First Commonwealth Financial Q4 2025 First Commonwealth Financial Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 First Commonwealth Financial Earnings Call
Speaker #1: Thank you for standing by. My name is My Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the First Commonwealth Financial Corporation.
Speaker #1: Fourth quarter 2020 Earnings conference Release All lines call . placed on prevent any mute to have been After background noise . the speakers remarks , there will be a question and answer session .
Speaker #1: If you'd like to ask a question during this time, simply press star, followed by the number one on your keypad.
I'd now like to turn the call over to Ryan Thomas, Vice President of Finance and Investor Relations. Please go ahead.
Speaker #1: If you'd like to withdraw your question , press star Thank one again . you . I'd now like to turn the call over to Ryan Thomas , vice president finance of and investor Relations .
Ryan Thomas: Thank you, Jordan, and good afternoon, everyone. Thanks for joining us today to discuss First Commonwealth Financial Corporation's fourth quarter financial results. Participating on today's call will be Mike Price, President and CEO; Jim Reske, Chief Financial Officer; Jane Grebenc, Bank President and Chief Revenue Officer; Brian Sohocki, Chief Credit Officer; and Mike McCuen, Chief Lending Officer. As a reminder, a copy of yesterday's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page. We have also included a slide presentation on our investor relations website with supplemental information that will be referenced during today's call. Before we begin, I need to caution listeners that this call will contain forward-looking statements....
Ryan Thomas: Thank you, Jordan, and good afternoon, everyone. Thanks for joining us today to discuss First Commonwealth Financial Corporation's fourth quarter financial results. Participating on today's call will be Mike Price, President and CEO; Jim Reske, Chief Financial Officer; Jane Grebenc, Bank President and Chief Revenue Officer; Brian Sohocki, Chief Credit Officer; and Mike McCuen, Chief Lending Officer. As a reminder, a copy of yesterday's earnings release can be accessed by logging on to fcbanking.com and selecting the Investor Relations link at the top of the page. We have also included a slide presentation on our investor relations website with supplemental information that will be referenced during today's call. Before we begin, I need to caution listeners that this call will contain forward-looking statements.
Speaker #1: Please go ahead .
Speaker #2: Thank you . Jordan , and good afternoon , everyone . Thanks for joining us today to discuss . First Commonwealth Financial Corporation's fourth quarter financial results .
Q4 2025 First Commonwealth Financial Earnings Call
Speaker #2: Participating on today's call will be Mike price , president and CEO . Jim Rusk , Chief Financial Officer James Gibbons , bank president and chief revenue officer Brian Sahakian , chief credit officer Mike .
Speaker #2: And McEwen, Chief Lending Officer. As a reminder, a copy of yesterday's earnings release can be accessed by logging on to FC Banking.
Speaker #2: Com and selecting the Investor Relations link at the top of the page. We also have a slide presentation included on our website with supplemental information that will be referenced during today's call.
Ryan Thomas: Please refer to our forward-looking statements disclaimer on page three of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statement. Today's call will also include non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. A reconciliation of these measures can be found in the appendix of today's slide presentation. With that, I will turn the call over to Mike.
Please refer to our forward-looking statements disclaimer on page three of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statement. Today's call will also include non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. A reconciliation of these measures can be found in the appendix of today's slide presentation.
Speaker #2: Before we I need to begin , caution listeners that this call will contain forward looking statements . Please refer to our forward looking statements .
Speaker #2: Disclaimer on page three of the slide presentation for a description of risks and uncertainties that could cause actual results to differ from those reflected in the forward-looking statement.
Speaker #2: Today's call will also include non-GAAP financial measures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP.
With that, I will turn the call over to Mike.
Speaker #2: A reconciliation of these measures can be found in the appendix of today's slide presentation. With that, I will turn the call over to Mike.
Mike Price: Hey, thank you, Ryan, and welcome, everyone. Headline performance numbers for Q4 include core EPS of $0.43 per share, which beat consensus earnings estimates alongside a net interest margin that expanded to 3.98%, a core ROA of 1.45%, and a core efficiency ratio of 52.8%. During Q4, average deposits and total loans grew modestly at 2.8% and 1.2% respectively, due to seasonal headwinds and several larger commercial loan payoffs. Net interest income grew as the margin expanded on the heels of healthy new commercial loan volume at good rates. Deposit costs fell 1 basis point to 1.83%. Fee income was flat as gains in SBA were offset by seasonal declines in wealth and mortgage.
Michael Price: Hey, thank you, Ryan, and welcome, everyone. Headline performance numbers for Q4 include core EPS of $0.43 per share, which beat consensus earnings estimates alongside a net interest margin that expanded to 3.98%, a core ROA of 1.45%, and a core efficiency ratio of 52.8%. During Q4, average deposits and total loans grew modestly at 2.8% and 1.2% respectively, due to seasonal headwinds and several larger commercial loan payoffs. Net interest income grew as the margin expanded on the heels of healthy new commercial loan volume at good rates. Deposit costs fell 1 basis point to 1.83%. Fee income was flat as gains in SBA were offset by seasonal declines in wealth and mortgage.
Speaker #3: Thank you . Ryan , and welcome everyone . Headline performance numbers for the fourth quarter include core EPs of $0.43 per share , which beat consensus earnings estimates alongside a interest net margin that expanded to 3.98% .
Speaker #3: A core ROA of 1.45% and a core efficiency ratio of 52.8%. During the quarter, average deposits and total loans grew modestly at 2.8% and 1.2%, respectively, due to seasonal headwinds and several larger commercial loan payoffs.
Speaker #3: Net interest income grew as the margin expanded on the heels of healthy new commercial loan volume at good rates. Deposit costs fell one basis point to 1.83%.
Mike Price: Our fee income at 18% of total revenue compares favorably to peers, and we have a concerted effort and long-term focus on growing fee income through our regional banking model. Wages and incentives remained pressured due to market conditions. The provision for credit losses decreased by $4.3 million compared to last quarter to $7 million. The elevated prior quarter provision was reflective of the continued resolution of a previously disclosed dealer floor plan credit. The credit required no further reserve in the fourth quarter. While NPLs increased 4 basis points to 94 basis points versus the prior quarter, we are appropriately reserved for these loans and did not experience a provision impact like the third quarter. Non-performing loans include both the unguaranteed portion of SBA loans and the government-guaranteed portion of any SBA loan which is owned by the bank.
Our fee income at 18% of total revenue compares favorably to peers, and we have a concerted effort and long-term focus on growing fee income through our regional banking model. Wages and incentives remained pressured due to market conditions. The provision for credit losses decreased by $4.3 million compared to last quarter to $7 million. The elevated prior quarter provision was reflective of the continued resolution of a previously disclosed dealer floor plan credit. The credit required no further reserve in the fourth quarter. While NPLs increased 4 basis points to 94 basis points versus the prior quarter, we are appropriately reserved for these loans and did not experience a provision impact like the third quarter. Non-performing loans include both the unguaranteed portion of SBA loans and the government-guaranteed portion of any SBA loan which is owned by the bank.
Speaker #3: Fee income was flat as gains and SBA were offset by seasonal declines in wealth and mortgage. Our fee income, at 18% of total revenue, compares favorably to peers, and we have a concerted effort in the long term to focus on growing the fee model. Wages remained.
Speaker #3: Fee income was flat as gains and SBA were offset by seasonal declines in wealth and mortgage. Our fee income at 18% of total revenue compares favorably to peers, and we have a concerted effort and long focus on growing the fee model. We remained focused, given regional incentives and market conditions.
Speaker #3: The provision for credit losses decreased by $4.3 million compared to last quarter, to $7 million. The elevated prior quarter provision was reflective of the continued resolution of a previously disclosed dealer floor plan.
Speaker #3: Credit. The credit required no further reserve in the fourth quarter, while NPLs increased four basis points to 94 basis points versus the prior quarter.
Speaker #3: We are appropriately reserved for these did not loans and experience a provision impact like the third quarter . Nonperforming loans include both the unguaranteed portion of SBA loans and the government guaranteed portion of any SBA , SBA loan , which is owned by the bank .
Mike Price: As of 31 December 2025, $98 million of non-performing loans included $39.2 million of total SBA loans, of which $31.2 million was government-guaranteed. As a result of our 94 basis points of NPLs, 32 basis points is guaranteed. In the fourth quarter, we repurchased $23.1 million of our stock, or 1.4 million shares at $15.94 per share. We repurchased 2.1 million shares in total in 2025, which incidentally is roughly two-thirds of the 3 million shares we issued in the CenterBank acquisition.
As of 31 December 2025, $98 million of non-performing loans included $39.2 million of total SBA loans, of which $31.2 million was government-guaranteed. As a result of our 94 basis points of NPLs, 32 basis points is guaranteed. In the fourth quarter, we repurchased $23.1 million of our stock, or 1.4 million shares at $15.94 per share. We repurchased 2.1 million shares in total in 2025, which incidentally is roughly two-thirds of the 3 million shares we issued in the CenterBank acquisition.
Speaker #3: As of December 31st, 2025, $98 million of non-performing loans included $39.2 million of total loans, SBA, of which $31.2 million was government guaranteed.
Speaker #3: As a result of our our 94 basis points of NPLs , 32 basis points is guaranteed . In the fourth quarter , we repurchased $23.1 million of our stock , or 1.4 million shares at $15.94 per share .
Speaker #3: We repurchased 2.1 million shares in total in 2025 , which , incidentally , is roughly two thirds of the 3 million shares we issued in the center Bank acquisition for the year .
Mike Price: For the year, core EPS of $1.53 compares favorably to the consensus earnings estimates of $1.40 that was in place in December 2024, as well as the highest revised mid-year consensus estimate of $1.54. Net interest income of $427.5 million in 2025 was up an impressive $47.2 million year-over-year, while net interest income benefited in general from higher for longer interest rates. More specifically, net interest income was driven by better loan yields, good loan volumes, lower deposit costs, and a better commercial business mix. All this mixed together drove the NIM markedly higher over last year.
For the year, core EPS of $1.53 compares favorably to the consensus earnings estimates of $1.40 that was in place in December 2024, as well as the highest revised mid-year consensus estimate of $1.54. Net interest income of $427.5 million in 2025 was up an impressive $47.2 million year-over-year, while net interest income benefited in general from higher for longer interest rates. More specifically, net interest income was driven by better loan yields, good loan volumes, lower deposit costs, and a better commercial business mix. All this mixed together drove the NIM markedly higher over last year.
Speaker #3: EPS core of $1.53 compares favorably to the consensus earnings estimates of $1.40 that were in place in December of 2024, as well as the highest revised mid-year consensus estimate of $1.54.
Speaker #3: Net income , net income interest of 427.5 million . In 2025 was up an impressive 47.2 million year over year , while net interest income benefited in general from higher for longer interest rates , more specifically , net interest was driven by income better loan yields , good loan volumes , lower deposit costs and a better commercial business mix .
Mike Price: Loan growth was 8.2% annualized and 5% without the CenterBank acquisition, as commercial banking, equipment finance, and indirect led the way. Average deposit growth of 6.1% for the year largely kept pace with loan growth and was approximately 4.2% without CenterBank. Here, money market and CDs accounted for over $534 million in growth, while non-interest-bearing DDA, DDA added another one hundred and sixteen million to a now $10.3 billion depository. For the year, non-interest income fell only $3 million year-over-year, despite another $6.3 million in Durbin Amendment debit card headwinds that resulted from crossing ten billion in assets. In short, our fee businesses are filling the gap.
Loan growth was 8.2% annualized and 5% without the CenterBank acquisition, as commercial banking, equipment finance, and indirect led the way. Average deposit growth of 6.1% for the year largely kept pace with loan growth and was approximately 4.2% without CenterBank. Here, money market and CDs accounted for over $534 million in growth, while non-interest-bearing DDA, DDA added another one hundred and sixteen million to a now $10.3 billion depository. For the year, non-interest income fell only $3 million year-over-year, despite another $6.3 million in Durbin Amendment debit card headwinds that resulted from crossing ten billion in assets. In short, our fee businesses are filling the gap.
Speaker #3: All this mixed together drove the NIM markedly higher over last year. Loan growth was 8.2% annualized—5% without the Bank of the Center acquisition.
Speaker #3: As commercial banking, equipment finance, and indirect led the way, deposit average growth of 6.1% for the year largely kept pace with loan growth and was approximately 4.2% without Center Bank.
Speaker #3: Here, money market and CDs accounted for over $534 million in growth, while bearing non-interest DDA, DDA added another $116 million to a now $10.3 billion depository for the year.
Speaker #3: Non-interest income fell only $3 million year over year, despite another $6.3 million in Durbin Amendment debit card headwinds that resulted from crossing $10 billion in assets.
Mike Price: In sum, 2025 was a year in which strong growth and spread in fee income more than offset the impact of higher expenses and lost Durbin interchange income, resulting in year-over-year improvements in PPNR, core EPS, core ROA, and efficiency. During the year, and oh, by the way, the team completed the acquisition of CenterBank and grew deposits 3% annually for the year. Before I turn the call over to Jim, I wanted to take a moment to recognize Jane Grebenc, who will be retiring at the end of March. Jane has been a friend and a mentor to me and many other leaders throughout her distinguished career, and she has left an indelible mark on First Commonwealth. Jane's dedication, leadership, and wisdom have played a pivotal role in the strategic transformations that have helped position First Commonwealth as a top-quartile performer. Thank you, Jane.
In sum, 2025 was a year in which strong growth and spread in fee income more than offset the impact of higher expenses and lost Durbin interchange income, resulting in year-over-year improvements in PPNR, core EPS, core ROA, and efficiency. During the year, and oh, by the way, the team completed the acquisition of CenterBank and grew deposits 3% annually for the year. Before I turn the call over to Jim, I wanted to take a moment to recognize Jane Grebenc, who will be retiring at the end of March. Jane has been a friend and a mentor to me and many other leaders throughout her distinguished career, and she has left an indelible mark on First Commonwealth. Jane's dedication, leadership, and wisdom have played a pivotal role in the strategic transformations that have helped position First Commonwealth as a top-quartile performer. Thank you, Jane.
Speaker #3: In short, our fee businesses filling in some in 2025 was a year of strong growth and spread, and fee income more than offset the impact of higher expenses and lost.
Speaker #3: Durbin interchange income , resulting in year over year improvements in Ppnr core EPs core ROA and efficiency during the year and oh , by the way , the team completed the acquisition of center and grew Bank deposits 3% annually for the year .
Speaker #3: Before I turn the call over to Jim, I wanted to take a moment to recognize Jane Gribetz, who will be retiring at the end of March.
Speaker #3: Jane has been a friend and a mentor to me and many other leaders throughout her distinguished career, and she has left an indelible mark on First Commonwealth.
Speaker #3: Jane's dedication, leadership, and wisdom have played a pivotal role in the strategic transformations that have helped position First Commonwealth as a top-quartile performer.
Mike Price: And with that, I will turn it over to Jim Reske, our CFO.
And with that, I will turn it over to Jim Reske, our CFO.
James Reske: Thanks, Mike. Core operating results for Q4 2025 continued the momentum of Q3. Core ROA improved 11 basis points to 1.45%, and core ROTCE improved 93 basis points to 15.83%. Spread income increased $2.1 million from the previous quarter, primarily due to a 6 basis point increase in the net interest margin. The yield on earning assets increased 3 basis points, while the cost of funds decreased 3 basis points. Looking ahead, our NIM guidance is little changed from last quarter. A near-term dip as our margin through our variable rate loans fully reflects Q4 rate cuts, followed by gradual improvement each quarter, ending the year 2026 at around 4%. At year-end, we designated a portfolio of approximately $225 million in commercial loans as held for sale.
James Reske: Thanks, Mike. Core operating results for Q4 2025 continued the momentum of Q3. Core ROA improved 11 basis points to 1.45%, and core ROTCE improved 93 basis points to 15.83%. Spread income increased $2.1 million from the previous quarter, primarily due to a 6 basis point increase in the net interest margin. The yield on earning assets increased 3 basis points, while the cost of funds decreased 3 basis points. Looking ahead, our NIM guidance is little changed from last quarter. A near-term dip as our margin through our variable rate loans fully reflects Q4 rate cuts, followed by gradual improvement each quarter, ending the year 2026 at around 4%. At year-end, we designated a portfolio of approximately $225 million in commercial loans as held for sale.
Speaker #3: Thank you Jane . And with that , I will turn it over to Jim Rusk , our CFO . Thanks , Mike .
Speaker #4: Operating core results for the fourth quarter of 2025 continued the momentum of the third quarter. Core ROE improved 11 basis points to 1.45%, and core ROTC improved 93 basis points to 15.83%.
Speaker #4: Spread income increased $2.1 million from the previous quarter, primarily due to an increase in the net interest margin. The yield on earning assets increased three basis points, while the cost of funds decreased three basis points.
Speaker #4: Looking ahead , our Nim guidance is little changed from last quarter . A near term dip as our margin variable rate loans fully reflects fourth quarter rate cuts , followed by gradual improvement each quarter , ending the year 2026 at around 4% at end .
James Reske: These loans represent a pool of commercial loans that were originated primarily in our Philadelphia MSA, which the bank had previously decided to exit in order to focus the bank's resources on customers in other areas. Subsequent to that decision and communication to borrowers, a bank approached us with an offer to purchase the portfolio. Since discussions regarding that sale are ongoing, we moved the portfolio to held for sale as of year-end. The ongoing effect in 2026, should the sale be consummated, would be to reinvest the cash proceeds from the sale of $225 million in loans into lower-yielding securities at a rate differential of approximately 1.5%. The sale, if consummated, will also have the ancillary benefits of improving our liquidity and our capital ratios.
These loans represent a pool of commercial loans that were originated primarily in our Philadelphia MSA, which the bank had previously decided to exit in order to focus the bank's resources on customers in other areas. Subsequent to that decision and communication to borrowers, a bank approached us with an offer to purchase the portfolio. Since discussions regarding that sale are ongoing, we moved the portfolio to held for sale as of year-end. The ongoing effect in 2026, should the sale be consummated, would be to reinvest the cash proceeds from the sale of $225 million in loans into lower-yielding securities at a rate differential of approximately 1.5%. The sale, if consummated, will also have the ancillary benefits of improving our liquidity and our capital ratios.
Speaker #4: We designated a year portfolio of approximately $225 million in commercial loans , is held for sale . These loans represent a pool of commercial loans that were originated primarily in our Philadelphia MSA , which the bank had previously decided in order to in order to focus the bank's to exit resources on customers and other areas .
Speaker #4: Subsequent to the decision and communication to borrowers, a bank approached us with an offer to purchase the portfolio. Since discussions regarding that sale are ongoing, we moved the portfolio to held for sale.
Speaker #4: of year As end , the ongoing effect in 2026 , should the sale be consummated , would be to reinvest the cash proceeds from the sale of $225 million in loans into lower yielding securities at a rate differential of approximately 1.5% .
Speaker #4: The sale, if consummated, will also have the ancillary benefits of improving our liquidity and our capital ratios. As Mike mentioned, total average deposits increased $72 million, or 2.8% annualized, over last quarter.
James Reske: As Mike mentioned, total average deposits increased $72 million, or 2.8% annualized over last quarter. Seasonal outflows in public funds were more than offset by growth in consumer checking and time deposits, along with growth in small business and corporate money market deposits. Core non-interest income of $24.3 million decreased $200,000 from the previous quarter. SBA gain on sale income increased by $800,000, but this was more than offset by a $700,000 decrease in wealth advisory fees and a $200,000 decrease in swap fees. In 2026, we expect non-interest income to be relatively flat over 2025, though longer term, as Mike mentioned, we would expect our regional model to improve the income results.
As Mike mentioned, total average deposits increased $72 million, or 2.8% annualized over last quarter. Seasonal outflows in public funds were more than offset by growth in consumer checking and time deposits, along with growth in small business and corporate money market deposits. Core non-interest income of $24.3 million decreased $200,000 from the previous quarter. SBA gain on sale income increased by $800,000, but this was more than offset by a $700,000 decrease in wealth advisory fees and a $200,000 decrease in swap fees. In 2026, we expect non-interest income to be relatively flat over 2025, though longer term, as Mike mentioned, we would expect our regional model to improve the income results.
Speaker #4: Seasonal outflows in public funds were more than offset by growth in consumer checking and time deposits, along with growth in small corporate, business, and core money market deposits.
Speaker #4: Non-interest income of $24.3 million decreased $200,000 from the previous quarter. SBA gain on sale income increased by $800,000, but this was more than offset by a $700,000 decrease in advisory fees and wealth, and a $200,000 decrease in swap fees in 2026.
Speaker #4: We expect non-interest income to be relatively flat over 2025. In the longer term, as Mike mentioned, we would expect our regional model to improve the income results.
James Reske: Core non-interest expense of $74.3 million increased $1.7 million from the previous quarter, mostly due to increases in salaries and benefits as we filled a number of open positions in Q4. The bank, however, was able to achieve positive operating leverage over last quarter. The core efficiency ratio remained below 53%, and we expect to be able to limit operating cost increases to approximately 3% year-over-year looking ahead. Mike mentioned our buyback activity in Q4. I would add that remaining repurchase capacity under the current program was $22.7 million as of 31 December 2025. On top of that, an additional $25 million of share repurchase authority was authorized by our board yesterday.
Core non-interest expense of $74.3 million increased $1.7 million from the previous quarter, mostly due to increases in salaries and benefits as we filled a number of open positions in Q4. The bank, however, was able to achieve positive operating leverage over last quarter. The core efficiency ratio remained below 53%, and we expect to be able to limit operating cost increases to approximately 3% year-over-year looking ahead. Mike mentioned our buyback activity in Q4. I would add that remaining repurchase capacity under the current program was $22.7 million as of 31 December 2025. On top of that, an additional $25 million of share repurchase authority was authorized by our board yesterday.
Speaker #4: Core non-interest expense of $74.3 million increased $1.7 million from the previous quarter , mostly due to increases in salaries and benefits . As we filled a number of open positions in the the fourth quarter , bank , however , was able to achieve positive operating last quarter .
Speaker #4: The ratio remained below 53%, and we expect to be able to limit operating cost increases to approximately 3% per year. Looking ahead year over year.
Speaker #4: Mike mentioned our buyback activity in the fourth quarter . I would add that remaining repurchase capacity under the current program was $22.7 million as of December 31st , 2025 , on top of that , in additional $25 million of share repurchase authority was authorized by our board yesterday .
James Reske: Of course, we only repurchase shares using excess capital generation in any given quarter, which effectively caps repurchase activity at approximately $25 to 30 million per quarter. And with that, we'll take any questions you may have.
Of course, we only repurchase shares using excess capital generation in any given quarter, which effectively caps repurchase activity at approximately $25 to 30 million per quarter. And with that, we'll take any questions you may have.
Speaker #4: Of course, we only repurchased shares using excess capital generation in any given quarter, which effectively caps repurchase activity at approximately $25 to $30 million per quarter.
Operator: At this time, I'd like to remind everyone that in order to ask a question, press star then the number one on your telephone keypad. We'll take a brief moment to compile the Q&A roster. Your first question comes from the line of Daniel Tamayo from Raymond James. Your line is live.
Operator: At this time, I'd like to remind everyone that in order to ask a question, press star then the number one on your telephone keypad. We'll take a brief moment to compile the Q&A roster. Your first question comes from the line of Daniel Tamayo from Raymond James. Your line is live.
Speaker #4: And with that, we'll take any questions you may have.
Speaker #1: At this time , I'd like to remind everyone , in order to ask a question , press star . Then the number one on your telephone keypad .
Speaker #1: We'll take a brief moment to compile the Q&A roster. From Daniel Raymond, your line is first. The first question comes from the line of James Tamayo.
Daniel Tamayo: Thank you. Good afternoon to everyone. Congratulations to Jane on your retirement. I guess first on the, pardon me, on the credit side, and I apologize, I don't think I heard anything, but if I did, apologize if I missed it. But just curious, you know, you did, Mike, touch on the impact of the SCA-- SBA guaranteed and the NPLs. But just thoughts on where the net charge-offs and provision might go in 2026. And then if you have any update on the floor plan loan that had been giving you guys some issues, where that stands at the end of the quarter as well. Thanks.
Daniel Tamayo: Thank you. Good afternoon to everyone. Congratulations to Jane on your retirement. I guess first on the, pardon me, on the credit side, and I apologize, I don't think I heard anything, but if I did, apologize if I missed it. But just curious, you know, you did, Mike, touch on the impact of the SCA-- SBA guaranteed and the NPLs. But just thoughts on where the net charge-offs and provision might go in 2026. And then if you have any update on the floor plan loan that had been giving you guys some issues, where that stands at the end of the quarter as well. Thanks.
Speaker #1: live is Your .
Speaker #5: Thank you . Good afternoon to everyone . Congratulations to Jane on your retirement . I guess first on the on the pardon me on the on the credit side .
Speaker #5: And I apologize. I don't think I heard anything, but if I did, I apologize if I missed it. But just curious.
Speaker #5: You know , you did . Mike touch on the impact of the SCA , SBA guaranteed in the Mpls , but just thoughts on where the net charge offs and provision might go in 2026 .
Speaker #5: And then, if you have any update on the floor plan loan that had been giving you guys some issues, where that stands at the end of the quarter as well.
Mike Price: Yeah, the charge-off guidance we normally give is 25 to 30 basis points, and the floor plan credit, we have maybe a million and a half dollars left to resolve. Is that right, Brian?
Michael Price: Yeah, the charge-off guidance we normally give is 25 to 30 basis points, and the floor plan credit, we have maybe a million and a half dollars left to resolve. Is that right, Brian?
Speaker #5: Thanks .
Speaker #3: Yeah . The charge off guidance we normally give is 25 to 30 basis points . And the floor plan credit , we have maybe a million and a half dollars left to resolve .
Brian Sohocki: Yeah, I'll jump in there. Thanks, Mike. First, I'll just start in the Q4 for the dealer floor plan loan. We ended the year with a $2.5 million outstanding balance, so we're nearing resolution with just a number of cars left in the liquidation process. There was no additional reserve as noted previously, and we have, you know, just a small release about $80,000 in the quarter. Since you mentioned the net charge-offs, there was a $2.1 million charge in the Q4 related to the dealer floor plan loan. And you know, within that, forty-seven basis points, that was reported on an annualized basis. And I concur with Mike's guidance on the forecast moving forward.
Brian Sohocki: Yeah, I'll jump in there. Thanks, Mike. First, I'll just start in the Q4 for the dealer floor plan loan. We ended the year with a $2.5 million outstanding balance, so we're nearing resolution with just a number of cars left in the liquidation process. There was no additional reserve as noted previously, and we have, you know, just a small release about $80,000 in the quarter. Since you mentioned the net charge-offs, there was a $2.1 million charge in the Q4 related to the dealer floor plan loan. And you know, within that, forty-seven basis points, that was reported on an annualized basis. And I concur with Mike's guidance on the forecast moving forward.
Speaker #3: Is that right, Brian.
Speaker #6: Yeah, I'll jump in there. Thanks, Mike. First, I'll just start in the quarter for fourth, the dealer floor plan loan.
Speaker #6: We ended the year with a $2.5 million outstanding balance. So, we're nearing resolution, with just a number of cars left in the liquidation process.
Speaker #6: There was no additional reserve as as noted previously , and we have , you know , just a small release , about $80,000 in the quarter since mentioned you net charge offs , there was a $2.1 million charge in the fourth quarter .
Speaker #6: Related to the dealer floor plan , loan and also , you know , within points , that was on an basis annualized reported 47 basis that .
Daniel Tamayo: Okay, great. Thanks, guys. As it relates to the provision or reserves, with the reserves coming out over the last couple of quarters, does this feel like a pretty good run rate for stability just over 130, or you think that that still can trickle down?
Daniel Tamayo: Okay, great. Thanks, guys. As it relates to the provision or reserves, with the reserves coming out over the last couple of quarters, does this feel like a pretty good run rate for stability just over 130, or you think that that still can trickle down?
Speaker #6: And I would concur with the guidance on Mike's forecast moving forward.
Speaker #5: Okay , great . Thanks , guys . And as it relates to the provision or reserves with the reserves coming out over the of last couple quarters , does this feel like a pretty good run rate for stability ?
Brian Sohocki: Yeah, I wouldn't say there's any change in our philosophy. You know, credit costs remain manageable. Reserve levels remain strong, consistent with peers, slightly ahead in some cases at the 132. You know, where we've seen emerging stress, we've already responded, you know, whether that's through the specific reserves in prior quarters. We've kept our qualitative overlays in place, and overall, you're comfortable that the reserve's just appropriate, reflecting where the risk is in the portfolio.
Brian Sohocki: Yeah, I wouldn't say there's any change in our philosophy. You know, credit costs remain manageable. Reserve levels remain strong, consistent with peers, slightly ahead in some cases at the 132. You know, where we've seen emerging stress, we've already responded, you know, whether that's through the specific reserves in prior quarters. We've kept our qualitative overlays in place, and overall, you're comfortable that the reserve's just appropriate, reflecting where the risk is in the portfolio.
Speaker #5: Just over 130, or do you think that that still can trickle down?
Speaker #6: Yeah , I wouldn't say there's any change in our philosophy . Credit costs remain manageable reserve . Reserve levels remain strong , consistent with peers slightly ahead in some cases at the at the 132 , you know where we've seen emerging stress .
Speaker #6: We've already responded . You know , whether that's through the specific reserves and prior quarter's . We've our qualitative overlays in you know , comfortable that the place overall , and reserves just appropriate reflecting where the risk is in the portfolio .
Daniel Tamayo: Okay, thanks. And maybe just changing gears here, but just as it relates to the loan sale that you're expecting here, probably near term, you know, is that something you could see happening more in 2026 in terms of additional loans being moved off the balance sheet? Or is this kind of a one-off situation that you don't see recurring?
Daniel Tamayo: Okay, thanks. And maybe just changing gears here, but just as it relates to the loan sale that you're expecting here, probably near term, you know, is that something you could see happening more in 2026 in terms of additional loans being moved off the balance sheet? Or is this kind of a one-off situation that you don't see recurring?
Speaker #5: Okay . Thanks . And maybe just changing gears here , but just as as it relates to the loan sale that you're expecting here , probably near term , is that something you could see happening more in 2026 ?
Speaker #5: In terms of additional loans being moved off the balance sheet, or was this kind of a one-off situation that you don't see recurring?
Mike Price: It's more of a one-off. We really withdrew from that market, our branches and kind of our CNI commercial banking depository ground game. And about two years ago, we sent customers letters, and this is kind of, you know, really one of the last acts of the play. Mike McCuen is our Chief Banking Officer. He's on the line. Do you want to add anything for Daniel, Michael?
Michael Price: It's more of a one-off. We really withdrew from that market, our branches and kind of our CNI commercial banking depository ground game. And about two years ago, we sent customers letters, and this is kind of, you know, really one of the last acts of the play. Mike McCuen is our Chief Banking Officer. He's on the line. Do you want to add anything for Daniel, Michael?
Speaker #3: It's more of a one off . We we really withdrew from that market . Our branches and our kind of CNI commercial banking depository , ground game .
Speaker #3: And about two years sent ago , we customers letters . And this is kind of know , , you really one of the last acts of the chief is our McEwen banking play .
Mike McCuen: No, I think you covered it, Mike. Taking those resources that Jim alluded to, investing in the other markets that we have, our retail locations, makes all the sense in the world for our business model.
Michael McCuen: No, I think you covered it, Mike. Taking those resources that Jim alluded to, investing in the other markets that we have, our retail locations, makes all the sense in the world for our business model.
Speaker #3: Mike, anything for Daniel? Michael? No.
Speaker #4: I think .
Speaker #5: I think you covered .
Speaker #3: It , Mike .
Speaker #7: Taking resources that Jim those alluded to , investing in the other markets that we have , retail locations makes all the sense in the world for our business model .
Daniel Tamayo: Okay, terrific. Thanks for the color, guys. Appreciate it.
Daniel Tamayo: Okay, terrific. Thanks for the color, guys. Appreciate it.
Mike Price: Thank you.
Michael Price: Thank you.
Operator: Your next question comes from the line of Karl Shepard from RBC Capital Markets. Your line is live.
Operator: Your next question comes from the line of Karl Shepard from RBC Capital Markets. Your line is live.
Speaker #5: Okay , terrific . Thanks for the color , guys . Appreciate it .
Speaker #3: Thank you .
Karl Shepard: Good afternoon, and congrats, Jane. I guess I wanted to start on your loan growth expectations. It looks like you had pretty good production in some of the segments maybe you're targeting, and then you had the payoff headwinds. So I guess just kind of what's the build-up for loan growth in 2026? And just kind of talk about maybe health of the pipelines and what you're seeing in your markets.
Karl Shepard: Good afternoon, and congrats, Jane. I guess I wanted to start on your loan growth expectations. It looks like you had pretty good production in some of the segments maybe you're targeting, and then you had the payoff headwinds. So I guess just kind of what's the build-up for loan growth in 2026? And just kind of talk about maybe health of the pipelines and what you're seeing in your markets.
Speaker #1: Next, your question comes from the line of Karl Sheppard from RBC Capital Markets. Your line is live.
Speaker #8: Afternoon. And good, congrats. I guess I wanted to start on your loan growth expectations. It looks like you had pretty good production in some of the segments.
Speaker #8: Maybe you’re, and then you had the payoff headwind. So I guess it’s kind of, what’s the build-up for loan growth in ’26, and can you just talk about maybe health pipelines and what you’re seeing in your markets?
Mike Price: Yeah, I think, you know, last year we grew 8%, 5% without, 5% without CenterBank, and I would expect that kind of loan growth to continue, although we really had, elevated, payoffs, probably in excess of over $200 million from the second half of the year to the first half of the year. So that created some palpable headwinds. You know, we feel like our, our business banking, mortgage could have a good year, although we'll sell that. And really, I, we just feel good about our commercial pipelines, commercial real estate and elsewhere. You know, we had really let our construction portfolio, attrite, and we feel that is going to build and add probably $20+ million of, drawdowns a month. We feel like we're well positioned.
Michael Price: Yeah, I think, you know, last year we grew 8%, 5% without, 5% without CenterBank, and I would expect that kind of loan growth to continue, although we really had, elevated, payoffs, probably in excess of over $200 million from the second half of the year to the first half of the year. So that created some palpable headwinds. You know, we feel like our, our business banking, mortgage could have a good year, although we'll sell that. And really, I, we just feel good about our commercial pipelines, commercial real estate and elsewhere. You know, we had really let our construction portfolio, attrite, and we feel that is going to build and add probably $20+ million of, drawdowns a month. We feel like we're well positioned.
Speaker #3: think Yeah , I , you know , last year we grew 8% , 5% without 5% without central bank . And I would expect that loan kind of growth to continue .
Speaker #3: Although we really had elevated payoffs, probably in excess of over $200 million, from the second half of the year to the first half of the year.
Speaker #3: So, that created some palpable headwinds. You know, we feel like our business banking mortgage could have a good year, although we'll—
Speaker #3: And really we just feel good about our commercial pipelines , commercial real estate and elsewhere . You know , we had really led our construction portfolio , a trite .
Speaker #3: And we feel that is going to build and add probably 20 plus million of drawdowns . month . A We feel like we're well positioned , you know , typically the first and the fourth quarter are a little slower for us than the second or third , and that's where we get most of our loan growth in a given year .
Mike Price: You know, typically, the first and the fourth quarter are a little slower for us than the second or third, and that's where we get most of our loan growth in a given year. But the payoffs are indeed a little elevated and, but I suspect, just like we were here last year, I think we probably guided to maybe 5 to 7, and, and we got to 5. And that's, again, without the CenterBank. And I think we're well positioned, and our teams are maturing, and we're just, I think we get a little better every year.
You know, typically, the first and the fourth quarter are a little slower for us than the second or third, and that's where we get most of our loan growth in a given year. But the payoffs are indeed a little elevated and, but I suspect, just like we were here last year, I think we probably guided to maybe 5 to 7, and, and we got to 5. And that's, again, without the CenterBank. And I think we're well positioned, and our teams are maturing, and we're just, I think we get a little better every year.
Speaker #3: But the payoffs are indeed a little elevated. And—but I suspect, just like we were here last year, I think last year we probably guided to maybe five to seven in, and we got to five.
Speaker #3: And that's again without the center bank. And I think we're well positioned and our teams are maturing, and I think we get a little better every year.
Karl Shepard: Okay. And then I guess maybe one for Jim, just on the buyback, quite a bit of authorization out there now and stock a little bit higher than maybe where it was in Q4 when you're active. Just how do you want us to think about that?
Karl Shepard: Okay. And then I guess maybe one for Jim, just on the buyback, quite a bit of authorization out there now and stock a little bit higher than maybe where it was in Q4 when you're active. Just how do you want us to think about that?
Speaker #8: Okay. And then I guess maybe one for Jim, just on the buyback—there's quite a bit of authorization out there now, and the stock's a little bit higher than maybe where it was in Q4.
Mike Price: Yeah, it's really more about capital deployment right now. There is a price sensitivity to it. We always operate on a grid so that we can, and we use the same words every time. We want to keep a little bit of dry powder available if prices dip. That's kind of why, if you look back in calendar year 2025, for a good part of the year, we weren't buying back anything, and then later part of the year, we stepped up the buybacks. But right now, the capital ratios, we're just generating so much capital to easily self-capitalize loan growth at the level we want it. So if our future guidance is mid-single digits, we're generating far more capital than it takes to capitalize that kind of loan growth.
Michael Price: Yeah, it's really more about capital deployment right now. There is a price sensitivity to it. We always operate on a grid so that we can, and we use the same words every time. We want to keep a little bit of dry powder available if prices dip. That's kind of why, if you look back in calendar year 2025, for a good part of the year, we weren't buying back anything, and then later part of the year, we stepped up the buybacks. But right now, the capital ratios, we're just generating so much capital to easily self-capitalize loan growth at the level we want it. So if our future guidance is mid-single digits, we're generating far more capital than it takes to capitalize that kind of loan growth.
Speaker #8: Q. When you're active, just how do you want us to think about that?
Speaker #4: Yeah, it's really more about capital deployment right now. There is a price sensitivity to it. We always operate on a grid so that we can, and we use the same words every time.
Speaker #4: We want to keep a little bit of dry powder available . If prices dip , that's kind of why if you look back in calendar year good part of the year , we 2025 for a weren't anything .
Speaker #4: back buying And then the later part of the year we stepped up the buybacks . But right now the capital ratios we're just generating so much capital to sell easily , capitalize , loan growth at the level we So if our future wanted .
Mike Price: And so we don't want to, and I'll repeat myself, I know we've said this a few things before, but we don't want to accelerate loan growth beyond what we think we can organically do. We do it at the right pace for our region, for our credit appetite, for our demographics.
And so we don't want to, and I'll repeat myself, I know we've said this a few things before, but we don't want to accelerate loan growth beyond what we think we can organically do. We do it at the right pace for our region, for our credit appetite, for our demographics. Based on the rate environment. For all those reasons, the loan growth rate is where we want it to be, and then we still generate a ton of capital. And so we have to do something with that other than just let the capital ratios go up, up, up. So that's why we are doing the buyback, and we'll continue to do more this year.
Speaker #4: Guidance is mid-single digits, generating far more capital than it takes to capitalize that loan, kind of, so we don't want to. And I'll repeat myself.
Speaker #4: We said this before , but we don't want to accelerate loan growth beyond what we think we can organically do . We do it at the right pace for our region , for our credit appetite , for our demographics based on the rate , environment .
James Reske: ... based on the rate environment. For all those reasons, the loan growth rate is where we want it to be, and then we still generate a ton of capital. And so we have to do something with that other than just let the capital ratios go up, up, up. So that's why we are doing the buyback, and we'll continue to do more this year.
Speaker #4: For all those reasons, the loan growth rate is where we want it to be. And then we still generate a ton of capital.
Speaker #4: And so we have to do something with that other than just let the capital ratios go up, up, up. So that's why we are doing the buyback.
Matthew Breese: Thank you.
Karl Shepard: Thank you.
Mike Price: Thank you.
Michael Price: Thank you.
Speaker #4: And we’ll continue to do more this year.
Operator: Your next question comes from the line of Kelly Motta from KBW. Your line is live.
Operator: Your next question comes from the line of Kelly Motta from KBW. Your line is live.
Speaker #8: Thank you .
Speaker #3: Thank you .
Kelly Motta: Hi, good afternoon. Thanks for the questions, and congrats, Shane, on your retirement. Just to start off, I'd love to kick it off on margin. It came in quite a bit above where I had been expecting. You guys noted you had some payoffs. I'm just wondering if there was any loan fees in there, or if that's a good run rate to go off of. And as we look ahead, you know, I appreciate the commentary about the reinvestment from the HFS portfolio when that closes, but how we should be thinking about these dynamics here. Thank you.
Kelly Motta: Hi, good afternoon. Thanks for the questions, and congrats, Shane, on your retirement. Just to start off, I'd love to kick it off on margin. It came in quite a bit above where I had been expecting. You guys noted you had some payoffs. I'm just wondering if there was any loan fees in there, or if that's a good run rate to go off of. And as we look ahead, you know, I appreciate the commentary about the reinvestment from the HFS portfolio when that closes, but how we should be thinking about these dynamics here. Thank you.
Speaker #1: Your next question comes from the line of Kelly Mada from KBW. Your line is live.
Speaker #9: Hi . Good afternoon . Thanks for the questions . And congrats , Jane , on your retirement . Just just to start off , I'd love to kick it off on margin .
Speaker #9: It came in quite a bit above where I had been expecting. You guys noted you had some payoffs, so I'm just wondering if there was any loan fees in there, or if that's a good run rate to go off of.
Speaker #9: And as we look ahead, you know, I appreciate the commentary about the reinvestment from the HFS portfolio when that—but how we should be thinking about these dynamics here.
James Reske: Yeah, Kelly, it's Jim. Hey, great question. Thanks. Yeah, we were really pleased with the margin performance this quarter as well. We, you may recall last quarter, we were giving guidance that we expected a dip. And first thought when we saw that margin coming in so strongly was, is the dip actually happening the way we thought it was going to happen? And it did. It did. So the rate cuts hit the variable rate loan portfolio, the SOFR-based loan portfolio, and took that down. But you nailed it. We had some other things that offset that. And the part you nailed is we had some payoffs, and we had some paydowns in loans that were previously on nonaccrual status. And when they did that, some of the previously...
James Reske: Yeah, Kelly, it's Jim. Hey, great question. Thanks. Yeah, we were really pleased with the margin performance this quarter as well. We, you may recall last quarter, we were giving guidance that we expected a dip. And first thought when we saw that margin coming in so strongly was, is the dip actually happening the way we thought it was going to happen? And it did. It did. So the rate cuts hit the variable rate loan portfolio, the SOFR-based loan portfolio, and took that down. But you nailed it. We had some other things that offset that. And the part you nailed is we had some payoffs, and we had some paydowns in loans that were previously on nonaccrual status. And when they did that, some of the previously...
Speaker #9: Thank you .
Speaker #4: Yeah . Kelly . A great question . Thanks . Yeah , we were really pleased with the margin performance this quarter as well .
Speaker #4: We—you may recall last quarter, we were giving guidance that we expected a dip, and first thought when we saw that margin coming in so strongly was, is the dip actually happening the way we thought it to happen.
Speaker #4: And it did. It did. So the rate cuts hit the variable rate loan portfolio, the portfolio, and took that down.
Speaker #4: sulfur based loan But you nailed it . We we some other had things that offset that . And the part you nailed is where we had some payoffs and we had some paydowns in loans that were previously on status .
James Reske: We recognized the interest on those loans that had been on nonaccrual. So that and some other factors together worked together to offset that hit we took in the variable growth portfolio and kept the margin performance really strong in the fourth quarter. But looking ahead, we think that, you know, the Fed cut rates a couple of times here in the fourth quarter, in December. That's not fully reflected yet. We're going to feel that in the variable – in the SOFR-based loan portfolio, the variable portfolio. So that's going to hit in the first quarter, dip it down a little bit, but then all the other factors that have been working to keep, keep it going strongly, continued upward repricing of the fixed-rate loans, the macro swaps coming off the books.
We recognized the interest on those loans that had been on nonaccrual. So that and some other factors together worked together to offset that hit we took in the variable growth portfolio and kept the margin performance really strong in the fourth quarter. But looking ahead, we think that, you know, the Fed cut rates a couple of times here in the fourth quarter, in December. That's not fully reflected yet. We're going to feel that in the variable – in the SOFR-based loan portfolio, the variable portfolio. So that's going to hit in the first quarter, dip it down a little bit, but then all the other factors that have been working to keep, keep it going strongly, continued upward repricing of the fixed-rate loans, the macro swaps coming off the books.
Speaker #4: Nonaccrual. And we did that—some of the interest that we had previously recognized on those loans had been on nonaccrual. And so that, and some other factors together, worked together to offset that hit.
Speaker #4: We took in the variable pro portfolio and kept the margin performance really strong in the fourth quarter . So we're looking ahead . We think that , you know , the fed cut rates a couple times here in the fourth quarter in December .
Speaker #4: fully That's not reflected yet . We're going to feel that in a very real way in the silver based loan portfolio , the variable portfolio .
Speaker #4: So that's going to hit in the first quarter. Dip it down a little bit, but then all the other factors that have been working to keep it going strong.
James Reske: Here, the remainder of that in 2026, including a big chunk in May, that'll really help keep the margin up. And so that's why we kind of have this forecast of drifting upward to around the 4% level in 2026. So I hope that gives you some additional information.
Speaker #4: The continued upward repricing of fixed rate loans , the macro swaps coming off the books here , the remainder of that including a and 2026 , big chunk in May that'll really help keep a margin up .
Here, the remainder of that in 2026, including a big chunk in May, that'll really help keep the margin up. And so that's why we kind of have this forecast of drifting upward to around the 4% level in 2026. So I hope that gives you some additional information.
Speaker #4: And so that's why we kind of have this forecast of drifting upward to around the 4% level—so in 2026. Hope that gives you some additional.
Kelly Motta: No, that, that is-- that's super helpful. Maybe, turning to the expenses, you know, Q4, it, it was up about $1.5 billion, I think. Just wondering if that was just kind of year-end true-ups. And then, as we think ahead, how you guys are-- seems like you're, you're calling for, you know, pretty strong margin here, solid loan growth. So as we look ahead, your expectation for expenses, any places you're hiring, and, and how we should think about that run rate? Thanks.
Kelly Motta: No, that, that is-- that's super helpful. Maybe, turning to the expenses, you know, Q4, it, it was up about $1.5 billion, I think. Just wondering if that was just kind of year-end true-ups. And then, as we think ahead, how you guys are-- seems like you're, you're calling for, you know, pretty strong margin here, solid loan growth. So as we look ahead, your expectation for expenses, any places you're hiring, and, and how we should think about that run rate? Thanks.
Speaker #3: Know .
Speaker #9: That that's super helpful . Maybe a turning to the expenses . You know , Q4 it it was up about a million and a half .
Speaker #9: that is
Speaker #9: I think just wondering if that was just kind of year end . True ups . And then as we think ahead , how you guys are , seems like you're you're calling for pretty , you know , strong margin here .
Speaker #9: Solid loan growth. So, as we look ahead, your expectation for expenses—any places you're hiring—and how we should think about that run rate?
Mike Price: Just the efficiency was certainly on the back of the revenue side. We're normally very, very good at the expense side in maintaining operating leverage, and we have a nice little chart in our investor deck that shows that we're pretty good at putting our shoulder to the wheel. We'll need to do that and hustle this year, watch our FTE count closely. That being said, we've invested pretty heavily in our commercial bank, our equipment finance group, and we expect more production there, and we expect that those investments to pay off for us. But we can do a little better job on the expense side as well, and we've invested pretty heavily, quite frankly, the last 2 years, I think, yeah, $25 million or so.
Michael Price: Just the efficiency was certainly on the back of the revenue side. We're normally very, very good at the expense side in maintaining operating leverage, and we have a nice little chart in our investor deck that shows that we're pretty good at putting our shoulder to the wheel. We'll need to do that and hustle this year, watch our FTE count closely. That being said, we've invested pretty heavily in our commercial bank, our equipment finance group, and we expect more production there, and we expect that those investments to pay off for us. But we can do a little better job on the expense side as well, and we've invested pretty heavily, quite frankly, the last 2 years, I think, yeah, $25 million or so.
Speaker #9: Thanks .
Speaker #3: Just the certainty on was the back of the efficiency side. We're, revenue-wise, normally very, very good at the expense side in maintaining operating leverage.
Speaker #3: And we have a nice little chart in our investor deck that shows that we're pretty good at putting our shoulder to the wheel.
Speaker #3: And we'll need to do that . And hustle this year . Watch our FTE count closely . That being said , we've invested pretty heavily in our commercial bank , our equipment , finance group , and we expect more production there .
Speaker #3: And we expect for those investments to pay off for us. But we can do a little better job on the expense side as well.
Speaker #3: And we've invested pretty heavily , quite frankly , the last two years . I think . Yeah , $25 million or so . Yeah , up over two years .
James Reske: Yeah.
James Reske: Yeah.
Mike Price: Up over 2 years. We were a little higher than we thought we would be, but that's just a matter of discipline, and we're a pretty disciplined group.
Michael Price: Up over 2 years. We were a little higher than we thought we would be, but that's just a matter of discipline, and we're a pretty disciplined group.
Speaker #3: And we were a little higher than we thought we would be. But that's just a matter of discipline. And we're Group.
James Reske: And, Kelly, you know, you mentioned there were true ups. There were a couple of things that were one-off that hit us in the fourth quarter that are not part of our thinking going forward. So we had some contract terminations and some other things, in addition to what we said in our prepared remarks about filling open positions, that Mike talked about, about the staffing increases. So, a couple of those one-offs are not, you know, in our future forecast for operating expense going forward.
James Reske: And, Kelly, you know, you mentioned there were true ups. There were a couple of things that were one-off that hit us in the fourth quarter that are not part of our thinking going forward. So we had some contract terminations and some other things, in addition to what we said in our prepared remarks about filling open positions, that Mike talked about, about the staffing increases. So, a couple of those one-offs are not, you know, in our future forecast for operating expense going forward.
Speaker #3: pretty .
Speaker #4: you And Kelly , mentioned the word true There were a couple of things that were one offs that hit ups . us in the fourth quarter that are not part of our thinking going forward .
Speaker #4: So, we had some contract terminations and some other things, in addition to what we said in our prepared remarks about filling open positions.
Speaker #4: We talked about about the increases . staffing So a couple of those one offs are not , you know , in our future forecast for operating expense going forward .
Kelly Motta: Great. Thanks for the color. I'll step back.
Kelly Motta: Great. Thanks for the color. I'll step back.
James Reske: Thank you.
James Reske: Thank you.
Operator: Your next question comes from the line of Matthew Breese from Stephens Inc. Your line is live.
Operator: Your next question comes from the line of Matthew Breese from Stephens Inc. Your line is live.
Speaker #9: Great. Thanks for the color. I'll step back.
Speaker #10: Thank you .
Matthew Breese: Hey, good afternoon.
Matthew Breese: Hey, good afternoon.
Speaker #1: Your next question comes from the line of Matthew Breese from Stephens Inc. Your line is live.
Mike Price: Good afternoon, Matt.
Michael Price: Good afternoon, Matt.
Matthew Breese: I had a couple of questions. Maybe first starting with the NIM. You know, it sounds like the guidance is calling for around a 4% NIM by the end of the year, and I'm usually just a bit skeptical of the sustainability of 4% NIMs. One thing we've been hearing a lot about this quarter is spread compression, both on the C&I and CRE front. So I guess I had a two-part question, which is, you know, one, how does the pipeline yield look, and what are you getting for spreads on new C&I and commercial real estate business? Then maybe just touch on expectations around deposit costs for 2026.
Matthew Breese: I had a couple of questions. Maybe first starting with the NIM. You know, it sounds like the guidance is calling for around a 4% NIM by the end of the year, and I'm usually just a bit skeptical of the sustainability of 4% NIMs. One thing we've been hearing a lot about this quarter is spread compression, both on the C&I and CRE front. So I guess I had a two-part question, which is, you know, one, how does the pipeline yield look, and what are you getting for spreads on new C&I and commercial real estate business? Then maybe just touch on expectations around deposit costs for 2026.
Speaker #11: Hey , good afternoon .
Speaker #3: Good afternoon Matt .
Speaker #11: had a couple I questions . Maybe first , starting Nim . You with the know , it sounds like the guidance is is is calling for around a 4% Nim by the end of the year .
Speaker #11: And I'm usually just a bit skeptical of the sustainability of 4% Nims . And one thing we've been hearing a front . compression , both on and quarter the this so is spread I guess I had a two part question , which is , you know , one , how does the pipeline yield look ?
Speaker #11: And what are you getting for spreads on new C&I and commercial real estate business? And then maybe just touch on expectations around deposit costs for 2026?
Mike Price: Yeah, I'll hand it over to Mike McCuen in a minute for the loan expectations. But, I mean, when I look at our commercial variable and the new stuff we're putting on, it's 7.3%.
Michael Price: Yeah, I'll hand it over to Mike McCuen in a minute for the loan expectations. But, I mean, when I look at our commercial variable and the new stuff we're putting on, it's 7.3%. In the last quarter, and commercial fixed is in the high sixties. Even our indirect is in the high sixties. So, and that's, like, kind of at that 2.5-year point on the shoulder of the yield curve, and we like that. And, so, I don't know, replacement rates still look good. Even with rates down this past quarter, our commercial variable, the replacement rate was low, but nevertheless, it was still positive.
Speaker #3: Yeah , I'll hand it over to Mike McEwen in a minute for the loan expectations . But I mean , when I look at our variable and the new stuff we're putting on , it's 7.3% in the last quarter and commercial fixed is in the high 60s .
James Reske: ... in the last quarter, and commercial fixed is in the high sixties. Even our indirect is in the high sixties. So, and that's, like, kind of at that 2.5-year point on the shoulder of the yield curve, and we like that. And, so, I don't know, replacement rates still look good. Even with rates down this past quarter, our commercial variable, the replacement rate was low, but nevertheless, it was still positive. Yeah, I think just, I'll interject quickly, and then, Mike McCuen, turn it over to you for just thoughts on the market, the spread, and the spread compression, because it'll give that kind of real-time color.
Speaker #3: Even our indirect is in the high 60s . So and that's kind of at that two and a half year point on the shoulder of the yield curve .
Speaker #3: And we like that . And and so I don't know replacement rates still look good even with rates past quarter . down this Our commercial variable , replacement rate was low .
James Reske: Yeah, I think just, I'll interject quickly, and then, Mike McCuen, turn it over to you for just thoughts on the market, the spread, and the spread compression, because it'll give that kind of real-time color. But in the Q4, we didn't see a real differential on the rates that worked from a variable rate portfolio, the ones that were coming on, coming off. So that says, like, from a, in the aggregate, there wasn't evidence of a lot of spread compression in that portfolio. What Mike was talking about is all the fixed rate loans still nicely repricing upward. And because those are all repricing towards the middle of the curve, if the yield curve reflects a little bit, it would drop at the short end, won't affect that dynamic a whole lot. And I think that we've talked about that before, so. But just the variable rate portfolio, the ones that came on, came off, was like a one basis point differential in the Q4.
Speaker #3: But still positive .
Speaker #4: Yeah, I mean, just to interject quickly, and then Mike McEwen, I'll turn it over to you for just thoughts on the market and spread compression, because I'll give that kind of real-time color.
James Reske: But in the Q4, we didn't see a real differential on the rates that worked from a variable rate portfolio, the ones that were coming on, coming off. So that says, like, from a, in the aggregate, there wasn't evidence of a lot of spread compression in that portfolio. What Mike was talking about is all the fixed rate loans still nicely repricing upward. And because those are all repricing towards the middle of the curve, if the yield curve reflects a little bit, it would drop at the short end, won't affect that dynamic a whole lot. And I think that we've talked about that before, so. But just the variable rate portfolio, the ones that came on, came off, was like a one basis point differential in the Q4.
Speaker #4: But in the fourth quarter, we didn't see a real differential on the rates that were for variable rate portfolios—the ones that were coming out and coming off.
Speaker #4: So that said, like from a—in the aggregate, there wasn't the evidence of a lot of spread compression of that portfolio, as Mike was talking about, as all the fixed rate loans still might be repricing upward.
Speaker #4: And because those are all repricing towards the middle of the curve, if the yield reflects the curve a little bit, the drop at the short end won't affect that dynamic a whole lot.
Speaker #4: And I think that we talked about that before. So, but just the variable rate portfolio, the ones that came on, came off, was like a one basis point differential in the fourth quarter.
James Reske: So not a lot of evidence on that natural level of spread compression, but I'll turn it over to Mike McCuen to approve.
So not a lot of evidence on that natural level of spread compression, but I'll turn it over to Mike McCuen to approve.
Speaker #4: So, not a lot of evidence that, on the macro level, of spread compression. But I'll turn it over to Mike McEwen for—
Mike McCuen: Yeah, just to answer specifically on the segments. I would start with our business lending to the family-owned owner-operated business. We put a real focus on that about a year ago, and we're seeing healthy growth in that segment. I would say that's the prime flow space business. I don't see that changing from a spread perspective. Secondly, the equipment finance group, they're doing mostly fixed-rate loans. Their yields are holding up pretty well. And then thirdly, I would say the commercial real estate business. That's a little trickier because, as probably you've heard from others, the agency markets, the insurance markets, are very aggressive these days. We have a pretty healthy pipeline, and we have a number of construction loans that are converting to permanent markets.
Michael McCuen: Yeah, just to answer specifically on the segments. I would start with our business lending to the family-owned owner-operated business. We put a real focus on that about a year ago, and we're seeing healthy growth in that segment. I would say that's the prime flow space business. I don't see that changing from a spread perspective. Secondly, the equipment finance group, they're doing mostly fixed-rate loans. Their yields are holding up pretty well. And then thirdly, I would say the commercial real estate business. That's a little trickier because, as probably you've heard from others, the agency markets, the insurance markets, are very aggressive these days. We have a pretty healthy pipeline, and we have a number of construction loans that are converting to permanent markets.
Speaker #7: Yeah , just answer specifically on the segments . I would with start our business lending to the family owned owner operated business . We put a real focus on that about a year ago , and we're healthy growth seeing in that segment .
Speaker #7: I would say that's a prime . The Prime plus base business . I don't see that changing from a spread perspective . Secondly , the equipment finance group , they're doing rate mostly fixed loans .
Speaker #7: Their yields are holding up pretty well . And then thirdly , I would say the the business , estate that's a little trickier because as probably you heard from others , the agency markets the insurance markets are very aggressive .
Speaker #7: These days, we have a pretty healthy pipeline, and we have a number of construction loans that are converting to permanent markets.
Mike McCuen: The balancing act is those spreads are compressed, and we're trying to maintain our discipline around the real estate business, not just from a rate perspective, but also from a structure, term, recourse, all those things that go into those decisions. As our construction loans roll off, we have every chance to match those rates. We, in many cases, choose not to and let those move on, and then grow the construction loan portfolio, which, by the way, is up around $120 million over the last year, and that will lead to future funding. So that's a quick snapshot of why we're a little more comfortable based on the segments that we play in versus large corporate, investment grade, things like that. Yeah.
The balancing act is those spreads are compressed, and we're trying to maintain our discipline around the real estate business, not just from a rate perspective, but also from a structure, term, recourse, all those things that go into those decisions. As our construction loans roll off, we have every chance to match those rates. We, in many cases, choose not to and let those move on, and then grow the construction loan portfolio, which, by the way, is up around $120 million over the last year, and that will lead to future funding. So that's a quick snapshot of why we're a little more comfortable based on the segments that we play in versus large corporate, investment grade, things like that. Yeah.
Speaker #7: The balancing act is those spreads are compressed and we're trying to maintain our discipline . Around the real estate business , not just from a rate perspective , but also from a term structure , recourse .
Speaker #7: All those things that go into those decisions off, we loans roll as our construction chance to have every match those rates. We, in many cases, choose not to.
Speaker #7: And that those move on . And then grow the construction loan portfolio , which by the way , is around up last 120 million over the year .
Speaker #7: And that will lead to future funding . So that's a quick snapshot of why we're a little more comfortable based on the play in that we versus large investment corporate grade , things like that .
Matthew Breese: Got it. Okay. So it still sounds like you're putting on loans accretive to where the average yield is, and I'm assuming there's still some room to reprice deposits down. I guess, Jim, as we look to Q4 2026 and beyond, do you feel like there's momentum to carry the NIM above 4% as we get into 2027, all else equal?
Matthew Breese: Got it. Okay. So it still sounds like you're putting on loans accretive to where the average yield is, and I'm assuming there's still some room to reprice deposits down. I guess, Jim, as we look to Q4 2026 and beyond, do you feel like there's momentum to carry the NIM above 4% as we get into 2027, all else equal?
Speaker #7: Yeah .
Speaker #11: Got Okay . So it still sounds like it . you're on loans putting accretive to where the average yield is . And I'm assuming there's still some room to reprice deposits down .
Speaker #11: I guess , Jim , as we look to for 26 and beyond , do you feel like there's momentum to carry the Nim above 4% as we get into 2027 ?
James Reske: Yeah, but, you know, I'll borrow the phrase everyone says, that the crystal ball gets fuzzy that far out, and we usually don't give guidance that far out anyway. But I know we've talked about this before. If we look ahead in the projection, and again, it's really fuzzy, so I'll hedge that again. The NIM would hover in the low fours in 2027 in the current projection. So, depends on lots of factors and lots of things could change by, from between here and then. By then, our macro swaps will be fully off, and so we'll have the benefit of that. We think there's room to drop the deposit rates a little more. We've been pretty thoughtful about that, watching the rates in the, the, in the market that have been around us. We in 2025, that was a big issue.
James Reske: Yeah, but, you know, I'll borrow the phrase everyone says, that the crystal ball gets fuzzy that far out, and we usually don't give guidance that far out anyway. But I know we've talked about this before. If we look ahead in the projection, and again, it's really fuzzy, so I'll hedge that again. The NIM would hover in the low fours in 2027 in the current projection. So, depends on lots of factors and lots of things could change by, from between here and then. By then, our macro swaps will be fully off, and so we'll have the benefit of that. We think there's room to drop the deposit rates a little more. We've been pretty thoughtful about that, watching the rates in the, the, in the market that have been around us. We in 2025, that was a big issue.
Speaker #11: All else equal .
Speaker #4: know , I'll But you borrow the Yeah . , everyone says that the crystal ball gets fuzzy that far out . We usually don't give guidance that far out anyway , but I know talked about this we've before .
Speaker #4: we look If ahead in the projections , then again , it's really fuzzy . hedge that So I'll again . Nim would The hover in the low fours in 2027 .
Speaker #4: In the current SO projection, it depends on lots of factors and lots of things can change between here and then. By then, our macro will be fully off.
Speaker #4: And what will be the benefit of that? So, we think there's room to drop the positive rates a little more. We've been pretty thoughtful about that.
James Reske: We thought it'd be very difficult to fund the loan growth with deposit growth and drop rates at the same time, and yet we did it very successfully in 2025. So we kind of figure there's we can continue - we think we can continue that in 2026 as well. So that'll help the market as well.
We thought it'd be very difficult to fund the loan growth with deposit growth and drop rates at the same time, and yet we did it very successfully in 2025. So we kind of figure there's we can continue - we think we can continue that in 2026 as well. So that'll help the market as well.
Speaker #4: Watching the rates , the market that have been around us . We in 2025 , that was a big issue . We thought it would be very difficult to fund the loan growth with growth and deposit drop rates at the same time .
Speaker #4: And yet, we did it very successfully in 2025. So, kind of as I think of it, we think we can continue in 2026 as well.
Matthew Breese: Got it. Okay. And then last one before I—I'll hop back in the queue. I feel like you, you laid a few breadcrumbs on the, the stock buyback front. At least in the very near term, the next one or two quarters, should we be penciling in, you know, $25, 30 million in buybacks per quarter?
Matthew Breese: Got it. Okay. And then last one before I—I'll hop back in the queue. I feel like you, you laid a few breadcrumbs on the, the stock buyback front. At least in the very near term, the next one or two quarters, should we be penciling in, you know, $25, 30 million in buybacks per quarter?
Speaker #4: That’ll help the margins as well.
Speaker #11: Got it . Okay . And then last one before I'll hop back in the queue . I feel like you laid a few breadcrumbs on the the stock buyback front , at least in the very near term .
James Reske: It's hard for me to definitively say it'll be the next two quarters because it is. It's not entirely dependent on the stock price, but it's sensitive to the stock price. So if the price shoots up, we'll slow the buyback down, and it would not all be in the first half. If the price stays where it is or goes lower, then a lot of it will be in the first half. Even then, though, it may not all be in the first half. It'll be. We intend to use the authority and be fairly aggressive with it overall, but there's still a price sensitivity to it.
Speaker #11: For the next one or two quarters, should we be penciling in $30 million in buybacks in 2025 per quarter?
James Reske: It's hard for me to definitively say it'll be the next two quarters because it is. It's not entirely dependent on the stock price, but it's sensitive to the stock price. So if the price shoots up, we'll slow the buyback down, and it would not all be in the first half. If the price stays where it is or goes lower, then a lot of it will be in the first half. Even then, though, it may not all be in the first half. It'll be. We intend to use the authority and be fairly aggressive with it overall, but there's still a price sensitivity to it.
Speaker #4: me to It's definitively say it'll be the next two quarters because it is it's it's not entirely dependent on the stock price , but it's sensitive to the stock price .
Speaker #4: So if the price shoots up, we'll buy back down. And it would not all be in if the price stays where it is or goes lower, then a lot of it will be in the first half.
Speaker #4: Even then , even though , it may not all be in the first half , but it'll be . We intend to use the authority fairly aggressive , be overall , but there's still a price sensitivity to it
Matthew Breese: Thank you.
Matthew Breese: Thank you.
Mike McCuen: Thank you.
Michael McCuen: Thank you.
Operator: As a reminder, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Manuel Navas from Piper Sandler. Your line is live.
Operator: As a reminder, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Manuel Navas from Piper Sandler. Your line is live.
Speaker #4: . Thank
Speaker #11: you .
Speaker #1: As a reminder , if you would like ask a to question press star One on your , telephone keypad . Your next question comes from the line of Manuel Navas from Piper Your Sandler .
Manuel Navas: Hey, good afternoon. On the, on the NIM, how big of a dip are we looking at this Q1? Did you discuss how much the-- I might have missed it, how much the NPLs benefited the NIM this quarter, like a dollar amount or basis point in the NIM? Just kind of quantify what's going to come out of the NIM next quarter.
Manuel Navas: Hey, good afternoon. On the, on the NIM, how big of a dip are we looking at this Q1? Did you discuss how much the-- I might have missed it, how much the NPLs benefited the NIM this quarter, like a dollar amount or basis point in the NIM? Just kind of quantify what's going to come out of the NIM next quarter.
Speaker #1: line is live .
Speaker #12: Hey . Good On the afternoon . on Nim the . How big of a dip are we looking at this this discuss how Did much you the .
Speaker #12: I might have missed it—first quarter—how much did the NPLs benefit the NIM this quarter? In dollar amount, or was it like four basis points in the NIM?
James Reske: Yeah, the NPLs were all told about three basis points of total impact of the NIM. It's a little bit bigger if I just isolate the impact on that one portfolio, because we spend a lot of time looking at the variable rate portfolio in the fourth quarter to say, why didn't it, the yield of that portfolio drop the way we thought it was going to drop? And the answer is what I said before. It did drop for the effect on Spilfer, but it was offset, I think, by these nonaccruals and a couple other factors, too. But the overall effect of the total NIM for the nonaccruals coming back was about three basis points for the fourth quarter. I'm sorry, was there another part of your question?
James Reske: Yeah, the NPLs were all told about 3 basis points of total impact of the NIM. It's a little bit bigger if I just isolate the impact on that one portfolio, because we spend a lot of time looking at the variable rate portfolio in the fourth quarter to say, why didn't it, the yield of that portfolio drop the way we thought it was going to drop? And the answer is what I said before. It did drop for the effect on Spilfer, but it was offset, I think, by these nonaccruals and a couple other factors, too. But the overall effect of the total NIM for the nonaccruals coming back was about three basis points for the fourth quarter. I'm sorry, was there another part of your question?
Speaker #12: Just try to quantify what's going to come out of NIM next quarter.
Speaker #4: Yeah . The NPLs were all told three basis points of about of total impacted in a little bit bigger . If I just isolated the impact on that one portfolio , because we spent a lot of time looking at the variable rate portfolio in the fourth quarter to say , why didn't it ?
Speaker #4: The yield of that probably drop the way we thought it was going to drop . And the answer is what I said before did drop for the effect on it but it sofr , was offset by things like Non-accruals and a couple of other factors to .
Speaker #4: overall effect of the total Nim for But the the Non-accruals coming back was about three basis points for the fourth quarter . wasn't the other part of I'm sorry it your question .
Manuel Navas: From there, how big of a dip are we looking at in Q1?
Manuel Navas: From there, how big of a dip are we looking at in Q1?
James Reske: Yeah. The amount of the dip we think is anywhere from 5 to 10. But I'm hedging that way because we always hedge our forecast because they're always within 5 or 10. On the model going forward. And then it drifts upward around 5 basis points a quarter. It ends up not quite 5 basis points a quarter. But it drifts upward enough to end the year at around 4%.
James Reske: Yeah. The amount of the dip we think is anywhere from 5 to 10. But I'm hedging that way because we always hedge our forecast because they're always within 5 or 10. On the model going forward. And then it drifts upward around 5 basis points a quarter. It ends up not quite 5 basis points a quarter. But it drifts upward enough to end the year at around 4%.
Speaker #12: And then from there, how big of a dip are we looking at in the first quarter?
Speaker #10: Yeah .
Speaker #4: The amount of the dip, we think, is anywhere from 5 to 10. I'm hedging that way because we always hedge our forecast, because they're always—
Speaker #4: They're always within 5 or 10 . I think . Yeah . On the model going forward . And then and then it drifts upward around five basis points a quarter .
Manuel Navas: As those loans are sold, your loan-to-deposit ratio, ex those loans, is like in the low 90s.
Speaker #4: It ends up not quite a quarter, but it's just upward enough to end the year at around 4%.
Manuel Navas: As those loans are sold, your loan-to-deposit ratio, ex those loans, is like in the low 90s.
James Reske: Yeah.
James Reske: Yeah.
Manuel Navas: You could be a little bit more aggressive on deposits, right?
Manuel Navas: You could be a little bit more aggressive on deposits, right?
Speaker #12: And as those loans are sold , your your loan to deposit ratio Axos loans is like in the in the low 90s . You little bit more could be a aggressive on deposits right .
James Reske: Yes and yes. Thank you for noting that.
James Reske: Yes and yes. Thank you for noting that.
Manuel Navas: Yeah.
Manuel Navas: Yeah.
James Reske: It's a big part of our thinking, actually. You know, we're happy to see that loan-to-deposit ratio. And then the issues with securities we buy will be current rate. They won't be underwater, so they're perfectly available to sell as liquidity to fund loan growth if we wanted to. Of course, we have ample borrowing capacity, so it's not liquidity is not an issue, but it does give us a little more liquidity, a little more dry powder to fund future loan growth, and then also not be so aggressive on at the margin on deposit rates to fund the loan growth. We're probably-
James Reske: It's a big part of our thinking, actually. You know, we're happy to see that loan-to-deposit ratio. And then the issues with securities we buy will be current rate. They won't be underwater, so they're perfectly available to sell as liquidity to fund loan growth if we wanted to. Of course, we have ample borrowing capacity, so it's not liquidity is not an issue, but it does give us a little more liquidity, a little more dry powder to fund future loan growth, and then also not be so aggressive on at the margin on deposit rates to fund the loan growth. We're probably-
Speaker #4: Yes and yes . Thank you for . Noting that he's a big part of our thinking actually , you know , we're happy to see that loan to deposit ratio .
Speaker #4: And then these securities we buy will be at current rates. They won't be underwater. So they're perfectly available to sell as liquidity to fund loan growth.
Speaker #4: wanted We to of course we have ample borrowing capacity . So it's liquidity is not an does give issue . But it us a little liquidity , a little more dry powder more to fund loan growth .
Speaker #4: The future then also, and not be so aggressive at the margin on deposit rates to fund loan growth. We're probably—
Manuel Navas: Are there some other... Okay.
Manuel Navas: Are there some other... Okay.
James Reske: No, we're probably two-thirds of our peers in terms of the deposit beta over the last year, in terms of cost of deposits. So if they're down 33, we're down about 22. And we've done that on purpose, and we've really, you know, probably kept them a little higher than we could because we wanted the growth and we didn't want the borrowings. And so we achieved both, and that's kind of the balance. But I think there's probably, in the long run, if rates go down, more downward opportunity, but we'll keep trying to grow the deposits. The other thing is, it's this also has to be a game of acquiring new accounts, non-interest bearing, new checking, and we're trying to...
James Reske: No, we're probably two-thirds of our peers in terms of the deposit beta over the last year, in terms of cost of deposits. So if they're down 33, we're down about 22. And we've done that on purpose, and we've really, you know, probably kept them a little higher than we could because we wanted the growth and we didn't want the borrowings. And so we achieved both, and that's kind of the balance. But I think there's probably, in the long run, if rates go down, more downward opportunity, but we'll keep trying to grow the deposits. The other thing is, it's this also has to be a game of acquiring new accounts, non-interest bearing, new checking, and we're trying to...
Speaker #12: Some to other, oh, go ahead.
Speaker #3: No, we're probably two-thirds of our peers in terms of the deposit data over the last year, in terms of cost of deposits.
Speaker #3: So if they're down 33 , we're down about 22 . And we've done that on purpose and we've really , you know , probably kept them a little higher than we could because we wanted the growth and we didn't want the borrowings .
Speaker #3: And so we achieved both. And that's kind of the balance. But I think there's probably, in the long run, if rates go down, more downward opportunity.
Speaker #3: But we'll we'll keep trying to grow the deposits . The other thing is it's , it's also has to be a game of acquiring new accounts , noninterest bearing , new checking .
James Reske: And we have a sales force that, under James' leadership and Mike's leadership, has really delivered that for us, and we'll continue to beat that drum.
And we have a sales force that, under James' leadership and Mike's leadership, has really delivered that for us, and we'll continue to beat that drum.
Speaker #3: And we're trying to, and we have a force sales that under Jane's and Mike's leadership really delivered that for us. And continue to beat that well drum.
Manuel Navas: Are there other impacts from this, from the sale of these loans across OpEx, across, you know, you're more focused away from the Philly area? Are there other impacts in the, in the loan loss reserve? Anything that, in those areas that we can start to plan for now?
Manuel Navas: Are there other impacts from this, from the sale of these loans across OpEx, across, you know, you're more focused away from the Philly area? Are there other impacts in the, in the loan loss reserve? Anything that, in those areas that we can start to plan for now?
Speaker #12: Are there other from impacts the from the sale of these loans across OpEx , across you're more from the Philly area . Are there other impacts in the loan loss reserve ?
James Reske: I'll give a financial answer. The impacts on the loan loss reserve, the marks, all that was felt in Q4. That's all reflected in the financials already.
James Reske: I'll give a financial answer. The impacts on the loan loss reserve, the marks, all that was felt in Q4. That's all reflected in the financials already.
Speaker #12: Is there anything in those areas that we can start to plan for now?
Manuel Navas: Okay.
Manuel Navas: Okay.
James Reske: Just in terms of operational expenses, not much. We have a couple of physical locations there, we exited a while ago, so there's nothing further from a facilities expense standpoint to come. But it does allow, you know, management bandwidth to refocus in other areas. And Mike, I'm in the queue, and I don't know if you want to comment on that more. That's more of a, you know, how we run the business kind of a computer.
James Reske: Just in terms of operational expenses, not much. We have a couple of physical locations there, we exited a while ago, so there's nothing further from a facilities expense standpoint to come. But it does allow, you know, management bandwidth to refocus in other areas. And Mike, I'm in the queue, and I don't know if you want to comment on that more. That's more of a, you know, how we run the business kind of a computer.
Speaker #4: Financially, and the impacts of loan loss reserve remarks, all that was felt in the fourth quarter. That's all reflected in the financials already.
Speaker #4: Just in terms of operational expenses, not much. We've already—we have a couple of physical locations there. We exited a while ago.
Speaker #4: So, there’s nothing further from a facilities expense standpoint to come. But it does allow management bandwidth to refocus in other areas.
Mike McCuen: No, we, I mean, Philadelphia is a great market. It's also very greatly competitive, and the investment to really compete the way we would like would be too great, and that money can be used in other markets for producers, physical locations, where we already have really good presence, and we want to grow those. So it's just a trade-off we made, and I think we'll see more profitable growth in some of those markets than we otherwise would. But nothing against Philadelphia. It's a great market. It's just there's a lot of competitors there.
Michael McCuen: No, we, I mean, Philadelphia is a great market. It's also very greatly competitive, and the investment to really compete the way we would like would be too great, and that money can be used in other markets for producers, physical locations, where we already have really good presence, and we want to grow those. So it's just a trade-off we made, and I think we'll see more profitable growth in some of those markets than we otherwise would. But nothing against Philadelphia. It's a great market. It's just there's a lot of competitors there.
Speaker #4: And Mike McEwen, I don't know if you want to comment on that more. That's more of a how we run the business kind of a no.
Speaker #7: We I mean , Philadelphia's a great market . It's also very greatly . And and we would not be the investment to really like compete the way we would to be too great .
Speaker #7: That money can be used in other markets for producers—physical locations where we already have really good presence and we want to grow those.
Speaker #7: So it's just—it's off. We made just a trade, and I think we'll see more profitable growth in some of those markets than we otherwise would.
James Reske: Yeah, and Matt, well, I agree-
James Reske: Yeah, and Matt, well, I agree- Sorry.
Speaker #7: But nothing Philadelphia against market, just there's a lot of competitors there.
Manuel Navas: Sorry.
James Reske: No, go ahead. Go ahead.
Manuel Navas: No, go ahead. Go ahead.
Manuel Navas: Yeah, just, just the financial effect. These, these were already in relationships we were deciding to exit, so it was kind of a slow bleed on the loan growth. It was a net against other loan growth, so that'll be removed now that we've moved them to held for sale. I, I appreciate some of the extra commentary.
James Reske: Yeah, just, just the financial effect. These, these were already in relationships we were deciding to exit, so it was kind of a slow bleed on the loan growth. It was a net against other loan growth, so that'll be removed now that we've moved them to held for sale.
Speaker #7: .
Speaker #4: Manuel, just... yeah.
Speaker #10: One other .
Speaker #4: Sorry .
Speaker #12: Oh, go ahead, go ahead.
Speaker #4: Yeah . Just just financial effect . These were already in relationships . We decided to exit . So it was kind of a slow bleed on the loan growth .
Manuel Navas: I appreciate some of the extra commentary.
Speaker #4: It was a net against other loan growth, and that’ll be removed now that we’ve moved into the for-sale.
James Reske: You bet.
James Reske: You bet.
Speaker #12: I appreciate some of the extra commentary.
Operator: Your next question comes from the line of Matthew Breese from Stephens Inc. Your line is live.
Operator: Your next question comes from the line of Matthew Breese from Stephens Inc. Your line is live.
Speaker #4: You bet .
Matthew Breese: Hey again. I just had one more, but want to be cognizant of everybody. You know, the securities book has been in this kind of 350 to 365 range.
Matthew Breese: Hey again. I just had one more, but want to be cognizant of everybody. You know, the securities book has been in this kind of 350 to 365 range.
Speaker #1: Your next question comes from the line of Matthew 'Breezy' Stephens from Inc. Your line is live.
Speaker #11: I just Hey again , had one more , but want to be cognizant of everybody . You know , the securities book been in has this kind of 350 to 365 range , but yields have been down for the last couple of quarters .
James Reske: Yep.
James Reske: Yep.
Matthew Breese: But yields have been down for the last couple of quarters. Jim, you had mentioned buying some, you know, at-the-market type securities with the HFS portfolio, so I'm assuming that's like a 4.75 pickup. And then, so I was hoping for, you know, maybe securities yields outlook for Q1 and then cash flow estimates for the year. I would think at some point here, either late this year or, or next year, we start to see a, a more aggressive pickup in securities yields, but was hoping for some help there.
Matthew Breese: But yields have been down for the last couple of quarters. Jim, you had mentioned buying some, you know, at-the-market type securities with the HFS portfolio, so I'm assuming that's like a 4.75 pickup. And then, so I was hoping for, you know, maybe securities yields outlook for Q1 and then cash flow estimates for the year. I would think at some point here, either late this year or, or next year, we start to see a, a more aggressive pickup in securities yields, but was hoping for some help there.
Speaker #11: you had mentioned Jim , buying some , at the market type securities with HDFS portfolio . So I'm assuming that's like a 475 pickup .
Speaker #11: And then, so I was for, you know, maybe yields, securities outlook for the first quarter. And then cash flow estimates for the year.
Speaker #11: I would think at some point here, either late this year or next year, we start to see a more aggressive pickup in securities yields.
James Reske: Yeah. No, it's a great point. The portfolio has a duration between 4 and 5 years. So that, right, right now, the philosophy is just replace the runoff. Just replace the runoffs. And the opportunities we get, the number I gave a moment ago when I talked about reinvestment, the reinvestment of the HFS loans upon a sale is consolidated into securities, was assuming a repurchase rate about 4.5%. But you're right. We just looked the other day, we've seen some opportunities like in more in the high 4s. It depends day to day, but I was using a 4.5% rate just as a rule of thumb right now. But you see some pickup, and you see some opportunities for some planes and mill investments that are more like 4.75 right now.
James Reske: Yeah. No, it's a great point. The portfolio has a duration between 4 and 5 years. So that, right, right now, the philosophy is just replace the runoff. Just replace the runoffs. And the opportunities we get, the number I gave a moment ago when I talked about reinvestment, the reinvestment of the HFS loans upon a sale is consolidated into securities, was assuming a repurchase rate about 4.5%. But you're right. We just looked the other day, we've seen some opportunities like in more in the high 4s. It depends day to day, but I was using a 4.5% rate just as a rule of thumb right now. But you see some pickup, and you see some opportunities for some planes and mill investments that are more like 4.75 right now.
Speaker #11: But hoping for some help there.
Speaker #10: Yeah .
Speaker #4: No, it's a great point. The portfolio has a duration of between 4 and 5 years. So, right now, the philosophy is just to replace the run.
Speaker #4: replace the opportunities we get the gave a moment run off . And ago when I Just talked about the reinvestment , the the reinvestment of HFS loans upon a sale , if consummated into securities , was assuming a repurchase rate of 4.5% .
Speaker #4: about But you're just looked the other day . We right , we see some opportunities with in more in the high fours . It depends day to day .
Speaker #4: But I was using a 4.5% rate just as a rule of thumb right now. But you pick up and see some opportunities for some plain investments that are more like 4.75% right now.
James Reske: So, that will naturally allow the securities portfolio to drift upward as well. The position it holds in the balance sheet right now is about where we want it, and so we're not really expanding it, we're just replacing the runoff.
So, that will naturally allow the securities portfolio to drift upward as well. The position it holds in the balance sheet right now is about where we want it, and so we're not really expanding it, we're just replacing the runoff. Does that help?
Speaker #4: So that will naturally allow the securities portfolio to drift upward as well. We're not—it's the position holds in the balance sheet right now is about where we want it.
Mike Price: ... Does that help?
Speaker #4: so we're And not really expanding it . We're just replacing the run off . Does that help .
David Brown: Yeah. Just curious, is that, is that 4- to 5-year duration, is that good to use for 2026? I haven't quite done the math yet on what that means for quarterly cash flows, but.
Matthew Breese: Yeah. Just curious, is that, is that 4- to 5-year duration, is that good to use for 2026? I haven't quite done the math yet on what that means for quarterly cash flows, but.
Speaker #11: Yeah . Just curious is that is that 4 to 5 year duration . Is that good to use for 2026 ? I haven't done the math yet on quite means what that quarterly cash flows , but .
Mike Price: Yeah, I don't.
Michael Price: Yeah, I don't.
David Brown: It can be lumpy sometimes.
Matthew Breese: It can be lumpy sometimes.
Mike Price: Yes, yeah, it can be. And, obviously, a lot of those are mortgage-backed securities, so a couple of years ago, rates fell, our duration is all extended. Let me see if I have the duration of securities portfolio right now. Right now, the duration of securities portfolio is actually only 4.28, 4.28 in Q4. So there should be some repricing opportunities as that rolls over.
Michael Price: Yes, yeah, it can be. And, obviously, a lot of those are mortgage-backed securities, so a couple of years ago, rates fell, our duration is all extended. Let me see if I have the duration of securities portfolio right now. Right now, the duration of securities portfolio is actually only 4.28, 4.28 in Q4. So there should be some repricing opportunities as that rolls over.
Speaker #4: Yeah, and I don't—yeah,
Speaker #11: It can be lumpy sometimes.
Speaker #4: Yes . Yeah , it can be . And obviously a lot of those are mortgage backed securities . So a couple of years ago rates fell durations all extended .
Speaker #4: Let me see if I have the duration of securities portfolio right now. Right now, the duration of the securities portfolio is actually only 4.28.
David Brown: Okay. I'll leave it there. Thank you very much.
Matthew Breese: Okay. I'll leave it there. Thank you very much.
Speaker #4: In the fourth quarter . So some there should be repricing opportunities that that rolls over rolls , .
Mike Price: Sure.
Michael Price: Sure.
Operator: That concludes the question and answer session. I will now turn the call back over to Mike Price, President and CEO, for closing remarks.
Operator: That concludes the question and answer session. I will now turn the call back over to Mike Price, President and CEO, for closing remarks.
Speaker #11: Okay, I'll leave it there. Thank you very much.
Speaker #10: Thank you .
Speaker #1: That concludes the question and answer session. I will now turn the call back over to Mike Price, President and CEO, for closing remarks.
Mike Price: Hey, thank you as always for your interest in our company. Great questions. I look forward to being with a number of you over the course of the next quarter, and we're excited about the future of our company. We're excited to grow it, maintain operating leverage, add to our fee businesses. That's a big goal. In our regional model, really deliver good, low-cost deposit growth in each of our markets to fund. I think we have enough diversity of lending businesses. I think we're less worried about growing the loans long term than funding them with low-cost core deposits. So thank you for your time today, and stay warm.
Michael Price: Hey, thank you as always for your interest in our company. Great questions. I look forward to being with a number of you over the course of the next quarter, and we're excited about the future of our company. We're excited to grow it, maintain operating leverage, add to our fee businesses. That's a big goal. In our regional model, really deliver good, low-cost deposit growth in each of our markets to fund. I think we have enough diversity of lending businesses. I think we're less worried about growing the loans long term than funding them with low-cost core deposits. So thank you for your time today, and stay warm.
Speaker #3: Hey , thank you , as always for your interest in our company . Great questions . Look forward to being with a number of you over the course of the next quarter .
Speaker #3: And we're excited about the future of our company. We're operating it, grow excited to maintain leverage, add to our fee businesses.
Speaker #3: That's a big goal in our regional model . Really deliver good low cost deposit growth in each of our markets . The fund , I think our we have enough diversity of lending businesses .
Speaker #3: I think we're less worried about growing the loans long term than funding them with low-cost core deposits. So, thank you for your time today and stay warm.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may disconnect.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may disconnect.
