian Kozlowski explained the credit sponsorship risk is minimal as the bank holds the partner's entire profitability stream (e.g., interchange) and also receives additional collateral. He noted some new products are primarily fee-based, generating revenue from rapid fund transfers rather than interest. CFO Paul Frenkiel added that the accounting for these provisions is based on technical guidance they may seek to refine. Both executives clarified that the significant deposit growth is driven by overall payment volume (GDV), not collateral from these specific loan programs.

Timothy Switzer of Keefe, Bruyette & Woods followed up on the NIM trajectory amid rate cuts, questioned the change in regulatory capital ratios, asked for the rationale behind the timing of the increased REBL reserve, and requested details on the new consumer credit fintech fees, including their composition and future outlook.

Answer

CEO Damian Kozlowski stated the NIM should remain stable around 4.90%-5.00% as various repricing factors are expected to be a wash. CFO Paul Frenkiel addressed the capital ratios, attributing minor changes to risk-weighting shifts from new consumer loans but emphasized they were not meaningful. Frenkiel also explained the REBL reserve increase was a disciplined application of CECL accounting theory, driven by the objective rise in classified assets, despite no actual losses being expected. Kozlowski clarified that the new consumer credit fintech fees are primarily from customers paying for immediate fund access, and he outlined a future strategy involving a diversified mix of on-balance sheet assets and distributed loans with various partners.

Timothy Switzer asked for quantification of the expected Q2 impact from SBA process changes, details on the average SBA loan size, and the potential net interest income (NII) effect of a 25-basis-point rate cut.

Answer

Executive Kenneth Lovik projected Q2 noninterest income would be in the $5 million to $6 million range due to the SBA changes, but would normalize in subsequent quarters. He also estimated a 25-basis-point rate cut would add approximately $3.6 million to NII on an annualized basis. Executive David Becker noted that holding SBA loans longer would partially offset the fee income decline with higher interest income. Executive Nicole Lorch clarified that their average SBA loan size is just over $1 million, so reinstated fees on smaller loans would not have a significant impact.

Timothy Switzer followed up on SBA credit, asking if pressure was concentrated in specific industries or borrower types and how a 'higher for longer' rate environment might impact credit. He also inquired about the drivers of fintech deposit growth and the pipeline for new partners.

Answer

Executive Kenneth Lovik reiterated that there are no common themes in the SBA problem loans, aside from some hurricane impacts and pandemic-related construction delays. He noted that most SBA loans were originated and stress-tested in a high-rate environment. Executive David Becker stated that growth in the fintech business is driven by existing partners and that while the pipeline is good, the due diligence process for new partners has become even tougher. He projected significant earnings growth from the BaaS division in 2025.

Timothy Switzer of KBW inquired about the drivers behind the 15-25% SBA origination growth outlook for 2025 and the expectations for secondary market pricing. He also asked for an updated view on the net interest margin (NIM) trajectory into 2025, considering future Fed rate cuts.

Answer

Executive Kenneth Lovik stated the SBA growth target of ~$600 million is supported by a strong, well-staffed team. CEO David Becker noted that excess balance sheet liquidity provides the flexibility to hold SBA loans if secondary market pricing becomes unfavorable. Regarding NIM, Lovik detailed the repricing dynamics of assets and liabilities, projecting approximately 10 basis points of margin expansion per quarter, contingent on how quickly excess liquidity is deployed. Becker expressed high confidence in achieving 2025 earnings targets.

Timothy Switzer inquired about the impact of economic uncertainty on customer behavior and investment, and also asked for an update on cost savings and strategic levers related to the pending merger with First of Long Island (FLIK).

Answer

Chairman and CEO Frank Sorrentino stated that while some industries like construction may see minor cost impacts, the overall effect of economic uncertainty is not seen as dramatic, with clients already adapting. Regarding the merger, Mr. Sorrentino emphasized the revenue synergy potential from FLIK's strong client base. CFO William Burns added that he is confident in achieving return objectives, supported by margin momentum and accretion. He noted the ~$24 million in cost saves might be phased in over a year to ensure a smooth client transition.

Timothy Switzer of Keefe, Bruyette & Woods asked for more precise guidance on the timing of the First of Long Island merger closing within Q2. He also requested details on the expense assumptions behind the 2026 outlook, such as a target efficiency ratio, and the specific interest rate assumptions underpinning the net interest margin (NIM) forecast.

Answer

Chairman and CEO Frank Sorrentino stated that while a Q2 closing is expected, it is too difficult to specify whether it will be early or late in the quarter. CFO Bill Burns declined to provide a specific expense run rate for 2026 but expressed confidence in beating Street estimates. For the NIM outlook, Burns projected a path to 3.20% by early 2026, attributing it to a 5 basis point organic increase, a 10 basis point lift from the merger, and a potential 5 basis points from one rate cut.

Timothy Switzer asked about the potential for securities portfolio restructuring following the FLIC merger and inquired about the long-term growth outlook and revenue potential for the BoeFly platform, particularly in a lower-rate environment and with the expanded footprint from the merger.

Answer

CFO Bill Burns acknowledged that while there is potential for securities restructuring after the FLIC balance sheet is marked to market, it is not essential for achieving their financial targets. Chairman and CEO Frank Sorrentino expressed a positive outlook for BoeFly, noting a recent uptick in franchisor usage and stating that the FLIC branch network will dramatically improve the pull-through for SBA lending, an area where FLIC was not active.

Timothy Switzer questioned the net interest margin outlook, particularly its sensitivity to potential Fed rate cuts, and asked if recent disruption in the Banking-as-a-Service (BaaS) space has created acquisition opportunities for Pathward.

Answer

CFO Gregory Sigrist explained that the net interest margin is nearly neutral to overnight rate changes, with each 25 basis point cut having a minimal impact. He highlighted that the company's balance sheet optimization strategy, which involves redeploying liquidity from asset sales into higher-yielding duration loans, provides margin stability. CEO Brett Pharr added that while BaaS market disruption is filling their pipeline with organic opportunities, their strategy is to be selective with new partners rather than pursuing acquisitions.

Timothy Switzer asked about opportunities arising from Banking-as-a-Service (BaaS) industry disruption, the outlook for commercial credit quality, and future plans for balance sheet optimization.

Answer

CEO Brett Pharr confirmed that regulatory pressure on competitors creates significant opportunities for Pathward, a trend he expects to continue. Regarding credit, both Pharr and CFO Greg Sigrist stated that charge-offs are within normal ranges and that overall credit metrics are stable or improving. Sigrist added that while a major securities restructuring is not planned, the company remains opportunistic and is focused on remixing into higher-yielding loan verticals.

Timothy Switzer inquired about consumer behavior in response to tariffs and economic uncertainty, and also asked for updated thoughts on M&A strategy, particularly regarding crossing the $10 billion asset threshold.

Answer

Tyler Wilcox, President, noted that consumer behavior has been counterintuitively strong, with significant increases in indirect auto lending, a robust mortgage pipeline, and strong HELOC origination as consumers tap into home equity. On M&A, Mr. Wilcox reiterated a stance of 'strategic patience,' stating that while they are actively engaged in conversations and desire to cross the $10 billion mark, they feel no compulsion to do a deal quickly and will wait for the right partner, given their two-year runway for organic growth.

Timothy Switzer asked for details on the repricing frequency of variable-rate loans, short-term funding sources, customer reactions to lower deposit rates, and the macro outlook's impact on C&I borrowers.

Answer

CFO Kathryn Bailey explained that most variable-rate loans reprice monthly and detailed short-term funding sources like retail CDs and FHLB advances. She and Executive Tyler Wilcox noted minimal customer attrition from lowering deposit rates. Tyler Wilcox described C&I borrower sentiment as one of 'cautious optimism,' consistent with national small business trends.

Tim Switzer followed up on asset sensitivity, asking for details on liability-side offsets to variable-rate loans, the level of loan floors, overall deposit beta assumptions, and whether the margin would dip below 4%.

Answer

CFO Kathryn Bailey identified short-term funding, higher-rate money market accounts, and loan floors as key offsets. She noted the deposit beta has recently been in the low 30% range. Bailey affirmed the expectation that the net interest margin will maintain a '4 handle' throughout 2025 and is not expected to dip meaningfully below 4%.

Timothy Switzer of KBW asked for an update on conversations with new U.S. point-of-sale partners and inquired about how to model balance sheet capacity, loan syndication, and related fee income as U.S. originations ramp up.

Answer

Executive David Taylor stated that new partner onboarding is a matter of completing the legal paperwork, a process that is gaining momentum. He noted that as the balance sheet capacity is utilized, the company will syndicate loans through a program that is already developed. Taylor mentioned targeting a management fee of around 1% on syndicated loans, with the potential for better fees if they can secure a favorable bond rating for the participations.

Timothy Switzer sought clarity on the expense trajectory for 2025, asking if the guided $90-$92 million quarterly range would hold steady or trend higher. He also asked about the noninterest income guidance of mid-$50 million, questioning its seasonality. Finally, he requested an update on the drivers behind the lower non-performing loans (NPLs) this quarter and the status of a legacy hospitality facility.

Answer

Group CFO Craig Bridgewater confirmed the expectation is to remain within the $90-$92 million quarterly expense range, balancing inflationary pressures with cost management, such as moving roles to the Halifax service center. He also affirmed the mid-$50 million noninterest income run-rate, noting Q4 is always seasonally higher. Michael Schrum, President and Group Chief Risk Officer, explained that the NPL reduction was due to the full repayment of a facility after the property was sold. He added that the legacy Bermuda hospitality facility is on track for resolution in Q1 2025.

Timothy Switzer inquired about the specific jurisdictions targeted for potential acquisitions and the expense outlook for 2025, including key areas for investment.

Answer

Chairman and CEO Michael Collins specified that the bank's M&A focus remains on its core, well-regulated jurisdictions: Bermuda, Cayman, and the Channel Islands for banking, and adding the Bahamas, Geneva, and Singapore for trust services. He highlighted Singapore and the Channel Islands as key growth areas for trust acquisitions. Group CFO Craig Bridgewater projected that 2025 expenses would face headwinds from inflation and salaries but that the company would continue to invest in technology to leverage its new core banking system and enhance client experience. He also noted the shift to SaaS contracts impacts the timing of expense recognition.

Timothy Switzer questioned the potential catalysts for loan growth acceleration beyond the guided low-single-digit range and asked about borrower sentiment. He also inquired about credit quality pressures outside of the two specific nonperforming loans mentioned and the timeline for reaching the target TCE ratio.

Answer

CEO Dennis Shaffer identified funding availability as the primary constraint on loan growth, not demand, which remains strong due to major economic projects in Ohio. Chief Credit Officer Michael Mulford stated there were no systemic credit issues or geographic areas of concern. Regarding capital, Shaffer indicated a goal of migrating the TCE ratio closer to 7% by the end of 2025, contingent on earnings performance and interest rate movements.

Tim Switzer asked how the net interest margin trajectory would change if the Fed were to cut rates more or less aggressively, inquired about further upside from deposit initiatives, and questioned the potential for higher loan growth in a soft-landing scenario.

Answer

SVP and CFO Ian Whinnem explained that with $700 million in loans repricing immediately with Fed cuts, the bank's aggressive downward deposit beta and repricing FHLB borrowings would help protect the margin. President and CEO Dennis Shaffer added that they are targeting low/no balance deposit customers and originating small business loans through branches to attract more core deposits. SVP and Chief Lending Officer Chuck Parcher noted they are also having success securing compensating balances. Regarding loan growth, Parcher stated that growth is currently tempered by their focus on reducing CRE concentration, not by a lack of demand, and they are confident they can 'turn the spigot back on' when ready.

Timothy Switzer asked for quantified guidance on 2025 payments volume and revenue, particularly with the C.H. Robinson partnership, and inquired how AI is impacting Triumph's competitive moat beyond network transactions.

Answer

Executive Melissa Forman stated that the key metrics for 2025 are achieving 60-65% market share in payments and continued EBITDA improvement, with revenue weighted to the second half. CEO Aaron Graft added that it's too early to quantify the C.H. Robinson pull-through but noted a recent "explosion of activity." He explained that AI and machine learning are enabling "touch-free processing," which is a quantum leap in efficiency and has shifted their monetization strategy, acknowledging their initial view was "precisely wrong but directionally correct."

Timothy Switzer from KBW followed up on the lost factor, asking if Triumph's own factoring business was a cause and what network volume growth would have been otherwise. He also asked about the value proposition and pricing of the NextGen Audit product.

Answer

CEO Aaron Graft denied that Triumph's factoring business caused the departure. President of TriumphPay Melissa Forman quantified that excluding the loss, network volume would have seen a 10-11% positive swing. Forman also detailed that NextGen Audit adds value through enhanced validation and faster processing, leading to DSO improvements for brokers. She confirmed existing clients are upgrading early, driving fee revenue growth, with pricing based on value provided.