Tyler Cacciatori

Tyler Cacciatori asked about discussions around spread compression and incremental loan yields. He also inquired about expectations for loan growth in the upcoming year, specifically regarding payoff and prepayment activity. Lastly, he sought clarification on the higher non-interest expense in the fourth quarter and a good starting point for Q1 expenses.

Answer

Brian Richardson, CFO, confirmed seeing some compression in commercial loan rates (40-50 basis points) in line with Fed actions, but not true spread compression. Mike Keim, COO, indicated that elevated prepayment activity in the first three quarters of 2025 slowed in Q4, and a similar Q4-like environment is expected. He noted that future loan growth will be heavily commercial-oriented, with a decline in residential mortgages due to a shift to agency-directed products. Brian Richardson added that Q4 non-interest expense included a $1.3 million increase in variable compensation, suggesting Q1 expenses would be slightly down from Q4 after backing this out.

Tyler Cacciatori questioned Univest Financial's margin dynamics, specifically regarding spread compression and incremental loan yields. He also asked about the outlook for loan growth in 2026, focusing on expected payoff and prepayment activity. Additionally, Tyler sought clarification on the higher non-interest expenses in Q4, inquiring about a suitable starting point for Q1 and the drivers behind the projected 3-5% expense growth.

Answer

Brian Richardson (CFO) noted some compression in commercial loan rates (40-50 basis points) in Q4, aligning with Fed actions, indicating overall new offering rate compression rather than true spread compression, with competition remaining high. Mike Keim (COO) anticipated a 'fourth quarter-like' prepayment environment for 2026, with loan growth heavily weighted towards commercial loans and a decline in residential mortgages due to a shift to agency-directed products. Brian Richardson (CFO) attributed the higher Q4 expenses to variable compensation and incentive accruals (up ~$1.3 million quarter-over-quarter), suggesting Q1 expenses would be relatively slightly down from Q4.

Tyler Cacciatori inquired about the potential benefits to Univest's footprint from proposed large-scale energy and infrastructure projects in Pennsylvania, the stability of new loan yields amidst competition, and whether loan yield expansion is repeatable without rate cuts.

Answer

CEO Jeffrey Schweitzer responded that while it is early, any investment in Pennsylvania is positive, and Univest's diversified customer base is well-positioned to participate. CFO Brian Richardson added that new commercial loan yields have been relatively stable and that while the pace of overall loan yield expansion will likely slow as the portfolio reprices, he does not expect yields to pull back.

Tyler Cacciatori questioned the stability of OceanFirst Financial Corp.'s deposit costs despite strong growth, asking when benefits from lower all-in costs from the premier banking team are expected. He also inquired about the timeline for achieving a 1% Return on Average Assets (ROA) and whether the 30% non-interest-bearing Demand Deposit Account (DDA) target for premier banking deposits has changed.

Answer

Christopher Maher, Chairman and CEO, indicated that premier banking costs would gradually decrease as non-interest accounts activate. He noted a 90-day lag for deposit rate roll-through, expecting a flattish or slightly down NIM in Q4 before expansion in Q1 2026 and sequentially thereafter. Patrick Barrett, CFO, acknowledged that growth necessitates funding at market rates, expecting slower initial declines in deposit costs. Christopher Maher added that the short-duration CD book would see repricing roll through quickly. For ROA, Christopher Maher projected exceeding 0.9% by Q4 2026 and crossing 1% in Q1 2027. Joseph Lebel III, President, confirmed that premier team deposits are currently about 20% DDA, and the 30% DDA target remains unchanged.

Tyler Cacciatori asked about the stability of deposit costs despite strong growth, the expected timeline for benefits from premier banking teams on deposit costs, the projection for OceanFirst Financial Corp. to achieve a 1% Return on Assets (ROA), and the current deposit composition, specifically the non-interest-bearing DDA percentage, for the premier team.

Answer

Christopher Maher, Chairman and CEO, and Patrick Barrett, CFO, explained that deposit cost benefits from premier banking would be gradual, with overall deposit costs experiencing a lag in decline similar to previous rate hike cycles. They projected ROA to exceed 0.9% by Q4 2026 and cross 1% in Q1 2027. Joseph Lebel III, President, confirmed the premier team's DDA is currently about 20%, with expectations unchanged.

Tyler Cacciatori of Stephens inquired about Norwood Financial's ability to further reduce deposit costs given expected rate cuts, including the full cycle beta compared to the hiking cycle. He also asked for details on municipal deposit levels, the Net Interest Margin (NIM) outlook, and an update on the M&A environment, specifically regarding the Presence Bank merger timeline and regulatory approvals.

Answer

John McCaffrey, CFO, explained that municipal deposits, which are market-rate tied, would decrease with market rates, estimating a deposit cost beta of around 50% on the way down. He noted that deposit costs were already trending down. James Donnelly, CEO, stated the company is opportunistic on M&A, while John McCaffrey, CFO, clarified that a Q4 closing for the Presence Bank merger would be difficult due to operational and accounting issues, expecting the proxy mailing soon and no red flags from regulators.

Tyler Cacciatori of Stephens inquired about Norwood Financial's ability to further reduce deposit costs given expected rate cuts, including the full cycle beta compared to the hiking cycle. He also asked for details on municipal deposit levels, the Net Interest Margin (NIM) outlook, and an update on the M&A environment, specifically regarding the Presence Bank merger timeline and regulatory approvals.

Answer

John McCaffrey, CFO, explained that municipal deposits, which are market-rate tied, would decrease with market rates, estimating a deposit cost beta of around 50% on the way down. He noted that deposit costs were already trending down. James Donnelly, CEO, stated the company is opportunistic on M&A, while John McCaffrey, CFO, clarified that a Q4 closing for the Presence Bank merger would be difficult due to operational and accounting issues, expecting the proxy mailing soon and no red flags from regulators.

Tyler Cacciatori with Stephens inquired about the strategic implications and financial impact of Community Financial System's minority investment in Leap Holdings, Inc. He also asked about deposit cost differences between legacy and de novo markets, and the outlook for overall deposit costs. Additionally, Cacciatori sought details on spread compression for incremental CRE loans and current CRE loan yields.

Answer

Dimitar Karaivanov, President and CEO, explained that the Leap investment aligns with the company's insurance services growth thesis, describing it as "roughly neutral" financially for 2026. Regarding deposit costs, Mr. Karaivanov noted no dramatic difference between legacy and de novo markets, with de novo efforts slightly increasing costs due to commercial focus, but not significantly impacting aggregate company costs. He anticipates overall deposit costs to trend down with expected rate cuts. For loan yields, Mr. Karaivanov detailed pricing spreads over the curve for commercial, mortgage, and auto portfolios, expecting a downtrend in commercial and mortgage rates while noting aggressive competitor pricing.

Tyler Cacciatori inquired about the strategic implications and financial impact of the minority investment in Leap Holdings Inc., the comparative cost of deposits between legacy and De Novo markets, and the current spread compression and yields on incremental Commercial Real Estate (CRE) loans.

Answer

Dimitar Karaivanov, President and CEO, explained that the Leap investment aligns with the strategy to grow insurance services, viewing it as a highly attractive, high-growth business, with a roughly neutral financial impact expected for 2026. Regarding deposit costs, he noted no dramatic difference between legacy and De Novo markets, with the De Novo initiative not significantly impacting aggregate company costs, and anticipated overall deposit costs to trend down. For loan yields, Mr. Karaivanov detailed pricing spreads over various curves for commercial, mortgage, and consumer portfolios, indicating current commercial originations in the high fives/low sixes and mortgages in the mid-sixes, with a general downtrend expected.

Tyler Cacciatori, on for Matt Breeze at Stephens Inc., asked for the specific cap rates used in the purchase accounting for the acquired rent-regulated housing portfolio. He also inquired about the outlook for growing DDA balances above 20% of total deposits and the expected overall deposit composition. Lastly, he requested the current yields on the loan pipeline and an update on near-term loan growth projections.

Answer

Senior EVP & CFO William Burns stated that the cap rates used for purchase accounting ranged from 6.5% to 8.5%, reflecting a conservative buyer's perspective. Chairman & CEO Frank Sorrentino expressed confidence in continuing to grow DDA balances, citing opportunities in C&I and the acquired Long Island market. Regarding loan growth, Burns noted a pipeline yield of 6.77% and projected low-to-mid single-digit growth, attributing the modest pace to elevated, but often welcome, loan payoffs.

Tyler Cacciatori, on behalf of Matt Breese, inquired about S&T's M&A outlook, the timeline for crossing the $10 billion asset threshold, and the competitive landscape for C&I and CRE loan spreads.

Answer

CEO Christopher McComish stated that while M&A conversations continue, valuations are a key consideration. He projected the company would cross the $10 billion asset mark organically in the second half of 2025 and is fully prepared for the regulatory transition. President Dave Antolik added that C&I spreads were stable but noted larger banks are becoming more aggressive on CRE pricing, creating some pressure.