Timur Braziler

Timur Braziler asked about the deposit mix shift on the institutional side, its impact on the cost of funds with anticipated rate cuts, and whether incremental deposits remain dilutive. He also inquired about the two legacy HTLF loans moved to NPL status, specifically if they were part of the initial purchase accounting mark or a subsequent credit migration.

Answer

Ram Shankar, CFO, explained that large client deposit balances are unpredictable but hard-indexed deposits (e.g., fed funds minus 25bps) can be higher than prevailing costs. He noted expected public funds inflow and DDA pickup would positively impact deposit growth, and that lower rates generally make it easier to reduce deposit costs. Tom Terry, Chief Credit Officer, clarified that the larger of the two HTLF NPLs was identified and reserved for during due diligence, while a smaller one was newer and reserved for this quarter. Mariner Kemper, Chairman and CEO, reiterated confidence in charge-off guidance despite these migrations.

Timur Braziler from Wells Fargo inquired about the impact of UMB Financial's institutional deposit mix shift on net interest margin, particularly how incremental deposits affect funding costs amidst anticipated rate cuts. He also asked for clarification on the credit migration of two legacy Heartland Financial loans recently moved to nonperforming status.

Answer

CFO Ram Shankar explained that hard-indexed institutional deposits can be dilutive to funding costs, but anticipated seasonal public funds and DDA pickups, along with rate cuts, will help lower deposit costs. Chairman and CEO Mariner Kemper added that lower rate environments historically ease rate reductions. Chief Credit Officer Tom Terry clarified that the larger of the two HTLF nonperforming loans was identified and reserved for during due diligence, while a smaller one was a newer watch list item reserved this quarter, with confidence in charge-off guidance maintained.

Timur Braziler from Wells Fargo noted the surprisingly strong contribution from Heartland to balance sheet growth and asked if this represented full capacity or if further ramp-up is expected. He also questioned why interest-bearing deposit costs did not decline more, given the full-quarter impact of Heartland's lower-cost base.

Answer

CEO Mariner Kemper asserted that they are at the 'very beginning' of realizing Heartland's growth potential, stating there is 'huge potential' yet to be unlocked. CFO Ram Shankar explained that deposit costs remained stable because the benefit from Heartland's base was offset by strong growth in new, higher-yielding institutional and middle-market deposits, reflecting a mix shift rather than competitive rate pressure.

Timur Braziler asked about the significant gap between end-of-period and average DDA balances and sought clarification on what 'aligning the acquired portfolio with UMB standards' means for credit quality and future growth.

Answer

CEO J. Kemper explained that DDA balances are inherently volatile due to large institutional clients and that 'aligning the portfolio' refers to applying UMB's underwriting processes and policies, not a major credit cleanup. He affirmed that all challenged credits were identified during diligence and that he expects the combined portfolio to perform in line with UMB's historically strong credit metrics without hindering growth.

Timur Braziler asked for details on the cadence of the 40% cost savings expected in 2025 and revisited the topic of HTLF's lower earnings run rate, questioning how much of the balance sheet cleanup was anticipated and how UMB would fill the earnings gap.

Answer

CFO Ram Shankar noted that while cost savings will be realized throughout the year, the bulk of technology-related savings will occur after the systems conversion in Q4. Chairman and CEO J. Kemper reiterated that UMB's overall EPS accretion targets for the deal remain intact, supported by UMB's own outperformance and a conservative credit mark that will be applied to the HTLF portfolio. He stressed that the recent credit actions at HTLF were on loans identified during due diligence.

Timur Braziler asked about the competitive landscape for loan growth, including terms and structure, and sought to clarify the transitory components of the third quarter's deposit growth, questioning the appropriate asset base to use for Q4.

Answer

Chairman and CEO J. Kemper described the competitive environment as 'always very competitive' and stated that UMBF's success is due to its ability to win in a high-quality space, suggesting no significant change in conditions. Regarding deposits, CFO Ram Shankar explained that the period-end balance sheet is predictably inflated by institutional client activity and is not 'noncore.' Kemper characterized the activity as 'episodic' rather than 'transitory' and reiterated that Q3 is a seasonal low. Shankar advised focusing on average balances as a more representative measure of the operating business.

Timur Braziler sought clarification on First Hawaiian Inc.'s total deposit outlook, asking if it was flat for Q4 or the full year. He also revisited the topic of mainland M&A, inquiring if it's still on the table and what criteria would be considered. Finally, he asked about the anticipated impact of a prolonged federal government shutdown on the local economy and how this is factored into consumer-side reserving.

Answer

Jamie Moses, Vice Chairman and CFO, clarified that total deposits are expected to be flat from Q3 to Q4, with public deposit outflows offset by retail and commercial growth. Bob Harrison, Chairman, President, and CEO, confirmed that mainland M&A is still a consideration, specifically in the Western States, but with no change to previous guidance. Regarding the federal shutdown, Harrison stated no change to the resilient local economy view, with few inquiries for relief. Lea Nakamura, EVP and Chief Risk Officer, added that no credit metric effects have been observed yet, but caution is always considered for ACL valuation.

Timur Braziler from Wells Fargo Securities LLC sought clarification on Jamie Moses's comment regarding total deposits, asking if the 'flat' expectation was for Q4 or for the full year. Braziler also followed up on mainland M&A, asking if it was still on the table and what specific criteria First Hawaiian would consider. Lastly, he questioned the bank's perspective on the potential hardships from a prolonged federal government shutdown and a mild recession forecast, asking if this differed from recent operating trends and how much of this was factored into current consumer-side reserving.

Answer

Vice Chairman and CFO Jamie Moses clarified that the expectation for total deposits to be 'flat' refers to the third quarter to fourth quarter, with public deposit outflows offset by increases in retail and commercial deposits. Chairman, President, and CEO Bob Harrison reiterated that mainland M&A is still on the table, specifically in the Western U.S., and would be considered for the right opportunity, noting that Hawaii M&A is not feasible due to market share. Regarding the federal government shutdown and recession concerns, Harrison stated that the local economy is resilient, and while the bank is prepared to offer relief, inquiries have been few. EVP and Chief Risk Officer Lea Nakamura added that no effects have been observed in credit metrics yet, but caution is always factored into the Allowance for Credit Losses (ACL) valuation. Harrison also noted that consumer credit metrics (credit cards, indirect loans) are performing well.

Timur Braziler of Wells Fargo sought to reconcile the increase in commercial criticized assets with low charge-offs, asked about the magnitude of upcoming construction loan payoffs, and inquired about the outlook for overall balance sheet growth.

Answer

CRO Lea Nakamura expressed confidence that most criticized assets will cure, noting the low starting base makes increases appear large. CEO Robert Harrison stated that while several construction loans paid off, pricing on new deals remains solid. CFO James Moses and CEO Robert Harrison collectively projected modest balance sheet growth by year-end, supported by loan growth and a stable securities portfolio, with the now-stabilized indirect auto book no longer being a headwind.

Timur Braziler asked for a big-picture view on how tariffs could uniquely impact Hawaii and the combined risk from tariffs and slowing visitor arrivals. He also questioned the drivers behind the reserve build in the consumer portfolio and the bank's outlook on its consumer exposure.

Answer

CEO Bob Harrison identified potential increases in construction material costs as the primary tariff-related risk to watch, while noting no immediate impact on tourism. Chief Risk Officer Lea Nakamura explained the consumer reserve build was driven by the economic model's forecast, not current deterioration. She stated that while the consumer has held up well, it remains an area to watch closely given Hawaii's economic vulnerabilities.

Timur Braziler followed up on the loan repricing dynamic, asking if elevated payoffs could impact the forecast. He also inquired about the rate on a new FHLB advance, the reason for the decline in securities yields, and the drivers behind the increase in classified assets.

Answer

CFO Jamie Moses clarified that the $400 million quarterly repricing forecast is independent of unexpected payoffs, but acknowledged further payoffs would pose a risk. He stated the new FHLB advance rate was 4.14%. The securities yield decline was attributed to a small portfolio of floating-rate securities. CRO Lea Nakamura explained the rise in classified assets was due to a few well-collateralized but underperforming multi-family loans, which she does not consider indicative of a broader trend.

Timur Brazilia (Wells Fargo) asked for details on a large commercial and industrial (CNI) loan, including specific reserves, resolution timing, and why it moved to non-accrual status. He also questioned if it was one of the larger credits, the overall health of the Puerto Rico economy from a business and consumer standpoint, and the NII trajectory given margin expansion and public deposit balance expectations.

Answer

Lidio Soriano, EVP and CRO, explained that the CNI loan was current on payments but placed on non-accrual due to a deteriorating situation and management's intent to right-size its capital structure, with resolution likely next year. Jorge García, EVP and CFO, indicated the loan was the primary driver of the quarter's provision variance. Javier Ferrer, President and CEO, affirmed the strong health of the Puerto Rico economy, noting the credit event was isolated and not indicative of broader concerns. Jorge García reiterated expectations for continued NII growth and margin expansion, attributing the NII guidance range to public deposit balance perspectives and the lag in public deposit repricing tied to three-month US Treasury notes.

Timur Brazilia inquired about the specific reserves set aside for a large commercial and industrial (CNI) loan, its resolution timeline, and why it moved directly to non-performer status. He also asked about the size of this credit relative to the loan book, the overall health of the Puerto Rico economy from both business and consumer standpoints, and any signs of degradation. Finally, he sought clarification on the net interest income (NII) trajectory, margin expansion, and the impact of deposit pricing lags on NII growth.

Answer

Lidio Soriano, EVP and CRO, clarified that the CNI loan is current on payments but was placed on non-accrual due to a deteriorating situation and management's intent to right-size its capital structure, with resolution likely next year. Jorge García, EVP and CFO, confirmed the provision variance was related to these loans. Javier Ferrer, President and CEO, emphasized that the Puerto Rico economy shows no signs of degradation, with strong performance and isolated credit events. Jorge García reiterated expectations for NII growth and margin expansion due to fixed asset repricing and loan growth, noting that public deposit costs are linked to short-term market rates with a quarterly lag.

Timur Braziler asked for clarification on the new profit-sharing expense and its relationship with revenue guidance, and also inquired about commercial deposit competition and the expected Q3 deposit seasonality compared to last year.

Answer

CFO Jorge García explained that the company's updated guidance already incorporates the expectation of reaching the maximum $40 million profit-sharing accrual for the year. Regarding deposits, he noted that while retail clients still exhibit yield-seeking behavior, the company's teams are highly focused on deposit retention. He expects typical Q3 seasonality but highlighted that strong consumer inflows in H1 2025 provide a solid base, and this is all factored into the NII guidance.

Timur Braziler from Wells Fargo asked for clarification on the profit-sharing accrual dynamics relative to revenue guidance and inquired about commercial deposit competition and expected Q3 deposit seasonality.

Answer

Executive VP & CFO Jorge García explained that the company's updated guidance already embeds the expectation of reaching the maximum profit-sharing accrual of approximately $40 million. Regarding deposits, he noted that while some yield-seeking behavior persists among retail clients, the teams are highly focused on deposit retention. He confirmed the expectation for historical Q3 seasonality but highlighted that stronger client inflows in H1 2025 support the overall NII guide.

Timur Braziler inquired about the Net Interest Income (NII) outlook, asking what factors might push results toward the lower end of the 7-9% growth guidance. He also asked about deposit trends, specifically DDA balances, and whether the current macro uncertainty could lead to a pause in the share buyback program.

Answer

CFO Jorge Garcia identified deposit mix, cost, and overall levels as the key variables that will determine where NII lands within the guided range. He clarified a Q4 DDA reclassification was a one-time event and that deposit cannibalization is not a major concern in Puerto Rico. CEO Ignacio Alvarez affirmed that while the board is vigilant, he does not currently see any reason to pause the share repurchase program despite macro uncertainty.

Timur Braziler requested clarification on whether the NII guidance was GAAP or tax-equivalent, asked for the outlook on public fund outflows, and questioned the correlation between consumer liquidity usage and credit trends.

Answer

CFO Jorge Garcia confirmed the NII guidance is GAAP-based and expects both GAAP and tax-equivalent NIM to expand in Q4. He does not anticipate large public deposit outflows in Q4. CRO Lidio Soriano expressed a positive consumer credit outlook, citing the strong labor market, excess liquidity, and the potential benefit of falling rates on consumer debt.

Timur Braziler asked for more details on competitive pressures affecting government deposits, the expected impact of rate cuts on deposit costs, First BanCorp's credit reserving approach relative to competitor banks, and the company's updated M&A strategy for mainland expansion.

Answer

CEO Aurelio Alemán explained that competitive pressures on government deposits primarily come from smaller players, with 40% of the government book being indexed. He noted that First BanCorp competes on pricing for CDs when complemented by other services. CFO Orlando Berges-González added that deposit costs are expected to drop with rate cuts, but with a lag compared to floating asset products. Mr. Alemán and Mr. Berges-González reiterated First BanCorp's firm risk appetite and individual case assessment for credit, not seeing systemic impacts from competitor banks. For M&A, Mr. Alemán stated priorities are organic growth, followed by complementary Florida franchises that enhance the deposit base, with size dependent on available capital.

Timur Braziler asked for more details on competitive pressures affecting government deposits, the extent to which other banks' credit performance influences First BanCorp's reserving, and an update on the company's mainland M&A strategy, including target size and location.

Answer

Aurelio Alemán, CEO, and Orlando Berges-González, CFO, explained that competitive pressures on government deposits come from smaller players, and they manage this by focusing on operational accounts and complementary services. They anticipate deposit costs to drop with rate cuts but with a lag. On credit, they maintain a firm risk appetite based on their own portfolio performance. For M&A, organic growth is the priority, with Florida market opportunities that complement their deposit franchise being considered, leveraging their capital position opportunistically.

Asked about the surprising nature of the Q2 deposit outflows, how the bank plans to fund its expected loan growth in the second half of the year, and the expected geographic and segmental composition of that loan growth.

Answer

The deposit decline was due to a concentration of non-recurring business activities and tax payments in a few large commercial accounts. Second-half loan growth will be funded by expected deposit stability and over $1 billion in cash flows from the investment portfolio. The loan growth is expected to be a combination of contributions from both Florida and the Puerto Rico commercial sector, with stability in consumer and some growth in residential mortgages.

Timur Braziler of Wells Fargo asked for more color on the deposit outflows, questioning if they were expected, and inquired about the funding strategy for the anticipated second-half loan growth, as well as its expected geographic composition.

Answer

President & CEO Aurelio Alemán-Bermudez acknowledged some deposit movements were surprising but largely tied to specific, non-recurring business purposes and tax events. He stated that for the second half, the primary funding source for loan growth will be over $1 billion in cash flows from the investment portfolio, not necessarily new deposits. He added that loan growth is expected to come from a combination of both the Florida and Puerto Rico commercial sectors.

Timur Braziler followed up on the deposit discussion, asking about the 'chunky' deposit outflows and near-term seasonal trends. He also requested more detail on the Florida commercial real estate portfolio, specifically the recently classified hospitality credit and the bank's exposure to the Florida condo market.

Answer

CFO Orlando Berges-González explained the large deposit outflows were from two specific commercial customers who had earmarked funds for projects and that no similar large, known outflows are anticipated. Regarding Florida CRE, CEO Aurelio Alemán-Bermúdez and Mr. Berges-González reiterated the hospitality credit was a one-off issue and confirmed the bank has no construction loan exposure to the Florida condo market, with only minimal exposure in its residential mortgage portfolio.

Asked about the drivers of strong Q4 deposit growth, the sources of loan growth on the U.S. mainland, and the outlook for consumer credit stabilization and the allowance for credit losses.

Answer

The strong deposit growth was a mix of seasonal government inflows related to reconstruction and strategic market share gains. Loan growth was driven by commercial activity in Florida and construction in Puerto Rico, with some expected payoffs being delayed. The allowance is expected to stabilize, as improvements in commercial and mortgage are offset by continued stress in the consumer portfolio, which is anticipated to level off mid-year.

Timur Braziler asked about the timing for balance sheet growth, the connection between that growth and net interest income (NII) in 2025, and the overall health of the consumer in Puerto Rico.

Answer

EVP & CFO Orlando Berges-González explained that the balance sheet is stable as cash flows from the securities portfolio are used to fund loans and allow high-cost wholesale funding to mature, with balance sheet growth potentially resuming in late 2025. President & CEO Aurelio Alemán-Bermúdez added that consumer credit is experiencing a post-pandemic normalization and they expect stability with improving delinquency and loss trends in 2025.

Timur Braziler asked about the Canter Group 5 relationship, specifically what internal controls failed to detect collateral deficiencies and the timeline around July/August regarding the loan conversion and lawsuit filing.

Answer

President and CEO Ken Vecchione explained that the bank had a long-term relationship with the borrower, who was current as of August. The decision was made to exit the relationship and convert the revolving loan to a term loan with a May 2026 maturity. During this process, the bank discovered the borrower failed to disclose material facts, leading to the fraud lawsuit. He noted that further details are limited due to active litigation, but the bank is working to get a receiver appointed for greater insight into Canter Group 5's records.

Timur Braziler asked for details on the Canter Group 5 relationship, specifically what internal controls failed to detect collateral deficiencies, and the timeline of events around July and August, including the conversion of the credit from a line of credit to a term loan and the subsequent filing of the lawsuit.

Answer

President and CEO Ken Vecchione provided a limited update due to active litigation. He stated that the company had a long-term relationship with the borrower, who was current as of August. The decision was made to exit the relationship and convert the revolving loan to a term loan with a May 2026 maturity. During this process, the company discovered the borrower failed to disclose material facts, leading to the filing of a lawsuit alleging fraud. He noted that the company is working to get a receiver appointed for greater insight into Canter Group 5's books and records.

Timur Braziler asked for the rationale behind growing borrowings to fund the bond book, details on the OREO increase, and commentary on the adequacy of the allowance for credit losses.

Answer

CFO Dale Gibbons explained the bank is augmenting returns by purchasing variable rate Treasury securities to capitalize on spread widening without taking on credit risk. CEO Ken Vecchione detailed that the five properties taken into OREO are cash-flow positive, and direct management allows for faster value creation. Gibbons and an unnamed executive affirmed their comfort with the ACL, noting OREO is already marked down. Vecchione added that the adjusted CET1 ratio is above the peer median.

Timur Braziler from Wells Fargo asked about the outlook for new C&I loan yields and questioned the increase in C&I classified assets and the risk profile of the office portfolio.

Answer

President and CEO Kenneth Vecchione and CFO Dale Gibbons stated that new loan yields would face downward pressure from competition and an expected Fed rate cut. Chief Banking Officer Tim Bruckner explained that their methodology involves moving loans to substandard quickly for remediation and that office loans are underwritten conservatively and re-appraised using 'as is' values. He expects criticized assets to be flat before declining later in the year.

Timur Braziler sought clarification on whether Q4 2024 would be the trough for both Net Interest Income (NII) and Net Interest Margin (NIM). He also asked about the mortgage rate assumptions embedded in the company's earnings-at-risk analysis.

Answer

CFO Dale Gibbons confirmed his belief that Q4 could be the trough for NIM as well as NII. He stated the earnings-at-risk model assumes mortgage rates could reach the high 5% range by the end of 2025. CEO Ken Vecchione clarified that this outlook pertains to the "adjusted NIM," which nets out deposit costs.

Timur Braziler followed up on savings account deposit costs, asking about the specific rates required to attract balances and the bank's market share targets. He also sought additional color on two specific commercial loans and broader trends in mainland commercial real estate (CRE) charge-offs. Finally, Mr. Braziler questioned the auto loan trends, including charge-offs, growth, and overall credit quality, and later asked for details on new onshoring investments in Puerto Rico.

Answer

José Rafael Fernández, Chief Executive Officer and Chairman of the Board of Directors, clarified that Libre accounts are zero-cost, while Elite accounts for mass affluent clients average around 1.5%, focusing on value-add and deepening relationships. For commercial credit, Mr. Fernández described the two specific loans as idiosyncratic: a $5 million U.S. loan that was sold, leading to a provision and charge, and a Puerto Rico loan with operating weaknesses, proactively provisioned. He noted that mainland CRE strategy involves small participations for geographic diversification. Regarding auto loans, Mr. Fernández stated that the slowdown was expected, with originations bottoming out and returning to normal levels. César Ortiz, Chief Risk Officer, added that auto charge-offs reflect seasonal dynamics, with Q-o-Q increases but better Y-o-Y trends. On onshoring, Mr. Fernández mentioned 10-11 multinationals announcing investments in Puerto Rico, primarily existing companies expanding production lines in medical devices, pharma, solar panels, and textiles, driven by onshoring benefits and Puerto Rico's U.S. jurisdiction status.

Timur Braziler followed up on the cost of savings account deposits, asking about the specific rates required to attract balances and the bank's market share targets. He also inquired about the two commercial loans with specific reserves, broader trends in mainland CRE, and auto loan charge-offs and growth trends.

Answer

José Rafael Fernández, CEO and Chairman, clarified that the Libre account is zero-cost, while the Elite account averages 1-1.5% cost, targeting mass affluent clients for deeper relationships. Regarding credit, he noted that mainland CRE opportunities are for geographic diversification, and recent charges were idiosyncratic, not market-wide. He detailed the two commercial loans: a $5 million U.S. loan that was sold, and a Puerto Rico loan with operating weaknesses. For auto loans, José Rafael Fernández noted an expected slowdown and bottoming out of originations, while César Ortiz, Chief Risk Officer, explained that charge-offs reflect seasonal dynamics, showing a better trend year-over-year.

Timur Braziler inquired about OFG Bancorp's net interest margin (NIM) outlook, questioning whether future expansion would be driven by loan growth or deposit costs, and asked about the competitive deposit landscape. He also asked for details on the cadence and drivers of the impressive loan growth seen during the quarter.

Answer

CEO José Fernández explained that while government deposit costs can fluctuate, the bank's overall deposit strategy is yielding strong net new account growth in retail, driven by an enhanced value proposition and digital tools. He characterized deposit competition as rational. Regarding loan growth, Fernández attributed the strength to a robust pipeline from Q1, increased commercial line utilization, and a solid Puerto Rico economy, leading him to raise the full-year loan growth guidance to 5-6% from 3-4%. CFO Maritza Arizmendi Díaz also contributed to the discussion.

Timur Braziler from Wells Fargo inquired about deposit dynamics, including the impact of public fund outflows, overall consumer liquidity, and the competitive landscape. He also asked about the geographic diversification of the U.S. commercial loan portfolio and the future trajectory of the loan loss reserve.

Answer

CFO Maritza Arizmendi specified that a ~$100 million decline in demand deposits was from public funds. CEO José Fernández described the deposit market as rational and stable, with steady inflows despite competition. On credit, Fernández confirmed the U.S. commercial loans requiring reserves were geographically and industry-diversified C&I loans. Arizmendi added that the allowance coverage is at a good level, projecting a future provision run rate of $18-$20 million per quarter, assuming stable economic conditions.

Timur Braziler inquired about the securities portfolio's duration and reinvestment strategy, the expected trajectory for net interest margin (NIM), and sought details on the specific commercial loan reserves.

Answer

Executive Maritza Arizmendi stated the securities portfolio has a duration of 5-6 years and that reinvestment decisions balance market opportunities against cash yields. She reiterated the full-year NIM guidance of 5.3% to 5.4%, noting it would remain at the upper end if government deposits are retained. Executive José Fernández clarified that the specific reserves were for three loans: one in Puerto Rico and two in the U.S. totaling about $10 million, which were placed in substandard.

Timur Braziler followed up on BOK Financial's efforts to align its talent base with future growth initiatives, asking for more context on the process and its current stage.

Answer

Stacy Kymes, President and CEO, explained that BOK Financial continuously evaluates growth opportunities and returns on capital, making investments in expansion areas like San Antonio and Mortgage Warehouse, and in technology for Wells and the corporate bank. He stated that actions were taken in Q3 and Q4 2025, resulting in non-recurring transitional payments primarily impacting personnel expenses, to right-size the workforce for future growth opportunities and efficiency in mature areas.

Timur Braziler asked about the typical line sizes for BOK Financial's mortgage warehouse finance business and how they are expected to progress as the business grows. He also inquired if recent industry events related to collateral pledging would make BOK Financial reconsider its conviction in its mortgage registration systems (MERS) process, or if it reinforced their approach. Finally, he sought clarification on whether the guidance for trading assets being 'in line with Q3' referred to an average or period-end basis.

Answer

President and CEO Stacy Kymes indicated that mortgage warehouse loan commitments would generally be larger than typical CNI loans, in the range of $75 million to $100 million, with quality often correlated to facility size. CFO Marty Grunst clarified that the recent news events did not involve residential mortgage warehouse lines, which BOK Financial's business exclusively uses, and where all loans are registered at MERS, ensuring clear title and strong collateral. He affirmed BOK Financial's strong conviction in its process. Grunst also confirmed that the trading assets guidance referred to an 'average basis,' as period-end figures are not representative.

Timur Braziler asked about the expense impact from the mortgage warehouse build-out and the expected funding sources for future loan growth, including deposit growth and portfolio cash flows.

Answer

CEO Stacy Kymes stated that expenses for the mortgage warehouse business, including 11 FTEs, are already in the Q2 run rate, creating future operating leverage. EVP & CFO Martin Grunst noted the base case for funding loan growth is to grow deposits, supported by a strong loan-to-deposit ratio below 65%. He also quantified quarterly cash flows at approximately $650 million from the securities portfolio and $200-250 million from the fixed-rate loan book.

Timur Braziler from Wells Fargo asked about the CD portfolio's maturation schedule and potential margin benefit, sought clarification on trading securities yields, and questioned the timing of CRE payoff activity.

Answer

CFO Martin Grunst explained that the CD portfolio is short-duration, which will allow for repricing benefits in Q1. He clarified that the current MBS yield is around 5.80%, but the portfolio is a blend of vintages. He attributed the Q4 CRE payoffs to a significant drop in 10-year rates late in 2024, which created a temporary refinancing window for clients, and noted that the subsequent rise in rates will slow this activity.

Timur Braziler from Wells Fargo inquired about the fallout from the Pinnacle-Synovus announcement, specifically regarding increased competition for loans, deposits, and talent. He also sought clarification on Bryan Jordan's more pointed M&A comments, asking if they indicated a lack of logical buyers or a shift in strategy.

Answer

Chairman, President, and CEO Bryan Jordan stated it was too early to see significant impact from the Pinnacle-Synovus deal, but noted a tighter competitive environment for lending and talent over recent quarters. He clarified that his M&A comments reflected an improving regulatory environment and the opportunity to gain a bigger foothold in existing markets, not a change in the company's long-term optionality or priority for organic growth.

Timur Braziler asked about any observed fallout from the Pinnacle Sonovus announcement, specifically regarding competitive nature on loans, deposits, or talent. He also sought clarification on Bryan Jordan's more pointed M&A comments, asking if they indicated a lack of logical buyers for First Horizon or a shift in strategy.

Answer

Chairman, President, and CEO Bryan Jordan stated it was too early to see significant impact from the Pinnacle Sonovus deal, but noted a tighter competitive environment for lending and talent. He clarified that his M&A comments reflected an improved regulatory environment and quicker approvals, positioning First Horizon to be opportunistic for fill-in acquisitions within its footprint, while organic growth remains the primary focus.

Timur Braziler asked about the ability to lower deposit costs without Fed rate cuts, details on upcoming deposit campaigns, and the outlook for DDA growth. He also sought clarity on whether the decline in 'outside services' expense was final or would rebound with new projects.

Answer

CFO Hope Dmuchowski explained that deposit costs could be lowered by growing noninterest-bearing deposits through new-to-bank checking campaigns, like the current $450 cash offer. She believes they can maintain current cost levels but noted significant further reduction is unlikely without Fed cuts. Chairman, President and CEO Bryan Jordan reiterated that growing customer relationships is a core objective. Regarding expenses, they confirmed major project costs (GL, Treasury) are largely complete, and future spending is built into their flexible guidance, with marketing being a key variable driver of the line.

Timur Braziler asked about the remaining risk of deposit outflows from noninterest-bearing accounts and the potential for further remixing. He also inquired about the impact of higher rates on commercial real estate (CRE) paydown activity and potential tail risk.

Answer

CFO Hope Dmuchowski stated that noninterest-bearing balances have stabilized and she believes the significant mix shift is largely complete. Chief Credit Officer Thomas Hung explained that higher rates have primarily delayed new CRE projects rather than accelerating paydowns. He suggested that if anticipated rate cuts materialize, it would likely lead to more refinances out of the portfolio as projects move to the permanent market.

Timur Braziler from Wells Fargo asked about the interest rate environment needed for a mortgage business recovery, the source of variability in the Q4 revenue guidance, the nature of one-time fees, and potential CRE paydown headwinds.

Answer

CFO Hope Dmuchowski suggested a sub-6% mortgage rate is needed for a rebound, driven by both new purchases and refinancings. She clarified the revenue guidance range reflects uncertainty around Fed rate cuts, with more upside in fees and more downside risk in NII if cuts are aggressive. CCO Thomas Hung added that CRE paydowns are hard to predict as they depend on the takeout financing market.

Timur Braziler of Wells Fargo probed the company's capital priorities, contrasting share buybacks with balance sheet restructures, and asked if the 2026 NII guidance assumes any capital actions. He also questioned the potential risk from the large volume of loans resetting through 2026 and sought reassurance on credit quality given the rise in criticized loans.

Answer

President & CEO James Reuter emphasized that organic growth is the primary focus for capital, but all options, including buybacks, are being considered to enhance shareholder value. EVP & CFO David Della Camera confirmed the 2026 NII guidance does not assume any capital actions. Regarding loan resets, Reuter acknowledged some multifamily loans may exit to the secondary market but expressed confidence in replacing them with new production. He reiterated confidence in credit quality, stating the criticized loan increase is due to primary repayment source issues, not weakness in collateral or guarantors.

Timur Braziler from Wells Fargo & Company asked for the specific geographies experiencing stress from slower lease-up activity in multifamily construction. He also inquired about the status of the three remaining large credits over $50 million and whether they were downgraded. Finally, he sought to clarify the term 'meaningful organic growth' for 2026 and the expected composition of that future loan growth.

Answer

CEO James Reuter declined to name specific geographies for multifamily stress but noted it was occurring in a few different spots across their diversified footprint. Deputy CFO David Della Camera confirmed that none of the three remaining loans over $50 million were downgraded this quarter and all are currently performing. Regarding 2026 growth, Della Camera clarified 'meaningful' would likely be in the 'low to mid' single-digit range, with a focus on C&I and owner-occupied commercial real estate for small to mid-sized businesses.

Timur Braziler questioned management's confidence in underwriting given a recent large charge-off and another large credit being downgraded, asking if the loan book review was complete. He also asked if specific reserves were set for the newly criticized loans, sought clarity on the dividend's role in the capital review, and inquired about the expected inflection point for average earning assets.

Answer

CEO Jim Reuter clarified his confidence is in the bank's *assessment* process for grading credit, noting the review of large loans is complete with the rest of the portfolio underway. CFO Marcy Mutch confirmed no specific reserves were needed for the four downgraded loans due to adequate collateral. Mr. Reuter stated the dividend is not currently under review for a change but is part of ongoing capital planning. He also indicated that the earning asset base would likely bottom out before inflecting higher later in the year or in 2026.

Timur Braziler of Wells Fargo & Company asked for the locations of the two office charge-offs, whether the metro office disclosure includes construction loans, the bank's appetite for construction-to-permanent financing, and the outlook for deposit rates.

Answer

CFO Marcy Mutch declined to provide specific locations to protect negotiating positions but confirmed they were in defined metro areas. CEO Kevin Riley confirmed the disclosure includes construction loans. Both executives reiterated a focus on full-relationship lending outside of metro areas for new construction. Mutch stated she expects deposit rates to be 'stable to down' through the end of the quarter.

Timur Braziler of Wells Fargo questioned the bank's high CET1 capital ratio of nearly 26%, asking about the target level over time. He also asked about the potential for further reductions in deposit costs, given the already low starting point.

Answer

President & Group Chief Risk Officer Michael Schrum stated that while the CET1 ratio is high, it provides flexibility for potential M&A without needing to raise capital, and it will take a few years to bring it down. Chairman & CEO Michael Collins added that holding higher capital is prudent in the current environment and the goal is a payout ratio over 100% to gradually lower the capital level. Group CFO Craig Bridgewater explained that deposit costs benefited from a reduction in duration, and while further decreases are possible, the pace will slow. Michael Schrum noted the bank is approaching a flattening NIM as deposit costs near their floor.

Timur Braziler asked about the impact of global trade uncertainty on M&A discussions, whether economic uncertainty could affect fee income lines like foreign exchange, and for details on the financial impact of the Elbow Beach Hotel loan resolution, including NII effects and potential for future lending.

Answer

Michael Collins, Chairman and CEO, stated that trade tensions have little direct impact on M&A, but noted that FX volatility is a more significant factor in negotiations. Craig Bridgewater, Group CFO, explained that Q1 fee income benefited from market volatility driving FX and asset management activity. Regarding the Elbow Beach resolution, Mr. Bridgewater confirmed it will reduce the 90-days past due loan balance and create a headwind for NII, as it was an accruing loan at a penalty rate. Mr. Collins added that no credit loss is expected from the resolution.

Timur Braziler asked for the rationale behind the 2025 share buyback authorization being smaller than the 2024 repurchases and whether this correlated with a higher likelihood of an M&A transaction. He also questioned the outlook for net interest income (NII) versus net interest margin (NIM) and asked about the remaining impact on the Bermuda residential loan book from recent rate cuts.

Answer

Michael Schrum, President and Group Chief Risk Officer, stated that the smaller buyback authorization does not correlate to M&A likelihood and that the Board is supportive of re-upping the authorization if needed. CEO Michael Collins affirmed this, saying they would only pare back repurchases if a deal became likely. Group CFO Craig Bridgewater explained that while NIM may expand, NII could face downward pressure if deposit volumes normalize lower. He also confirmed the impact of the last 25 basis point rate cut on the Bermuda loan book would fully flow through in Q1 2025 due to a 90-day lag.

Timur Braziler from Wells Fargo asked for clarity on the margin and ROA trajectory for the second half of the year, given strong end-of-period DDA balances. He also inquired about the reasons for the increase in C&I non-performing loans and the bank's perspective on the accelerating M&A environment.

Answer

CFO Leslie Lunak forecasted continued margin expansion through Q3 and Q4, driven by mix shift and pricing discipline. She explained the C&I NPL increase was due to a few idiosyncratic situations with no systemic trend observed. CEO Rajinder Singh commented on M&A, stating that while conversations are ongoing, the bank's DNA is organic growth, though they would consider a deal if it met their fiduciary responsibility.

Timur Braziler questioned the potential for margin expansion in Q2, asked for the spot rate on deposits, inquired about the bank's exposure to the softening Florida condo market, and asked if current uncertainty would delay share buybacks.

Answer

CFO Leslie Lunak reiterated expectations for margin expansion over the rest of the year, driven by balance sheet remixing, but declined to give quarterly guidance. CEO Raj Singh confirmed the spot deposit rate was 2.52% and stated the bank has no exposure to the Florida condo market. Regarding buybacks, he said it's best to hold excess capital given the current uncertainty.

Timur Braziler questioned if the strong Q4 results altered the timeline for achieving long-term profitability targets (ROA >1%, ROE 10-12%), asked for quantification of seasonal deposit shifts, and inquired about the flat C&I loan growth in Q4.

Answer

CEO Raj Singh expressed confidence in the progress towards profitability goals but declined to set a specific timeline. Management noted that while seasonal deposit outflows occurred, they were offset by growth in other areas but would not provide specific quantification. The flat C&I loan growth was attributed to unpredictable payoffs, not a lack of new production.

Timur Braziler from Wells Fargo & Company asked how the flattish margin guidance would translate to Net Interest Income (NII). He also inquired about the progress of the bank's balance sheet transformation, asking what 'inning' they were in and what the long-term targets for ROA and ROE are.

Answer

EVP & CFO Leslie Lunak projected mid-single-digit NII growth for the full year. CEO Raj Singh assessed the balance sheet transformation as being in the 'middle of the game,' with significant work remaining. He stated the long-term goals are to achieve an ROA over 1% and an ROE in the 10-12% range, a process he expects will take the better part of the next year.

Timur Braziler of Wells Fargo asked about the long-term sustainability of single-family residential loan growth amid political uncertainty and whether the strong fee income performance was influenced by a pull-forward effect from tariff concerns.

Answer

EVP & CFO Christopher Del Moral-Niles asserted that demand for homeownership among their clients remains strong and is not flagging. Regarding fees, he noted that the recent performance represents a steady run-rate, with core fee categories showing consistent strength, suggesting it is not a temporary pull-forward.

Timur Braziler asked about the portion of fee income tied to cross-border trade and the rationale for the allowance build in C&I loans while the CRE allowance decreased.

Answer

CEO Dominic Ng clarified that only a small part of commercial and FX fees are cross-border related. Chief Risk Officer Irene Oh explained the overall allowance increase was driven by a higher weighting for the downside economic scenario due to tariff uncertainty, which primarily resulted in a $37 million increase in the C&I reserve.

Timur Braziler asked about insurance requirements for the SFR portfolio affected by wildfires, the timeline for collections, the potential impact on small business clients, and the stability of the strong end-of-period deposit growth.

Answer

CRO Irene Oh confirmed that all impacted properties have adequate hazard insurance and that based on past experience, credit impact is minimal due to low LTVs. CEO Dominic Ng noted that substantial government aid is also available for affected businesses. CFO Christopher Del Moral-Niles added that while some year-end deposit growth is transitory, the DDA mix has stabilized into the new quarter.

Timur Braziler from Wells Fargo asked for details on the expected churn for time deposits in Q4 and the bank's willingness to let higher-cost deposits leave. He also questioned the sustainability of the record fee income and inquired about the drivers behind the increased allowance for CRE loans.

Answer

CFO Christopher Del Moral-Niles stated that about $8 billion in CDs will roll in Q4 and the bank is actively managing pricing down. He attributed record fee income to strong sales execution. Chief Risk Officer Irene Oh explained the CRE reserve build was driven by broad-based qualitative factors, not a specific problem loan.

Timur Braziler of Wells Fargo sought color on the expected composition of future loan growth, asked for details on the successful reduction of portfolio risk mentioned by management, and questioned whether the increase in down payment assistance costs was a one-time event.

Answer

Chairman, President & CEO Vincent J. Delie projected a shift towards commercial (C&I) loan growth, driven by a strong short-term pipeline, while residential mortgage lending tapers off seasonally and CRE continues to decline. Chief Credit Officer Gary Guerrieri explained that risk reduction involved resolving and removing a few CRE credits, leading to a 20% reduction in classified loans. CFO Vincent J. Calabrese clarified that the higher down payment assistance costs would persist at a similar level for another quarter before tapering off.

Timur Braziler asked for more detail on the deposit acquisition strategy given the 4.25% new money cost, the characteristics of the auto loans sold, and the company's current stance on M&A in the Mid-Atlantic.

Answer

CEO Vincent J. Delie and CFO Vincent J. Calabrese clarified that new deposits replaced higher-cost borrowings, making the strategy accretive and focused on building long-term client relationships. Chief Credit Officer Gary L. Guerrieri described the sold auto loans as a high-quality, current portfolio, not a credit-driven divestiture. Regarding M&A, Delie reiterated that the strategy remains focused on in-market deals with immediate earnings accretion and limited tangible book value dilution.

Timur Braziler asked about the rationale for maintaining a 'pass' rating on a converted condo loan, the allowance methodology for CIB, and the outlook for the bank's large allowance for credit losses (ACL) given low charge-offs.

Answer

Chairman & CEO George Gleason explained the 'pass' rating was justified by the sponsor's significant capital injection and sound business plan. He stated the large ACL is a result of prudently weighting downside economic scenarios (recession and stagflation) and that these reserves could decrease if the economic outlook improves. He stressed the portfolio's strong performance is due to continued sponsor support.

Timur Braziler of Wells Fargo questioned the bank's view on its remaining exposure to sponsor Sterling Bay after taking back the Chicago land loan. He also probed the rationale for the aggressive CIB growth strategy amid economic uncertainty and potential risks in new lending verticals.

Answer

President Paschall Hamblen stated that each loan is underwritten and evaluated individually based on its unique capital stack and partners, not broad-brushed by sponsor. Chairman and CEO George Gleason expressed strong conviction in the diversification strategy, believing it enhances long-term asset quality. Jake Munn, President of CIB, added that the group targets established, well-capitalized companies with sponsor backing and low leverage, mitigating cyclical risks.

Timur Braziler asked if construction loans moving to permanent financing were converting to fixed rates, and questioned the typical deal size and competitive advantage of the CIB given the reduced hold limit.

Answer

CEO George Gleason clarified that loans retain their variable-rate structure upon reclassification and are not converting to fixed rates. CIB President Jake Munn explained that CIB deal sizes vary, with a recent average hold of around $50M. He stated OZK's competitive advantage lies in its ability to offer the sophisticated products of a large bank while maintaining the nimble, relationship-focused approach of a local bank.

Timur Braziler from Wells Fargo inquired about the drivers of loan growth from the Marathon joint venture and the outlook for the net interest margin given the competitive landscape.

Answer

Chairman & CEO John Ciulla clarified the Marathon JV enables Webster to compete for larger deals with existing clients, boosting on-balance sheet growth. Senior EVP & CFO Neal Holland reiterated full-year NIM guidance of ~3.40%, expecting an exit rate between 3.35% and 3.40% due to pressures from cash levels, debt costs, and modest spread compression.

Timur Braziler from Wells Fargo asked if the deposit beta expectation incorporates the forecasted rate cuts and questioned the hesitation to lower rates on higher-cost products like BREO. He also sought to understand how recent higher charge-offs impact the CECL model's look-back period and future provisioning.

Answer

CEO John Ciulla explained that decisions on deposit pricing are informed by competitive dynamics and funding needs, but affirmed the bank has significant flexibility to aggressively lower rates on certain products if desired. Regarding CECL, Ciulla clarified that two quarters of higher charge-offs do not materially impact the model's long look-back period and therefore won't structurally increase provisioning requirements in the near term.

Timur Braziler from Wells Fargo questioned if the 2025 net interest margin (NIM) guidance might be conservative and asked for clarification on the timing and quantification of the expected credit inflection point, including risks from the yield curve.

Answer

CFO William Holland expressed confidence in the 3.35% to 3.40% NIM range, noting factors like DDA growth and debt issuance could cause variability. CEO John Ciulla reiterated a mid-2025 credit inflection point, expecting normalized charge-offs around 25-30 basis points, similar to the first three quarters of 2024, and noted improving underlying credit metrics in the office portfolio.

Timur Braziler from Wells Fargo asked about the bank's ability to lower deposit costs with future rate cuts, the potential timeline for a monetization event at BHG, and whether market speculation about succession planning is impacting the firm's ability to hire new talent.

Answer

CFO Harold Carpenter expressed confidence in their ability to capture significant benefit from rate cuts by lowering deposit costs. On BHG, President & CEO Terry Turner stated that while a monetization event is a possibility when market conditions are right, he could not provide a specific timeline. Turner strongly refuted any negative impact on hiring, noting that recruiting momentum is as strong as ever, with 71 hires year-to-date and 59 outstanding offers.

Timur Braziler from Wells Fargo asked about the company's ability to lower deposit costs with future rate cuts, the potential timeline for a BHG monetization event, and whether market speculation about succession planning is impacting the firm's ability to hire new producers.

Answer

CFO Harold Carpenter stated the firm intends to capture as much benefit as possible from rate cuts to expand its margin. President & CEO Terry Turner reiterated that a BHG monetization could occur when market conditions are favorable but offered no specific timeline. Turner strongly refuted that succession ambiguity affects hiring, highlighting the record hiring pace of 71 revenue producers year-to-date as proof of the model's continued strength and momentum.

Timur Braziler from Wells Fargo questioned the bank's ability to achieve favorable deposit betas during a rate-cutting cycle, the potential timeline for a BHG monetization event, and whether succession planning ambiguity could impact talent acquisition.

Answer

CFO Harold Carpenter expressed confidence in their ability to lower deposit costs effectively when the Fed cuts rates. CEO Terry Turner reiterated that a BHG monetization event is contingent on favorable market conditions with no set timeline. Turner strongly refuted any negative impact on hiring, pointing to the record pace of 71 new revenue producers hired year-to-date and 59 outstanding offers as evidence of continued recruiting momentum.

Timur Braziler from Wells Fargo & Company asked about the type of economic environment in which the relationship manager (RM) consolidation strategy might not work, the current demand for BHG paper from partner banks, and the timing of the recent bond portfolio restructuring.

Answer

M. Turner (Executive) asserted that the firm's strategy of hiring experienced bankers to move their established, high-quality books of business is less risky and more reliable than traditional growth models, making it viable in nearly any environment. Harold Carpenter (Executive) added that demand for BHG paper from both bank partners and institutional buyers remains strong. He also clarified the bond restructure occurred in the last two weeks of the quarter.

Timur Braziler inquired about the second-quarter Net Interest Income (NII) outlook, the expected size of seasonal deposit outflows, and the sustainability of commercial loan growth given macro uncertainties.

Answer

Executive Andrew Harmening acknowledged tailwinds for Q2 NII from the recent loan sale and deposit repricing but noted that seasonal deposit outflows could be a partial offset. He expressed confidence in the bank's various deposit growth levers, such as its HSA business and new commercial teams, to fund the balance sheet. Harmening also explained that commercial loan growth is driven by market share gains from new hires, whose non-solicitation agreements are progressively expiring, making growth less dependent on the broader economy.

Timur Braziler asked for the spot funding cost at quarter-end, pricing on new CDs, the source of confidence for a Q4 NII increase, and the expected interest-bearing deposit beta on the way down.

Answer

An executive could not provide a spot funding cost but stated that new CD specials were dynamic, moving from 5% down to 4%, keeping the overall CD book rate flat quarter-over-quarter. The confidence in NII growth stems from strategic initiatives driving loan and deposit growth in more profitable products, particularly C&I loans and core deposits. The executive reiterated prior guidance that the full deposit beta through the end of next year is expected to be 46%, assuming 175 basis points of total cuts.

Timur Braziler asked if a slower loan growth outlook would impact deposit gathering and how much DDA growth is needed to hit the NIM guide. He also questioned the drivers of high loan payoff activity and whether it created incremental risk for classified loan migration.

Answer

President and CEO Jared Wolff stated that requiring substantial deposit relationships is a balancing act but has been working. He noted that the 30% NIB goal is meaningful but challenging in an environment of deposit outflows. He attributed payoffs to construction loan completions and warehouse cycling, clarifying that this was separate from the classified migration, which was a proactive review of older, repricing loans.

Timur Braziler inquired about the drivers behind the 2025 expense guidance, the dynamics of the loan growth forecast, and the competitive landscape for deposits.

Answer

CEO Jared Wolff and CFO Joseph Kauder explained that the expense guidance reflects investments to support growth, with Q1 being seasonally high. They noted that the mid-to-upper single-digit loan growth target is a net figure, accounting for payoffs, and is driven by increased economic activity. On deposits, Wolff stated that competition is easing, allowing for further cost reductions on maturing high-rate deposits.

Timur Braziler of Wells Fargo & Company asked about the net interest margin trajectory beyond Q4, given the bank's liability-sensitive position. He also inquired about the rationale for acquiring the lender finance portfolio and its expected strategic role.

Answer

CFO Joe Kauder stated that while Q4 will see a meaningful benefit from Q3's restructuring, the bank remains conservative on its rate cut assumptions. The long-term strategy is to grow margin by lowering funding costs and originating higher-yield loans. CEO Jared Wolff clarified that lender finance was a legacy PacWest business, and the bank repurchased a familiar portfolio at par. He sees it as a key growth area with historically low losses, especially given the current lack of competition.

Timur Braziler asked about the competitive landscape for lending in the Southeast and its effect on loan pricing, and also questioned the expected trajectory for the wholesale funding ratio in 2025.

Answer

CEO Kevin Blair acknowledged that lending competition is increasing, primarily on price, causing some spread compression. However, he noted this is being offset by lower deposit costs, leading to a positive net spread on new production. CFO Jamie Gregory stated that with core deposit growth expected to match loan growth, the wholesale funding ratio should see some reduction, though not as significant as in the recent past.

Timur Braziler of Wells Fargo inquired about the outlook for capital markets income, the key drivers behind the quarter's significant outperformance relative to the recent guidance update, and the expected peak for criticized and classified loans.

Answer

CFO Jamie Gregory established a $10 million per quarter baseline for capital markets revenue and attributed the Q3 beat to broad outperformance in NII, wealth fees, and lower expenses, including a drop in FDIC costs. An executive, Bob Derrick, suggested that criticized loan levels are nearing a peak around 4%, with the velocity of downgrades slowing.

Timur Braziler asked about the securities accretion trend, questioning if recent prepayments pulled future accretion forward, and sought clarity on the expected deposit beta dynamics as rates decline.

Answer

CFO Ron Farnsworth clarified that securities accretion should remain relatively stable, with recent pops being one-offs, and expects slightly lower but consistent trends ahead. Regarding deposit betas, he reiterated the expectation that they will mirror the trend seen on the way up, with the timing and pace of repricing dependent on the Federal Reserve's actions on interest rates.