Q2 2022 Pinnacle Financial Partners Inc Earnings Call

Speaker 1: This is Mr. Terry Turner, Chief Executive Officer, and Mr. Held Carpenter, Chief Financial Officer. Please note pinnacles earning release and this morning's presentation are available on the Investor Relations page of our website at www.pnsp.com. Today's call is being recorded and will be available for replay on pinnacles website for the next 90 days. At this time, all participants have been placed in a listen-only mode. All participants, please press star 1 to enter the questions queue. Analysts will be given preference during the Q&A. We ask that you please pick up your handset to allow optimal sound quality. During this presentation, we will make comments which may constitute forward-looking statements, all forward-looking statements are subject to risk, uncertainties, and other facts that may cause actual results, performance, or achievements of pinnacle financial to differ materially from any results expressed or implied by such forward-looking statements. Many of such factors are beyond pinnacle financials' ability to control or predict and listeners' caution not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks is contained in pinnacle financials annual report on form 10K for the year ended December 31, 2021, and is to subsequently filed quarterly reports. Pinnacle financial displays any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events, or otherwise. In addition, these remarks may include certain non- GAAP financial measures as defined in the SEC regulation.

Speaker 1: A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to the comparable GAAP measures will be available on Pinnacle Financial's website at www.pnfp.com. With that, I'm now going to turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO . Mr. Turner… Mr. Turner.

Speaker 2: Thank you, Lithania. And thank you all, I think you're joining us this morning for the second quarter early call. I'm coming, you've already seen. Thank you, Mr. Bagley's quarter for us in terms of major farmers. In terms of major farmers.

Speaker 2: Over the years when the stock appears undervalued, analysts will sometimes ask me, Terry, what do you think the market's missing? So as I walk through my opening comments and as Harold reviews our second floor performance in greater detail, we hope to draw attention to these five things where I believe there may be a disconnect between the financial performance, the value that's being created, and the valuation. Number one, I believe management's drive and incentive to alter outcomes is significantly underestimated.

Speaker 2: As an example, a scan of 10K of some of the asset sensitivity model projections assumes management won't alter its main current sensitivity. And I get it because we've all seen some agitators just wait for an up rate cycle for years, consistently under deployment. Instead, as an example, we got our price to agree to $747 million in flow, altering the outcome that would have been predicted going into the last fat-easing cycle.

Speaker 2: I expect it to be much the same in this anti-conciting cycle. So we'll try to help investors understand the meaningful incentive this management team has to all draft the situation's change, which partially accounts for the success we've enjoyed over the last three years, five years, ten years, and honestly since our inception, twenty-six years ago. But number two, I think many other estimates the power of our culture. I think most everybody would recognize that we've put a lot of emphasis on culture and likely say that.

Speaker 2: and I'm personally bad at getting it in bigger life on this outside of Sher older value over the next three years, five years and so forth. Number three, I believe many don't understand what we view as the overwhelming, almost unstoppable, talented, and female momentum has been built by our relentless effort to attract and maintain the best revenue producers, both in our existing markets, as well as the other southeastern attracted markets are working to efficiently extend it. Education Internet Patent.

Speaker 2: Of course, you can easily see it looking at the history, but I'm hopeful we can illustrate its power and reliability going forward. We believe there is incredible balance sheet and P&L momentum already built in. As the revenue producers we've hired over the last few years continue to consolidate their books of business independently. Number four, similarly, I believe many don't thoroughly understand the power that our hiring model has on the asset quality. In truth, hiring bankers who've been handling a book of business for decades and have brightened the world or

Speaker 2: is the single best mechanism of which I'm made to ensure better client selection and better client selection is how loan quality is produced. And finally, I believe many underestimate the value of BHG, its unique funding model, and what that means to the shareholders of Pinnacle, not only in terms of the very significant hidden equity on our balance sheet as a result of the difference between what we carry it at and what it's worth, but the power and flexibility provided by its growing strength.

Speaker 2: Particularly as many of the Fintech asset generators are faulting. Access to fund and is quickly becoming key to success. The asset generators and BHG demonstrated over its long history and has reason to be in the second quarter that it has the ability to access funding and ways that many of its competitors cannot. Now as we always do, we'll give them the shareholder bank dashboard. Get neighbors first followed by the nine get neighbors.

Speaker 2: At the second quarter results specifically, I don't know what else to be said in regard to asset quality, net charge loss, classified assets, and not-for-mortem or draw that either historic or near historic levels. I'm here with some of them, but who cares? That's back we're looking with more concerns about what's in front of us, which I get, but I don't want anyone to miss this, if the hard-produced load metrics, even if it's good to have, will we not pro-active managers of our own vote? And as the risk of the grads, and the also added, I would lay a 90 days or so, will be actively taking on drive and-

Speaker 2: where you want to be if you believe you're headed into a more difficult, spreading environment.

Speaker 2: As I, for my Beach quarter, I primary to public zone 5 dashboard because I believe the specific metrics about the best insight and the high success will be in producing long-term shareholder value. That over a long period of time, they've been some of the most highly correlated to shareholder returns. There are a lot of things that are interesting to measure to bank commitments. My suspicion is we're measuring virtually every single one of them. But certainly, we're measuring things like FF-1050 and SHOP and RANF's environment, and still observer over voices.

Speaker 2: would be highly correlated to long-term shareholder value creation, if at all. In fact, I'm not even sure how predictive they are of more short-term results, which I'll talk more on in a minute. At any rate, we remain confident, as we have been since the early days of this firm, that revenue growth, ETS growth, tangible book value accretion, and ROTCP, along with asset quality, are the items most highly correlated to share price performance over time. That's why we relentlessly focus on these items, and that's why I believe we've had one of a higher total reduction than we expected for ETS growth and itinnacle wanted to make

Speaker 2: the forecast for us that was screened really well, but unlikely to come close to our net interest income growth rate and therefore our revenue and EPS growth rates through the cycle. Certainly no one knows the future, including me, but my experience as a meaningful investor in this firm for more than two decades is the targeting top quartile performance on specific metrics like EPS and revenue growth. And not only targeting top quartile performance, but tying our incentives to them year in, year out is how shareholders...

Speaker 2: and the second half, 2022 earnings forward in the second quarter, and Harold talked about that in a minute. But it's not believed that BHG is really showcasing why their model, particularly their ability to fund loans that have attracted rates is different, better, and more valuable to place the benefit of the generators. Million hundred of those produced in earnings at all, and many of them are trusting to solve funding riddles. While funding for these kinds of assets during the period of fair-time Indian potential recession, that likely did more risk over expensive role.

Speaker 2: your Austrian platform in 2Q, BHG completed a $300 million securitization in the second quarter, even if it's rumored that a number of the classic Pintec didn't get their securitization done. Again, BHG is in no way your classic Pintec. In addition to the substantial earnings, I believe it offers much greater sustainability than those fears.

Speaker 2: And it's really the same story for EPS, generally up and to the right. Of course, you get the big dip in 1Q20 as we felt preserved during COVID and then a slight dip as we've had to outrun the benefits of PPP as those long have burned off. The truth is, most thought going into 2022 that we'd have a difficult time growing earnings at all, due to the impact of losing PPP income, as a consensus for us in early January , just before we released 4Q21 results, was that we could experience an increase in EPS of 5 to 8 percent in 2020.

Speaker 2: into the sustainability and the net-digit revenue growth. Leave that loan growth, 32% annualized. I recognize that some of them may be like me and some tribes in Old Manage that it's grown like a weed it is one. And if you could, you might say, well, that loan growth is probably going to particularly lead to a recession. And so later to call, Harold, was I sick the loan growth in a way that I believe Hill's great, why it's not a weed. But just the high quality outcome derived from our strategic advantage, our relentless focus on the next union of my-

Speaker 2: more than that as well.

Speaker 2: Before I move on to why I worked that way, I'm gonna take just a second to illustrate what I'm talking about in terms of why I think the origin focus on that interest income, grow as opposed to central processes like the positive status. During the last upright cycle, it's made their first move in full Q1 5, so that's the start point for this slide. The two dash lines represent the cumulative basis through the betta-type cycle, the limit of the betta-type and range of figures.

Speaker 2: As you can see, the people who sent the bet on cumulative basis would have overlooked PNFT for sure, giving a substantially higher cumulative basis through the cycle. Investors that were able to look through the net income growth were highly rewarded with very rapid net income growth per share through the cycle, roughly 61% higher than peers at substantial outperformance. And that's because there are other critical variables like loan rate basis, balance sheet growth volume and growth rate.

Speaker 2: and other management tactics and also asset sensitivity that has the potential to substantially outrun the potential impacts of deposit cost betas. Now second side, we need to focus on a lot more than simple deposit cost betas. I will say this for all the deposit cost betas, if you shot me at technical betas were anywhere near as high of a disk cycle as they were in the last cycle for a few reasons. Number one, we begin the cycle with a substantially lower dependence on non-core funds.

Speaker 2: pay the premium and therefore was an increased urgency to range range. And number four of the magnitude to speed depend on is this cycle before it's the bank like hour or more opportunities to compress the payment or retain more than

Speaker 2: So it's my expectation to give those other four factors.

Speaker 2: that we will be able to spend margins and road loans in support of our head industry come growth. In support of our head industry come growth.

Speaker 2: So now I want to make it to why I think it works that way. Why the momentum continues to build so much more right as it appears in competitors. Jim Collins about this concept in a famous study of high-fifth companies, the Kenan Drake Company. And what we heard through this is a lot we will come to.

Speaker 2: As you can tell, you hear just one minute, he described it this way and I quote, picture a huge heavy flywheel. A massive metal dead, mounted hard, on an axle about 30 feet by two things big and weight about 5,000 pounds. Now imagine what you're to ask is to get the flywheel rotating on the axle, it's fast and as long as possible. Pushed with great effort to get the flywheel with its forward, maybe not almost 10% of me at first.

Speaker 2: You keep pushing, and after two or three hours of persistent effort, you get the flywheel to complete one entire turn. You keep pushing and the flywheel begins to move a bit faster. With continued great effort, you move it around the second rotation. You keep pushing in a consistent direction, three turns, four turns, five, it builds momentum, turning faster with each turn. Then at some point, breakthrough. Momentum on the thing kicks in in your favor, hurling the flywheel forward, turn after turn, its own heavy weight working for you.

Speaker 2: You're pushing no harder than during the first rotation, but the flywheel goes faster and faster. Each turn of the flywheel builds upon work done earlier, compounding your investment of effort. The huge heavy disk slides forward with almost unstoppable momentum." That's where we are. Back in 2000, the analysts burned to take the market share from larger bull bureaucratic banks by taking their best bankers and having to move the best clients from their previous employers to us. Act colossal Store never

Speaker 2: Still another 10 thousand sprays, that's our hedgehog strategy. The Civil War will be referred to as over and over and over and over. No doubt it was harder back then. I still remember hiring Larry Marr before we ever opened our door in 2000. And then on the first day of business, him opening accounts for Don Kennedy's Hills, Kennedy Ripon and supply, his longtime supply is our previous employer. They were our very first clients. They were still our clients today.

Speaker 2: And now the thing is rolling forward with the sounding momentum. And two-year-long, through long and almost $2 billion, the push to the last batch, $340 billion, and it grows a growth story about anybody's better. Our ability to hire the best bankers only in producers would go, and our ability to assist in the making their clients only in producers would go. In the last three years, we've extended on a develop basis to Atlanta, Huntsville, Birmingham, and Washington, D.C., and the largest efforts for the markets in the South East.

Speaker 2: We're hiring record numbers of bankers and wealth managers, both in the new and existing markets. We've hired 334 revenue producers since 2019. That's a 60% increase, a huge lift in market share movement capacity.

Speaker 2: Two water and eight shoulder Rockening producer of the drivers traditional which is not heavy importantly or like you

Speaker 2: We hired 71 in 2019, 82 in 2020, and 116 in 2021.

Speaker 2: Year to date through June of this year, we hired 65 with 37 of those in Q2. So you can see the momentum continues to build. We're not just hiring any bankers and wealth managers, we're hiring some of the most experienced, most highly regarded bankers in the market. Of the 37 we hired in Q2, the average experience, the average experience is 20 years. And literally the majority of them were hired from the larger, more bureaucratic banks like Wells Fargo and Truist, the two most fertile recruiting grounds.

Speaker 2: And those of you who are well familiar with the Pinnacle growth model and have worked for two years and are likely comfortable with growth, this idea that hiring long experienced relationship managers who have been handling books of clients for decades and having to move those clients to Pinnacle will result in strong loan quality based on the unusual approach to client selection, said simply these very experienced bankers need to move on to the best clients and leave the problem at this time.

Speaker 2: All right, I promise to spare you the detailed explanation on the linkage between the associate experience and the client experience and shareholder return, other than to remind you how it relates to why our momentum is so strong. There's overwhelmingly compelling data developed by Gallup, the Best Place to Work Institute, and any number of others that demonstrate this idea of beginning with an exciting associate experience and translating that into a client experience that yields raise in fans doesn't need to outside shareholder return.

Speaker 1: In 2019 eight 2, two thousand and 2, 2116 and two thousand and 20 one year to today, through June this year, hired 65, with 37 of those in Q2. So you seen, the momentum continues to Bill. We're not just hred any banker and wealth manag prired under the most experience, most highly regarded banker in the market of 37 hired Q2, the average experience, the average experience in 20 years and liter the majority of hired from the larg year gr B, like we far tru main to most parturther recruiting ground example, which is a pretty good proxy for their level of training inspeification, as we seen year after year. That thousand say the moveon cliass which I believe the by 3, five have extraordinary momentum, which means core revenues. That extraordinary momentum and happened that momentum required liber, no assistance from strong economy, as Jim college dribed that the applyed whe like that produthises almost of stopable momentum and those are wel made with the Federal road mil the what inclthe year life of cou growth hired longan experience relationship managersthey been had a vo apcliass for decades and have those lients to Pinnacle will result strong long qualby based on unus approach cliass election said sinceally very experience bankers lead only their best cliass and lead problem assets ces five a prom experience detail legeximation on the linkcoln Loy soci experience, client experience and shareholdover return.

Speaker 2: is across virtually every associate group like women, millennials, parents, and across our entire footprint in virtually every major market. Building on that foundation, these excited associates are a powerful, wilder client. Our net promoter store is market leading in both our Tennessee and North Carolina footprint and extremely high ranking in every metropolitan market, which we have large enough shared for those statistically valid samples.

Speaker 2: And on the far right you can see that we have successfully translated all that focus on our social compliance and shareholder values, a long return, shareholder returns has been outsized from beginning and over 10 years, five years, three years time horizons.

Speaker 2: Our return this year has been not been used from the broader pressures on the sector. I still think that the longer term, the medical culture should continue for those out-sized returns.

Speaker 1: Other of this are reminded. How relates to whyreour momentum is so strong. There's overwhelmingly compelling that a developed by Gallup, the best place, work into that, any number of others that demonstrates this, beginning with an exciting associal experience, and translates that into a client experience that you raag fans, doesn't need fuel outside shareholder returns: literally three point three three times the Russell, three thousands since one thousand nine hundred and Ninety eight.

Speaker 2: And then finally, one more reason is why the law was spinning so fast.

Speaker 2: I want to just have to breathe in on how I get things, and frankly, I have to talk 140 liters of this firm, earn their short long-term incentives. I've already spent a little time on the variables that we've made in most car-led and shareholder value. Now here you see the variables that determine our short-term incentives on top, and our long-term incentives on bottom, which is intended to have to see how the leadership of this firm has aligned and shareholders.

Speaker 1: While some banks are hoping to catch whatever the nextkes way might be- rise rates, fall rates, whatever we've been doiling, the building and infrastructure that I believe have and can continue to produce outsiz shareholder returns over the long term, cycle in and cycle out. Our associate engagements, literally among the best employees in the country is long standing is across virtually every associptate, really like women millennials parents, and across our entire footprint and virtually every may market.

Speaker 2: and therefore why did it not run peers?

Speaker 2: In the case of the short term incentives, the variables are asset quality, EPS growth and PpNR growth. For most of our distance instead of PpNR, the third variable has been revenue growth, but in periods like these where PpNR growth has come really critical, we substitute it for revenue growth. I will say this right now, it's not a day to ask our Compton Sade committee to return to revenue growth probably next year. So these are the metrics. That's the key to fresh health measure.

Speaker 1: Building on that foundation. The sideited soviates are highred well, plliants our net other stores, marketlylead in both our Tennessee and North Carolina footprint and extremely our rating rking in everyone from the market with their largegin are shared for this district valed sidees.

Speaker 2: In other words, if we miss the classified asset ratio cap, which we believe is most predictive of the potential asset quality metrics in terms of future loan losses, nobody gets paid their annual cash incentive. Nobody. So the entire leadership of this firm, the frame of the entire associate base of this firm cannot afford a meaningful slip on credit. It shapes our behavior in the good times and the bad. I've met chair holder, Imran. Okay.

Speaker 1: And on the far right. You see that we have substentially caltransulated all that focus on our associate supplients and shareholder value into longer-term shareholder turns have been outsized from the beginning and over 10 years, five years, three -year time horizons.

Speaker 2: A sudden we were clear that the asset quality threshold actually would simply pay out to turn it by EPS row in order to revenue growth, but it's like this agent for the last few years is extendingud Bush's teeth and kidney Progressive Thank you.

Speaker 1: No.

Speaker 1: D return this year then not been achieved from the broader pressure on sector Ho. Still estate of longer-term veinicles' culture should continue to produce outsied returns.

Speaker 2: For those of the metrics, of course the next question should be how the actual performance target is set to lead the metrics. In general, we utilize consent assessments for our peers' EPS growth and ensure that our target would be at least the top four tile. And then we tag the revenue growth required to hit the EPS target. So on borders like this one where you get a meaningful increase in EPS, you get an increase in incentive expense.

Speaker 1: And then filing. What more reason is oneli has been itself fast. one just has freed them. I get faed in frankly, out the top one hundred four leadving in this firm are in their short long-term incves. I've ready SP a little time on the variab that we L most correlated shareholder value. Now here you see the variles that term in our short-term incves on top and our long-term cves on bottom, which cended he to see how the leadership this start in the line of shareholders.

Speaker 2: At the better reduction in EPS this board, it does not look like it's got the reduction in the sense of extent, which then serves to bolsters or quotas EPS. Again, I let your overlap. Again, I let your overlap.

Speaker 1: Then therefore, while it in outrun peers.

Speaker 1: In the case, the short term incentives, the variables, our asset quality, EPS growth and pnr growth for most of our existance instead of pnr. And the third variabable good, revenue growth. But in appes like these is where pnour growth come really critical. We substituted for revenue growth. I will say that this, right now, is not a int to ask our compensating committee to return to revenue growth, probably next year. So these the metrics: asset qualities and threshold measure.

Speaker 2: So short term is seen as to be earned by anyone at Pinnacle, historians who hadn't cleared an asset for the metric, and then actual payouts are approaching to hitting earnings and revenue targets that were established within the top four dial banks. That's distinctive. But it's one of the most important reasons that my judgment while earnings growth has started and share price from this firm is so significant that it stands to have formed figures over the long term. And he just saw on the previous slide. And you can see the metric for long term incentives that has become Rothwater's prize.<|translate|> So these are the very sameeday ones we didn't just off has

Speaker 1: In other words, it would miss su ppassified asset ratio gap.

Speaker 1: Which we believe both predictable of the potenial asset quality metrics in terms of future ownan losses. No viding it exsp their aim, catch ins nobodyid. So the entire leadership at this firm and franking the entire associate based this firurn and not afforward a meaningful slip home credit. It shapes our behaviour in good guidms. And how let shareholder eleven.

Speaker 1: Sud we clear the asset. qual thres hold the ag sit in paay out, determined by EPS growth and ordinarily revenue growth. But, as leganticipated in the last year, who substitute PR perrevenue?

Speaker 2: can see what their pollution will were being.

Speaker 1: For those are the metrics. Of course, the nextequation be though highil action performance, performance areargets set at thesease metrures in general, we utile cons the setessimments for our EP, our peers, EPS growth and ensure that our target would be at least at least the top quartile, and then would F revenue growth required hit the B torar. So in importanted like this when, where you get a meaningful increase in EPS, you get an increase in incentive expense.

Speaker 2: My guess is you'll see more of that this quarter. And so understanding this, you're not only beginning to understand our caution on deploying even a large amount of excess liquidity in anything other than loans just to pick up a few basis points of margin. We need to create tangible book value and iterate better than our peers. But you also begin to see why using superficial screens and things like asset sensitivity and deposit costs Vegas may be misleading since they have signed no management actions to alter forecast outcome.

Speaker 1: And mid. A reduction in ES has Board and most like T GA. their reduction in incive expense was then served to bolster the reported epss again. Has that shareholder Li?

Speaker 2: It's made me think literally every incentive to offer outcomes and situations change. And I believe we've got a long track record of doing that.

Speaker 1: So short. tergge sayis be earned by anyone is pinacle. Historically had a clear asset quality metric and an actual payouts or fction to hitting earnings and revenue targets that were established with been a being a top four doialback. That's ceded, but it was most important reason to not good why earnings growth of this startarter and share price performance- this firm that's So consistentlythat had stanted out for peers over the long term, as you just saw on the previous Slide.

Speaker 2: specifically. So where to from here?

Speaker 2: Right now is obviously a difficult time for bank stocks. Bank stocks in general I think for happy growers in particular. In terms of only being SP, it kind of reminds me of the conversation I had over a good number of years with what is today one of our larger shareholders. For years she came to every conference and met with us every time, but never bought the shares. She'd always say, Jerry, I love the story, but the stock's just too expensive. I actually said to her one time, you always say it's too expensive, but every time we meet you, folks, this is the last time.

Speaker 1: And you see the measure for long-term incentives on the bottom Slide. We refputing thedisclosure in the process about how I think based long-term incentives were the Slide dififications made year to year. But you can see in general, pful book value appreciate is one of the those important metrics in recent years and all these measures we have to outrun the peers. So it's not just getting about it lessy, that's outrun the peers. That based twententy live you run understand. On P book valed solution in the third quarter.

Speaker 2: You better go ahead and jump in, otherwise you might not get the opportunity on PMSP. Well, following one of the previous downturns in bank stocks, she called me up and said, Terry, do you remember telling me I might never get a chance on PMSP? Well, today I'm one of your largest shareholders.

Speaker 2: This thing's like much the same opportunity as me now. The average 50% of the BKS has collapsed to shockingly near great recession levels. And not always that, but to traditionally wide premium to peer multiples of the pedophils and joys, it is almost non-existent. And so it would appear to me that this may be a bad opportunity if not dissimilar to what I did described. The one thing I know is I'm not charged 50 multiples. I'm responsible for creating long term to figure out the value of peer respect of the cycle.

Speaker 1: Virtually all appear, experienced substantially the tangible book-val motion we did.

Speaker 1: My guess is you'll see more that this quarter, and so I understanding this, you not only begin to understand our caution: employ in large amount of excess liquidity in anything other loans just pick up a few basis post margin. We need to create tangible book value and at a rate better than our peers. But you also begin to see why, using some ific'ial strange things like as the sensitivity debu, the cost BAs, maybe this leading to say assame, that you no management actions to off the forecast outcom.

Speaker 2: And so my approach to delivering on that is number one, the focus is on asset quality. We have to. Not only are the leaders of this firm relatively large shareholders, but all our annual cash and soonness literally evaporates without it. That's different than fears. Number two, to continue to steward and refine the remarkable culture that I believe is specifically linked to outside shareholder return, is a competitive advantage in both good times and bad. Number three, to continue to emphasize the ability to be in the best place to work.

Speaker 1: This main seees literally every instc the dollar. Outcomes and situations change and I believewe've got a long track record of given that.

Speaker 1: Specifically So we're doing, we.

Speaker 1: Right now it's obviously a difficult time for bank stocks. B Co gener on Raven growers in particacher. It turnms on and being N's P coun TER Min new conversation had over the number of years was today one of our larger shareholders for years came to every conference and thatt was every time that. Then about the share, you know, I said there I love a story, but the stocks did soon busitt. I actually said to it one time we always say it soon bus. If that was these small business in the last time.

Speaker 2: We've become a magnet for talent, and are susceptible to recruiting some of the best thousand South East and in large quantities. I've even prayed before this is a once-in-a-gitaration opportunity to mass talent that's tentatively as uniquely suited to cities. Number four, to continue building the market share moment of this firm, honestly, big difficult to constrain. You can see why college and first-do it is almost unstoppable. We've added 334 revenue for this or just in 2019, and all of our efforts so much,

Speaker 1: But no, tell otherwise you what my not get up to Don PD. Well, following one of the threeree downturn to banks, saw you tell me se ity. You never telling me. I might think give CS on PSB would. May I M one of your largerest shareholders.

Speaker 2: That's a 60% increase in revenue producers, aka market sharetaking capacity.

Speaker 2: We expect these revenue producers to continue to consolidate their clients to critical while they seek to leave their problem credits behind. And with that approach, you get rapid growth and strong asset quality. And number five, to double down on weighing our clients. Here's taking cycles over the long term, great places to work, produce greater than 3x the returns of companies that are not on that list because they can leverage the associate excitement to create rate and finance, which is probably the most important ingredient in long term shareholder value creation.

Speaker 1: This seems like much the same opportunity to me. Now the average P for the bkx has collapsed to shocking and need great preion leveans. And not only that, but the traditional W premium to peer multiples of pinnacles enjoyed is almost not existbit. And so, would appear to me, is that may be about an opportunity, not deceilber what I just described. The one thing I know is I'm not charged P mulples, I mean fcles- pretty long-term shareholder by your pectace of the cycle.

Speaker 1: And so my proach lired on. That is number 1, the posstes and 10 ale asset quality we had to, not only of the leader of this firm relatively lar shareholder, but all our ad cagements, son that deiterally evaporate about it. That did comperiod. Number two to continue soon: Fin Mark, talking about leaders, specifically LEED. The outside shareholder returns is a competitive advantage in both good times and bad. Number 3: continue to inside of being the best La work.

Speaker 2: context I'll turn it over to Harold to review the second quarter and write it a day.

Speaker 2: Thanks, Terry. Good morning, everybody. Obviously, the second quarter was one of the strongest long-growth quarters for us after following a very strong first quarter and what we believe will be a strong year. For long-growth overall, we now target a 20-20 to be long-growth percentage of high-tenants to low-20s this year. Long yields were up in the second quarter due to obviously the rate hikes. Thus far, our long-bait is running about two-vets on our deposit base and we've had a good sense of the tightening cycles again through March.

Speaker 1: We've become a magnet for talent, our successally cruiting some of the best out in the Southeast, and in large quantities. I de praised the Board. This is the ones in generating opportunity to mass talent dependent in uniquely exceed seeities number four to continue building market share momentum in this firm. Honestly, the difficult constraint you can see my college first suit is almost unstoppable. We've added three hundred and thirty four revenue producer just in two thousand and nineteen.

Speaker 2: We anticipate further escalation in loan yields as rate increases occur during the rest of the year. PPP is largely in a rear view mirror. One of the headwinds we had going into 2022 was overcoming the significant revenues that PPP provided us over the last two plus years. It was a key component of why earlier in the year street earnings estimates for 2022 were anticipating a decrease in MEBS for us for this year.

Speaker 1: That's a 60% increase in revenue. Producers add a market share taking capacity.

Speaker 1: We expect these revenue producers to continue to consolidate their fivelients pivotal while they SEP lead the problem rates behind and with that approach to get rapid growth and strong asset quality. And number 5, to double down a while in our clients SER to pay the cycles over the long-term rate places to produce greater than three egg. The returns companies that are not on that L because they can leverage the associate excitements pre-eight rven bands.

Speaker 2: In 2021 we recorded 81 million dollars in residence and he could be compared to 15 million. That's hard to hear.

Speaker 2: Our relationship managers have done a phenomenal job in pulling funds and loans from other banks, and as a result, we've seen revenue estimates steadily climb in 2022. We've responded to a lot of questions about loan floors over the past year or so and their impact on our yields and our rising rate of environment. As the bottom left chart on the slide indicates, we have only $110 million of our floating rate loans left. So, on loan floors like PPP,

Speaker 1: Which is probably the most importantly, breeding long term shareholder value creation and the fact radically increase mixus. They are believe in that, as so many competitors rest high a, they will Co it work from home. Labor shortages, supply chain issues, any number of other excuses. We can see this time the further differentiated and already differentiated brand by continuing to enrich our associates and low our clients away, and all that aim to rapid, reliable growth in revenue and EPS.

Speaker 2: Loan for us are essentially in the rear of the genators and out. Our rough rough estimate is that loan for a contributed some $50 million in ad laws over the last year or so. Lastly, as Terry mentioned, our new market's completing in Laos and our new specialty living units provided a front-list 500, 30 million in loan growth while our new localization ship managed to withdraw for 400 million worth coin.

Speaker 1: Cycle in and cycle out, So I'll make time P I'll turn it over to Ha on review the second quarter of greater TA.

Speaker 1: Thanks Terry. The more than by obviously the second quarter was won of the strongest loan growth quarter for us. That could fall on the very strongt third quarter, and what we believe will. We were a strong year for loan growth. Overall will now target our 2020 to the an growth percentage of Ping in thebelow 20 for this year, loan yields were up in the second quarter D obviously the rate hikes. Thus far, our loan wayas run about two mix. What deposit made have had been since the tightening cycle, again sited in the March?

Speaker 2: We believe execution of our strategy is in full effect and what for who can get a more positive economic backdrop and what it looks to that.

Speaker 2: As we started reviewing our second quarter long road, we decided that it might be helpful for better understanding the source of the road, but so hopefully this line was really helpful what that said.

Speaker 1: We anticipate other escalation of loan yields as rate increasing occurve during rest of the year. Ppp is largely in a early mirror. one of the headinds we had end into 2022 was lowcoming the significant revenuue that PBP provided us over the last two -plus years. Given with the key composed a lot earlier in the year, Street earning investments with 2022 we anticipating decreases in VAs four us over this year.

Speaker 2: We care about our growth and the full broader segments. One, our pure asset generation plays with VHG advocate JDMD. And then see who our future market expansion is. Not only is it dark people like Atlanta, DC, Birmingham, but also expansion and especially lowland growth like crash out in the foot and landing. And then what sort of growth can we achieve from our recruiting? So this is the growth of our new and our in-ums that has been with us for only two and a half years ago right up and then following the forth.

Speaker 1: In 2021 we reported $81 million in revennized P bus ared 50 W dous far this year.

Speaker 1: Our relationship managers have gone nominal downll full five loans, but by the banks, and as a result we've seen read, venue an estimate of steadily clou in 2000 and twentty two we responded to a lot of places about loan forors over the past year or some of their impact on a real arriving rate environment. As the bottom left chart on the slide indicates, we had only 100 invent of our floating rate. Well is less So a loan forge like PPC.

Speaker 1: Loan force are essentially in the rear. junier in an. Our rough rough estimates in the loan force contributed some $5 million in LS over the last year or so. Lastly, as Terry mentioned, our new markets inclcompleuding lineup and our new speensal living units provided apprximately 53 million in loan growth product. Our newer relationship vanders, contributed 43 million this quarter.

Speaker 2: like this was helpful if we try to understand where all of the fantastic world goes as a nightmare.

Speaker 2: Now on to deposits. For the first time in a few years, our deposit broke salt. We were encouraged about what happens during the quarter once the month of April was over. Main engine gave us some reason to be optimistic. We were also optimistic about non-interest bearing deposits growing during the quarter. As we all know, these accounts become increasingly valuable as rates increase.

Speaker 1: We believe the execution of our strategy to the full effect and look forward to losing to de a more positive economic backdrop and what exists today.

Speaker 2: Since the pipeline started again, our economy has been around almost 30,000 years. So we're obviously pleased with the effort in our relationship management as well as part. We've never been on these record-solid growths, the key long-term, long-term, strategic objectives, and others will get all hands on that current.

Speaker 1: As we started reviewing our second quarter loan growth, we establed that it might be helpful to better understand the sources of of growth growth, So hopefully this sliveide is that help.

Speaker 1: We characterizede our growth in the four brouber segments 1, our pure asset generation play with BHG as JD and then su our strategic market expanses valing in dark refund En DC firmingham, but also expansion in especially roinggroup like franchise and equivalentic, and then prove whatssoar growth that we retreat achieved from our recruit. So this is the growth of our newer RMS that has been with us for only two last years over, and then valolate the 4, the lay.

Speaker 2: For the first 24 years of our existence, our number one objective was developing strategies and tactics around funding our bill. We continue to lock our teams and giving them a significant investment we've made both in the relationship management and the new market social life in two years. We continue to believe in our area, 40% by now deposit rate through the end of 20.2 of the likely. We also keep an eye on what our competitive unit give them their every thousand and much more of buyer. Go back in the meus business and fast forward. Our committee with we believe gives us update in many shares. you

Speaker 2: Natural liquidity. A liquid asset decreases forward corresponding to strong oil growth, modest deposit growth, and a $4 million increase in securities, all of which were floating rate.

Speaker 2: With our outlook for long work, we likely will not see in increase of vulnerable solidarity in the bottom of the next civil exporter.

Speaker 2: As the top left chart reflects, with the fighting spot, our gap in the enemy 3 is 28.4. The impact of PCC and authority is having a meaningful less impact on our near-end disorder and we anticipate further reductions in the impact of the two arms over the next several five-?? harland system.

Speaker 1: We try to understand. We, all of the fantastic growth, have illate.

Speaker 1: Now all deposits for the first time in a few years, our deposit growth Sol. We were encouraged about what happened during the quarter once the month of April was over. May unme may us some reason to we optimistic. We are also optimistic about not irared deposits growth uring the quarter. As we all know, these cast depend increas valaruable as weiting to increase.

Speaker 2: President, we have confidence that we should see marginal expansion along with increased net interest income in 3-key and 4-key. And currently, we are up in our guidance for net interest income to high change growth for the full year 2022 and over last year.

Speaker 2: As a credit, we are again presenting our traditional credit metrics. 10% was low for quality, the things performed very well. Again, these were some of the best credit metrics for Asia. We have experienced error. I'm sure if anyone here to hear about this anymore, the modification might be something of such a 2014 and a carer that I continue to be your decrease. And we're now at 626 million at human 30. That's an 827 million earlier this year. Importantly, 97% of our 43rd things are candle ICEH Novice Universityérs Pass.

Speaker 1: Since the pippeline CY demand, our deposondit R are up almost for equco legis polts. So we're obviously pleased with the effort of our relationship managers thus far. We've never abandoned our view. That corresponded: growth is a key long-ter, long-term reuced, objected And as a result, if all PS on that, curardt.

Speaker 1: For the first 20 -plus year of our assistance, our numberber objective was developing strategies and tactics around funding our growth. We continue to lock our changanes. Given a significant investment we made- both the relationship managage and new markets- over the last few year, we continue to believe an area of 40% by all deposit rate through the end of 2002 is likely. We also keep an eye on our compettitorive in given layer as developing much more lators which we believe gives us somebreriing ly at lease term.

Speaker 2: with only 1% and a cost-for-the-esthetic worth. Importantly, given the current, we believe we will see other demands and allow us to credit all this to total our own ratio of the next several points, all to get a short pace, and we will have otherwise projected a couple of points to get a short pace. And we will have a short pace, and we will have a short pace,

Speaker 2: Our current ACL is 1.83%, which compares to a pre-season, pre-COVID reserve of 0.48 at December 31, 2019. So as we start this tightening cycle, we realize we're in pretty good shape given the quality of our portfolio currently.

Speaker 1: Nat liquidity. Our liquid assets decreased this quarter, corresponding with strong loan growth, modest deposit growth and a foremin ER increase in securities, all of which were gloating rate.

Speaker 1: With our outllook for loan growth, we likely will off see increased deployment liquidity in thedeboatom over the next several quarters.

Speaker 2: I rents a discharge out of our credit officers and if you may be here I think it's maybe obvious but I do believe it's helpful in the field detailing our appetite for the very results with showing that the cost increase there is more effects. to????????? ? Sleepy

Speaker 1: As the top W chart replays, with the sighting by of our GAAP NIM increased 28 vestment points this quarter. The impact of PPC and liquidity hidden by meaningfully less impact on our ammnand this quarter and we anticipated further reduestments in the impact of these two outouns over the next several quarters.

Speaker 2: As the left chart indicates, we have new appetites from the asset classes and the registration and remain the shifted to those asset classes in my hand.

Speaker 1: Presently we have found that that we should rece margin sping along with increased net percent income, increase Q and 14 conaring year up in our guidance. Some percent income: the hight change growth for the full year 2022 over last year.

Speaker 2: More importantly is the information on the right side of the chart. I don't know if any of this information in the blue box is all that new, but it does signal to our audience in the field to expect more diligence, more questions, more analysis, which we all believe is the right thing to do right now.

Speaker 1: As the credit. We are again presenting our traditional credit metrics. 10 ical was low. Portfolio TE performmed very well again to some of the best creditmented ratios we have experienced evernot sure we one here to hear about this any more. The modif? ication later percent of the six 4013 appe is that continueed the year decrease're down six hundred twent million and Q? E thirtieth. That's the main on our 2000 sesevenlement earlier this year and importantly, 97% of our 2000 and thirteen credates are all some form principal interest monthly day.

Speaker 2: I want to send a lot of comments, please, and simply, we've had more information on the slides to help them out a little bit, which, and all the ways I was supposed to be a human that would always look at an outside corner.

Speaker 2: You can, you can publish the evidence on our flywheel setting when you will figure increases in everything. That will 40, 50% trustee, 20% and interest conditions of 6%. So you can point at these with benefits on increases in intercontinental of the credit cards.

Speaker 1: The vol 1% and a plusified risk gettingary and importantly, given the cality, we believe we will see other declines in our allowced the credit office of total LO ratio over the next several quarters, albe at a slower pacee than would have otherwise projected a couple of quarters ago.

Speaker 2: We believe this will sound somewhat boring to the second half of 2022. We've looked at about $5 million in joint venture-related gains in the second quarter based on recent valuation adjustments as companies in which these funds are investing continue to issue equity.

Speaker 2: Capital Markets had about $2 million. We gained this quarter. They finaliz a ability, the balout for deals to we at this right tenel.

Speaker 1: Our current ACS is 2%, which compares to a preseason precoven reserve of pointer 4, eight at deceinory first F 19. So as we start the tightened, I Ho we do, likely in previous shape, given the volality of our portfolio current.

Speaker 2: As to expenses, we are maintaining our overall total expense run rate of approximately mid-10, percent of growth in 2022 as compared to 2021.

Speaker 1: Our renresttal dischart out of our credit officers and information here I think is may be obvious, but I do believe it's helpful in detailing our appetite for the various Salt segments and construction and investment property.

Speaker 2: This is primarily attributable to headcount growth in the new markets, market destruction across our markets which should lead to strong retreat opportunities and the addition of JB&B. Additionally, we now believe that we should anticipate getting our maximum payout of 125% of the target for our annual cash incentive plan. We do believe the second quarter total expense is a decent run rate for the remainder of the year and we have some reason to believe that we could see costs back up some with two feet but the inflation backdrop could wreck that thought.

Speaker 1: As the left-turning indates, we had new appetite from the asset classes and the risk posions that were L receifted to no benefit classes. The remain adds.

Speaker 1: More importantly is the information on the right side of the chart. I don't know if any of this information we- bluebox is all that moed but have done- single to our audience of appeield to expectular buildings, more questions, more analysis, which we all believe is the right thing to do right now.

Speaker 2: We also think we have a good expense on the full casted for half-time growth in the second half of this year. We will just have to see how the recruiting five lines can break out the steep results, the query.way the baseline is denied, the intersection client's companion report is not re- largest, the deformation agent's zone is a more often seen run by an 200 width specific increase or cut increase inSpec degree chain coming off of the screen checked out the screen reports indicate that the stocks are not you

Speaker 1: I won't spend a lot of time on, Please exexpensive. We've had more information on the sles to open the all millage as well. Always, I'll speak to be to Sha a few minutes. Which other ious? We had an oun last quarter.

Speaker 2: As the capital tangible book value did increase to 40208 from 4165 last quarter, our decision to move approximately $1.5 billion of our HCM health care team will be paid by approximately 50 cents per share at June 30. We do not anticipate any other significant capital actions at this time.

Speaker 1: You can further see evidence of our fllotable staying: yearerbigigger increases in reate on a 46% trust to 20% and ininterest condmissions of 6%. Second quarter fees were benefited by increases change, particularly more credit cars.

Speaker 2: Quickly, here's an update on our outlook for 2022. For as long as we've increased our outlook to high T's to low 20's, we are adjusting our rate forecast and outputs that are a 3.25% best upgrade by year end. So, we want you to continue to monitor and modify as necessary.

Speaker 1: We believe this will somewhat goingme in the second half of 2002 six we looked at about $5 million in more mro-related gains and gains in the second quarter based on recent viuation adjustments as companies than we've seen F our investment continue to issue ecord.

Speaker 1: Capital Markets had about two million doll gang this quarter. They are fining lot of ability to balout for deals soon. We need get invest right now.

Speaker 2: Given that belief, given that we believe we should think of being a proven medical center on the sheer, we should resolve the medical center's own growth in the high opinions. We still believe our sense outlook or increased tires and underbackers is in the team's percenting growth range, but given where we are today, it will not likely be less than that. We are very optimistic about how and we are thinking where is that I have a really strong recruiting here. So as the people in our third quarter runways, we insist that it strong growth and medical center on all of our ground rights procedures.

Speaker 1: As to expens, we maintainating our overall was SP growrate of approximately midteen m-teen percentage growth in 2020: cent versus two thousand and and one.

Speaker 1: This is primarily attribut attributable to pickcount growth in the new markets, market disruption across our markets which should lead stronger creved opportunities and addition of jbv and additionally now believe that we should anticipate hing our maximal ayyout of 1, 25% target for our annual cash set employment. We do believe the second quarter total expense of a decent run rate of the remainder of the year and we have some reasonab that we fifly cost back up. Song from two key.

Speaker 2: Taking out BHG and paving and killing could be slightly higher than they but probably should be applied for us.

Speaker 2: can criterion the key drive in Trader Did you know, if you're prima, I never rogtinker rush to work with the

Speaker 2: for the third quarter. Obviously, inflation in the macro environment will ultimately determine how all of this turns out. For our group, we will work with an intense focus and do what we need to do to grow the franchise value this time.

Speaker 1: What the inflation backdrop could ren that F.

Speaker 1: We also think we have a good extense number at for hipcoun growth. In the second half of this year we will essto see had our increased pipelineines relmaining exceptionally strong presly as the capital team will look. Val the increased support 2, eight from four Ty 1, 65 last quarter. Our decision move, approduct one of I have global knowledge in that seen health 10 B by per Sha year across FIF sixense per share at June . thirtiethwe are not anticipating any of semented capital maractions.

Speaker 2: Now keep putting them on theistic side.

Speaker 2: The HG had another record for all of the information. We anticipated that these she would increase to open their bank network as the capital markets as the volatile cloud layer of bank platform continues to be super reliable, which is obviously one of the independent benefits of the HG to pivot to form the bank network and the speutrification network and power such a good.

Speaker 2: Spreads on loan sold through the alternative platform and did some track flight loan in the same quarter from the Latin U-quarters, which had some of them, the wider spread in their history. With great thriving spread, we'll likely head back to the historical long where I'm not fortunate to show.

Speaker 1: At this time. Quickly, here's an update on our outlook for 20 and PO two long. We mayincrease our outlook to hight teen, to low employees. We are adjusting our rate forecast. Now consider a three point 2, five percent set up rate by areaa. We, like you, will continue to monitor and modify as necessary.

Speaker 2: The bottom right chart is, you know, the 1400 plus banks and DFC Networking and just over 600 unit powers fired in the last 12 months.

Speaker 1: Given that believe, given that we believe we should see continue theimproveven in net interest come this year, we should result in net interest inlocome growth in the highations. We still believe our expense outlook for increased tarifs and other factors GIIN the, the TE percenting growth R. But given where we are today, it will not likely be less than that. We are very optimistic about hing and we are thinking we're going to have a manun really strong reprouving year. So in sthepnr and third quarter runways.

Speaker 2: As you know, we consider the funding platform to be one of the strongest, if not the strongest, platform in the country for companies that execute a broad-based, Indian platform.

Speaker 2: As we've been up, the Resource Album Nation is a reserve potential loss of short-term for the soil loan portfolio. At the end of the second quarter, the industry increased their resources through the $240,7 million, up to 27 million from the first quarter, all the ratio of the resource obligations of soil loan decreased, modestly, to 4.98%. And the blue line is in the bottom line show credit law portion of the record losses for the second quarter, and the remainder of the talk about loans.

Speaker 1: We anticipate strong growth in medinterest income, while rental run rate profeedes, taking out vhg and Ping income could be slightly higher. Main but probably flattish and expenses should plied for us.

But revision, a key driver we believe in, be low with.

For the third quarter. Obviously, inflation in the macro Obama will pefully determine how all of these turns out for our grourief. We will work with an intense focus and do what we need to do. Grow ringss out value of this partner. Now few com on to the ex C.

Speaker 2: Additionally, in showing the supplemental information in Gill Microenvironment, BHC also increased its reserve for on-balance use loans by about $18 million to approximately $75 million at the June 34 end.

thehg had another record quarter originations. We anticipated that these C would increased sales into their bank network. As the capital markets has been volatile evvolved, their bank platform continues to be super reliable, which is obviously one of the competitive benefits. As the issue compit between the bank network and the securitization network in such a move.

Speaker 2: that resulted in now at 3% and 2.5% by 4. These deserve increased credit net, these deserve increased, but credit net could remain consistent and in some cases are increased. These humanity are based on their panel of macroeconomic increased business and deserve position with a viewpoint call.

Speaker 2: We obviously committed a false process here. That's it. We are really putting in the PhD second quarter, especially after Stanley Skarbles, that under the world with all the long, many families appear to be going through right now. I think that one of us appears to be going through right now.

Spread on loans sold through the offsetive platform did contract slightly in the second quarter. From the lastat new quarters was had some of the widest spreads in their history, with rate driving spprint will likely get back to the So long of around 9% or so.

Speaker 2: The quality of this should barbecue out into the lanes and the comforts, and we'll move to legally for one of their extensions that is used. VIGRs first test were mostly always boasting about because this insisted to barbecue in Anyways reminds of Light had project increase media hold object to colder picture to increase Ur So 55 in source Ci

The bottom line chart details the working having close BS and the C net working and is just over 600 Ming poers buyers in the last 12 months.

Speaker 2: Half-coated in Kirk's floor were consistent levels with premium workers so there're barbers and remain redoing three credit dismissals.

As you know, we consider a funding platform that we won of our strongest, if not the strongest platform in the company for company that execute a broad-based buildnew platform.

Speaker 2: National and regional unemployment forecast gives them confidence that their borrowers should be able to withstand forecasts and inflationary increase in a way that allows these to better weather this environment and other waters in their sites.

As mined knowte, recoursece obligations is a reserve for potential lossabsorption for the sold loan portfolio. As the end of the second quarter, the issu increased their recoursece accruals to $247 million, up 27 illion from the first quarter. While the ratio of the recourse obligations is sold loan decreased modestly to four point 90%, as the bl? izise in the bottom line show credit. All force of a recourseal losses for the second quarter remain at some of the lowest levels in the past 10 years.

Speaker 2: In comparison, the other way that we believe the VHG followers are well paid with every time the income cost was $280,000.

Speaker 2: istantíre evaluate that no response should joke off his lies statement, so that they can advance his lectures. They believe that their consciousness may have increased in the ward Thank you.

Speaker 2: Lastly, BSU got a record operating quarter in the second quarter. As I mentioned earlier, with the volatility in rates in the earlier part of the year, BSU has consistently believed earnings in the earlier quarters of 2022 would likely be stronger as they send more loans to the bank option platform rather than holding on to that balance sheet until they could better understand how the securitization market will behave.

Additionally, in showing the supplemental information in GIL macro emomentment, the sue also increased its preserve for on balance sheet loan 5, about 18 million, into approximately 75 billion at the January fourarter end.

That reserve now a 3% until 9% last quarter. These reserve increase through credit me. These reserves increase while credit metrics remain particicantate in some CAS of our approved. These, su main based on their tainayment of the macro environment, increased these reserve positition with a VIE force gol.

Speaker 2: As you know, the bank also platform believes immediate annual sound recognition involves the security relation network, the largest interesting thing of your life in the world. That said, they were able to accomplish, during June , a $300 million security relation and an acceptable rate of 5.5% going as it appears to us other things that we'll have to reevaluate their business model to be on the operating part.

We obviously demended a thought process here that say we are really pleased with these two second quarters, especially our the siming struggles that underthemore, well-long fintech lenders appear to be going through right enough.

Speaker 2: Beep-a-team and great attention to be having people? in secure advicerodh accomplished, and I terrify potential in destaimatum and we'll look at two more to turn the nation this year.

The quality of these Q fore B are in inter lan presence and will move legally longer. Health strateues vhc freses, spt for levels only with the weakness in a foreign base.

Speaker 2: These C has also increased their loan product assumption for 20.0002 thousand hour of business filed shaort fory- a growth in izations this year and compared some last year.

Past D in pan quarter were consistent levels with previous quarters, So their farrowers have remain resceated through credit cycle, thus followall.

Speaker 2: As 2022 earnings, BHG believes our 2022 earnings should now represent about 15% growth in 2021, which likely required reductions in the fully grown race in comparison to the second quarter.

National regional unemployment forecast, given confidence that their borrowers should be able to withstand forecasted and inflationary increase in the way that allows these to better weather in this environment than othertor liers in their spates.

Speaker 2: Three key points I'd like to emphasize or re-emphasize that gives us a lot of aim for those Hokies.

In comparison of other ways. We believe VIE FS are well pid, with everyone being proxim $287 thousand annual.

Speaker 3: Great for making sure that some free records with VSU is and will likely be increasing to show equity for extensions that a fully accessible physical mechanism is helping you restore your vote in a way that helps you increase your career levels and also increase your own careers of accelerator commitment and consultation. Regarding the rest of the spray commercials that you're seeing in the program you see you want for changes of yap firefight, you want a financial service and a technical policy regulations?ap how to jacket back in our panel and please introduce yourself in the next?? Anna akl Did you bring eggs for a refund? Not sure I will bring an complimentary you

I believe in the frrent lels there. Experience gi't the reasons to do so.

Speaker 3: Spring Spring is likely going to occur in a lot more historical levels as we get into the second half.

Lastly these. We had a record offerating for TER in the second quarter, as I mentioned earlier. With the volatility rates in the earlier part of the year, the issue had consistent ly. Earnings in the earlier quarters of 2000 and twenty-c would likely be stronger. Have they sell more loans to defining option platform, rather of home loans of our balance sheet, until we could to better understand how the secizate marked for value.

Speaker 3: Sprint remains historically high currently, but with increased brake force gas shrinkage in earnings could occur. Production volumes are very strong, and we believe they will continue to have strong production going into the second half of the year, but BHC will aim to send more to the secure inflation platform, which reduces time period profits accordingly. Of note, BHC anticipates at least two new funding alternatives to open up in the near term as they seek to broaden their already.

As you know, the landinoption platform delivers immediate phome sale recognition fall. The securitization network VIE, the in symptom of the life from loone. As soon there were able to accomplished daran eune of 300 milliondollars securitization and an accessable rate of 6% will have, appears to us, other thingstech levenue progrhaed to revaluate their business models here. An operating environment.

Speaker 3: Strong will put any black on, we also believe that one of their columnist attributes.

Speaker 3: As you all know, we are strong leaders in the industry, thanks to us. So we think a 15% growth with a more conservative app outlook is the right thing to do for right now. The right thing to do for right now.

Speaker 3: With that operator, I will stop and ask for you to choose what for our ask for questions. Thank you.

It makes you very pleased to be able to do this. Secure the less I published and anticipate posinceent with one or two more to turnul ulation this year.

Speaker 1: Thank you, Mr. Turner.

Bc has also increased the loan conproduct assumption for 20 -pointty-two aloes of business F Sha. Lower 4% growth in ourizations this year and compared of the last year.

Speaker 1: I would now like to ask a question. If you'd like to ask a question, please press star one on your touchstone telephone. Again, to ask a question, please press star one. Analyst will be given preference during the Q&A. Again, we do ask that while you pose your question, that you pick up your handset to provide optimal sound quality. Our first question comes from Jared Shaw.

As 2022 markets D Q believe for 2020, markes should now represent what two things? Percent growth in 2021 would vly required reductions in the 2: 20 run rates in comparison to the second quarter.

three key points. I'd like to emphasize where reemphasize the ex that while earnings growth is about 15% per twent thousand, point-two.

greatant remain consistent on previous quarters with the U Q UN and will likely be increasing reser based on lacro independant FA, at least over the next quarter or so.

spprge frints is logically going cur, while with more historical levels as we get over the second half.

sprit remained historically. Currently, both with increased breateort G rangeage in earnings, CLE occur.

conduction buumings are very strong and believe, believe that we continue to have strong production. Nor in the second half of the year, but these people will endim send more to securitization platform. We produuious current period profits accordingly. A note to the DC anticipates at least two new funding alternatives to open up on the near-term. We seeak the broad thereter already strong liquidity platform, which we also believe is one of our strongest attributes.

Speaker 4: growth by different categories. Is it similar on the deposit growth side? And do you think that there's going to be an opportunity to maybe see expansion or acceleration of growth from the more recent expansion on deposits as well?

Speaker 5: Yeah, I think we're

Speaker 3: We're optimistic about what our deposit growth will look like for the second half of the year. Traditionally, our deposit growth...

As you all know, we are strong leadvers in the realry frams to us. So we think a 15% growth with a more concerned that outlook is the right thing to do for right now.

Speaker 3: That's come in in the back half of the year. So we think that we might see that occur. We think our newer recruits and our newer markets are beginning to deliver a more consistent deposit group here as they gain some more experience with firms. So yeah, I think we do anticipate more growth in the profits from our newer people and newer markets.

With that operator onwill stop and ask's for you to look for our ask for questions. Thank you.

Mr turnery.

I would now like to ask a question. If you'd like to ask a question, please press star one on your touchone telephone.again to ask a question, please press star. Wine and its analysts will be given preference during the QA. Again, we do ask that, while you poseed your question, that you pick up your handset to provide optimal quality.

Speaker 4: And then as we look at that through the year,

Speaker 4: how should we think about your comfort level with where the loan to deposit ratio can grow to and also with how low cash can go as a percentage of assets.

Our first question comes from a Jared Shaw of wof Fargo. Your lines open.

Speaker 3: Yeah we still we still believe we've got quite a bit of cash to fund loan growth to try to get down to kind of what that there's a chart in the slide deck that shows what where our cash balances were kind of pre-coded.

I good morning guys.

P ure.

Also I just 'sit's.

Pretty tough to hear you I'm not sure if your microphone is covered up or something. But it's been difficult to hear during the call. But I guess on the first question on the deposit growth as as we look at Slide 15 and we see the breakdown of loan growth by different categories. Is it's similar on the deposit side and do you think that there's going to be an opportunity to maybe see expansion or acceleration of growth from.

Speaker 3: As to the longer deposit ratio, we've operated this firm for a long time and nearly call it 95 to 98%. I don't know if we'll get back to that level, but we've definitely got to learn to learn. We'll be doing the same thing, and then we'll be doing the same thing. you

Speaker 4: Okay, thanks, and then, finally for me, just on PhD. Did you see any, you know, as we look at the end of the quarter and going into to July , as the fear of recession or higher rates?

The more recent expansion on deposits as well. Yes, I D think we're.

Speaker 4: How did traumatic change in the appetite for the appetite for paper from the banks? Is that really reflective of the potential slow down the second half of growth there? The second half of growth there?

We're optimistic about what our deposit growth look like for the second half of the year. Traditionally our deposit growth.

Speaker 3: So I think the bank network or my name is active and receptive. I think what will happen in the second half of the year is it will get more competitive.

Does coming in in the back half of the year. So we think that we might see that occur. We think our newer recruits in our newer markets- So we rebeginning to deliver a more consistent deposit- grew here and they gain some more experience with firm. So yet I think we do anticipate more growth in deposits from our newer people in new markets.

Speaker 3: to be honest. And they will work hard to try to get a couple of securitizations done, which will take money away from the bank network so we will result large opportunities on the Council no more compelling.

Speaker 4: Great, thank you.

Speaker 1: Thank you. And our next question comes from Steven Alexpolis of JP Morgan. Your line is open.

And then, as we look at that, through the year.

How should we think about your comfort level with where the loan-to deposit ratio can grow to and also with how low cash can go as a percentage of assets?

Speaker 6: Hey, good morning, everyone.

Speaker 7: Okay.

Speaker 6: I wanted to first follow up on the slide. So assuming that you guys deliver the 2022 Long Growth Guidance they are calling out, how should we start to think about 2023? How should we start to think about 2023?

Yes we still believe we've got quite bit attached to fund loan growth, to trying to get down to kind of what, that there's a chart in the Slide day as shows what where our cash balances were kind of precooded.

Speaker 6: I'm not going to specific items, but should we think about that as a more typical year for you guys like low double digit growth, or the momentum that you're going to be carrying called it out quite a few times? Could it be another outsized growth that's given all this momentum you're pointing to? Is this given all this momentum you're pointing to?

As to the loan deposit ratio, we operate this firm for a long time and nearly pull it 95 centto 98%. I don't know if we ll be back of that level, but we definitely got to win grow.

Speaker 2: I think my sense is that it can. I guess the thing I keep trying to make sure people understand is that our hiring momentum is strong. And as you know, those books bill over a four or five year period, so when you look at the number of people that have hired since 2019, that grows more outside of growth in there. But don't miss that we're continuing to hire and hired momentum this year, hired than last year.

okays. And then finally for me, just on B G, did you see any as we looked at the end of the quarter and going to July has the feer of recession or higher rates?

Had a dramatic change in the appetite for bank the appetite paper from the banks. Is that really reflective O the potential slowdown in the second half of growth there?

No I think. I think the bank network remains active and receptive. I think what will happen in the second half of the year is it'll get to get more competitive.

To be honest, and they they will work hard to try to get a couple of securitizations done which will take money away from the bank network. So, as a result, the auction platform thatbecomes a little more competitive.

Great Thank you.

nine E.

Speaker 6: a challenge for the entire company right as a fit. I think we're seeing some banks wanting to get ahead of that, bringing more deposits now. Harold, was your response to Jared's question implying that you guys plan to first drain your excess liquidity, go back to where the loan deposit ratio was historically, call it 95, 98, and then you'll start fully funding loan growth with deposits? Is that your plan? Yes.

And our next question comes from Stephen Alex pola of JP morortgan airlines open.

Speaker 3: Yeah, I don't think that would be exactly what our plan is. I think they'll run concurrently. But yes, we do plan to try to bring liquidity down over the next call at 6 to 9 months. So what's 6 to 9 months?

Hey good morning everyone.

I've been.

I wanted to first follow up on the flloorhill Slide. So it's assuming that you guys deliver the 20 20, two loan growth guidance that you're calling out, how should we start to think about 20 20, three?

Speaker 3: But that in and of itself we don't think is the right thing. We will focus our troops on core deposit growth. And like I said, it will be all hands on deck to get that done. We've got several deposit kind of tactics in play right now. And we'll try to add resources to that to make sure that we can continue the funded growth that we anticipate.

And I'm not going to specific guidance, but should we still think about that as a more typical year for you guys, like low double-digit growth or the momentum that you're- I mean terry- call it that quite a few times? Could it be another outsized growth, just given all this momentum you're pointing to?

Speaker 3: we don't think is the right thing. We will focus our troops on core deposit growth and like I said, it will be all hands on deck to get that done. We've got several deposit kind of tactics in play right now and we'll try to add resources to that to make sure that we can continue to fund the growth that we anticipate. Okay.

thir my with is that it's can the Gu. The thing I keep trying to make sure thing understanding is men are hiring, momentum is strong and if you know, those BOS Bill over a four or five -year periods. So when Lim the number of favorable FIS in 2019 that fros more outside growth in there.

Speaker 6: Okay, that's helpful. And then on the deposit betas, Terry, you made the point that you thought betas would be lower than the prior cycle. You called that a couple of reasons. So maybe Harold, what are we thinking now? What is the assumed total deposit beta?

Speaker 2: would be assuming through the cycle. Yeah, I think we're still leaning in on a 40% beta.

But don't miss that we're continuing to higher in the higher momentum this year, higher than last year, highiring momentum in the second quarter, higher than the first quarter, and so our, like carll, use the phrase that our hiring pipelines are substantial. And so yes, that is what AU to drive both the balance sheet growth and the FE growth.

Speaker 3: by the end of the year. So we still are not willing to come off that. We're hopeful that we will deliver less than that, obviously. And so far, so good on that fund. But we also think that.

Speaker 3: You know 75 places point here in July and on down three the rest of the year as we get to that three and a quarter kind of that fun range that we're talking

Guy okay, you that's helpful and I want to drill down further until your resspons jarared's questionknow. If we assume deposit growth becomes more of a challenge for the entire TH, be right as a fedive.

Speaker 3: that we'll see an increase in deposit rates.

Speaker 6: And I just want to stand, sorry to put another question here, but you're also assuming that your loan beta is above your deposit beta and that's what's driving NIMM expansion, it's just not building cash into loans, right? You're assuming loan beta continues to stay ahead of the deposit beta, is that right? Yeah, we've been, yeah for sure, we've been really pleased with how loan yields have responded here, you know, early in, early in this cycle.

I think we're seeing some banks wanting to get ahead of that: bring ING more deposits. Now Harold, was yourro response to Jared's question implying that you guys plan to first parain your excess liquidity, go back to where the loan deposit ratio was a start, qual it 95 90- and then you'll start fully funding loan growth with deposits? Is that your plan?

Yes I don't think that would be exactly where our plan is. I think they'll run concurrently. But yes, we do plan to try to bring liquidity down over the next call it six to nine months.

Speaker 3: I think our kind of our catch rate is probably running 100% so far. So we're every level that's eligible for a level ranked increase, I think we're given.

Speaker 6: Thanks for all the color.

But that in and of itself we don't think is the right thing. We will focus our troops on core deolit growth and we, like I said it will be all hand on de get that done. We've got several deposit kind of tactics and player right now and we'll try to add resources to that to make sure that we can continue to fund the growth that we anticipate.

Speaker 7: Okay.

Speaker 1: Thank you, and our next question comes from Steven Sout. The line is now open.

Speaker 6: Thanks, good morning guys. So maybe you just following down on maybe Steven's last question around what you're seeing on the loam side. And obviously you guys lay out the 534 showing us weighted average yields and then what your new yields are. And it seemed like there was a particularly strong move in the fixed rate yields quarter to quarter. Um, is that just what you said Harold, is when repricing necessary, like you're getting a high hit rate or what's.

Okay okay, that's helpful. And then on the deposit bet, TA: Terry, you made the point. Do you thought beta would be lower than the prior cycle? You call that a couple of reasons, So you maybe, Harold. What are we thinking now? What is the assumed total deposit beta?

Speaker 6: What do you think is driving the success there? Because I can't say that so far, as soon as you get any season, I've seen that from other banks. So it's really impressive the 67 basis points on higher fixed rate loan yields. Yeah, I appreciate the question, Steven, because we've been talking about fixed rate home yields and making sure that on a new credit, we keep up.

Be assuming you know through the cycle.

Yes I think we're. We're still leaning in on a 40% beta.

By the end of the year. So we still are not willing to come off that. We're hopeful that we will deliver less than that obviously, and so far, So we do it on that fund. But we also think that.

Speaker 3: for a long time. And so I appreciate the comment. I hope that none of my other relationship managers heard the comment, but I appreciate it. Cause we're gonna keep beating on making sure that the fixed rate of loans continue to go up. Um.

75 basis points here in July and owned down through rest of the year as we give to that three and a quarter kind of bit fund ring that we're alaring.

That will see increased deposit rates.

And I just understand sorry to put it on the question here but you're also assuming that your loan betabecause above your deposit beta and that's what's driving themim expansion that just not moving to yielding cash into loans right you're assuming loan. Beta continues to stay up ahead of the deposit beta that right you really how that response here earlier earli cycle C 100% so far So.

Speaker 3: And I hope that we can see what we can.

Speaker 3: To begin, we've been a little disappointed in where fixed-rate low yields have been thus far in the cycle. We're hopeful that we can still see some more escalation in those yields.

Speaker 6: Got it. Okay. That's helpful. And then on the share repurchase, I think the comment was with somewhere in the presentation maybe you're in the release that no anticipation of using any of that 125 million. But obviously Terry, you highlighted what you think is another great opportunity for the stock for investors. So is there a level here where that becomes a viability for you guys or is it just with all the growth you want to continue to hold the capital for growth not?

thankyou, and our next question comes from stepheven sou. Your line is now open.

Thanks morning guys. So maybe just fallen down on maybe steeven's last question around what you're seeing on the loan side, and obviously you guys lay out. The Slide 34 showwn us weighted average yields and then what your new yield are. It seemed like there was a particularly strong move in the fixed rate yields quarter-over-quarter. Is that just what you said? haralold is, when repricing passed, very like you're getting a high hit rate or what's.

Speaker 3: So we're going to try to reserve capital for longer.

Speaker 6: Got it. And then just last one for me is around BHG and...

Speaker 6: I'm curious, or just wondering if you can give any additional color on numbers around the Cecil Impact moving forward. If you got 70 updated data there, if I remember correctly, I thought it was some of the securitizations would cause a higher Cecil Impact, obviously the sell-in through the bank platforms. So just wondering what you have there in terms of numbers and how that might impact maybe 23 on the BHC side. I think.

What do you think driving the success there? Because I CAn't say that so far through the earnings season I've seen that from other bank, So it's really, it's really impressive. The 67 basis points on higher fixed rate loanyouield.

Speaker 3: Yeah, it's a great question. People on the impact of these duties for the fourth quarter of next year. So they'll adopt on October 1st.

Yes I appreciate the question of saaling, because we've been talking about fixed rateight home yalals and making sure that a new credit, we keep up.

Speaker 3: They're running various credit models, they're looking at various, call it funding platforms that work, that are applicable to people and not applicable to people.

For a long time and and so I 'm.

Appreciate the comment. I hope that nmode relationship managers are to comment, but appreciate it because we're going to keep beating on making sure the fixed rate loans continue to go up.

Speaker 3: Right now, the curation that worked the way it's currently designed would have to be suitable compliant. So we'll probably be giving out more information on that here at the end of the third floor if there are read that we work in their bodies, I'll try to get them in shape. So

And I hope that we can see what we can.

To begin to, we've been a little disappointed in where fixed-rate loan yalss have been thus far in the cyitecle, So we're hohelpful that we can still see some more escalation in those yields.

Speaker 3: 2023's impact probably won't be that significant. 2024 is when they have to go full-sleeve for model. But again, I think they'll be deciding different funding mechanisms with the capital markets to better navigate people.

Got it okay, that's helpful. And then on the share repurchase, I think the comment was with somewhere in the under presentation- maybe you're in the release- that no anticipation of using any of that hundred 25 million. But you know obviously Terry, you highlighted what you think is a another great opportunity for the, for the stock, for investors. So you know, is there a level here where where that becomes a viability for you guys, or is it just with all the growth you want to continue to hold the capital for growth not, not the repurchase?

Speaker 6: Got it, got it. Extremely helpful. Thank you Harold and congrats guys on a phenomenal course.

Speaker 6: We got it extremely helpful. Thank you, Harold, and congrats guys on a phenomenal course. Thank you.

Speaker 1: Our next question comes from Mollmi Esteven. Your line is open.

Speaker 1: Our next question comes from Molnie Stevens. Your line is open. M only.

Yes that's absolutely the point. As we look at our reuve pipelines- but this is a mepment- pipelines loans, posit fees- we think we've got a lot of opportunity in front of us. I don't think the third quarter loan RO numbers is high as the second quarter loan growth number, but there's a lot of momentum going and so we're going to try to reserve capital for longer.

Speaker 8: Hey, thanks guys, good morning. This is Matt. One ask more about the long growth. Really impressive. Long growth numbers in two, two. You guys gave us some good details on the drivers. The guidance implies a slow down, the back half the year. And I think a lot of your peers are all talking about a slow down, the back half the year. But we'd love to hear more about your outlook for long growth, the back half the year, our pipeline, slow in trying to sense how much conservatism is baked in here. Thanks.

Got it and then just last one for me is around dhg and.

Speaker 2: Matt, you know, my sense is, you know, a billion nine a quarter is probably not the best ongoing assumption. That's a white-open quarter. I'm not saying we won't have that from time to time, but I don't think that's... Wh testing sound

I'm curious to just wondering if you can give any additional color on numbers around the steasonel impact moving forward, if you guys have in the updated dated there. If I remember correigly I thought it was some of the securitizations we've caused a higher ceel impact. Obviously that's done through the bank platform. So just wondering what you have there in terms of numbers and how that might impact maybe 23 on the BHC side of things.

Speaker 2: sort of the expected run rate. We really did have a fabulous quarter. I don't look for a huge slowdown. In other words, I don't think it's really slowing economic activity or slowing market share movement as much as it is just a little more normalization in the second half than what you saw there in the second quarter, which is just like a really sort of extraordinary number.

Yes it's a great question. Seasonal impacted two for the fourth quarter of next year, So they'll adopt on October first.

They're run in various credit models. They're looking in various call it funding platforms that work, that are applicable, receiful and notonapplicable ceal.

Right now the securitization that work the way is currently dedesigned would have to be ceasonel compliance. So we'll probably be given out more information on that here at the end of the third quarter that rework our volves trying to get them in shade. So.

Speaker 8: Okay. And then on the expense side, the 2Q expenses will elevate at this quarter, but the guides was unchanged. Anything that had a higher accrual in 2Q, and if I'm interpreting that, guidance correctly implies that the 2Q expense levels could be the peak and we could be flatish from here, if I think about that right? Yeah, I think so. I think that's what we believe today is that...

2023 impact probably won't be that significant. 2024 is what they have to go- a full seasonal model. But again I think they'll be designing different funding mechanisms with the capital markets to better navigate seasonal.

Speaker 3: Expenses will be pretty flat for the rest of the year. TQ was elevated, primarily based on incentives, and...

Got it. Got it extremely helpful. Thank you, Harold and congrress guys, on a phenomenal quarter.

Speaker 3: call it the increased earnings that we experienced here in the second quarter dictated a higher allocation of incentives from the back half of the year towards the front half of the year.

nine nine

Mam.

Speaker 3: So, should do that to primary wedding.

Our next question comes from MI. As stpheven, your line is open.

Speaker 8: Okay, great. And then just lastly on BHG, wanna make sure I appreciate the embedded guidance. Does this now assume that 9% spread that you mentioned earlier was a more normalized level? And then secondly, what does this assume as far as the what percentage of your vaccinations will be placed on the bank network for the back half of the year? I think it was around two thirds of level and two Q. Just curious if we're gonna stick with that. Yeah, I think Phil Ratch is the number that I was...

M only.

Hey thanks God, good morning. This is Matt one asked more about the loan growth. Really impressed of numbers into you. You guys gave us some good details on kind of the drivers. The guidance implies is slowdown the back half of the year and I think a lot of your peers are also talking about a slowdown the back half of the year, but we love to AR more about your outlook for loan growth at the back half of the year. Our pipelines slowing shrank- a sense of how much conservatim that baked in herethank.

I have.

My my sense is a billion nine a quarter is probably not the best ongoing assumption. That's a white Bo. I'm not saying we won't have that down time, but I don't think that's.

Sort of the expected run rate we really did. As of B ner quarter, I don't put for a huge slow down. In other words, I don't think is's really slow economic activity or slow market share movement, as much as it is just a little more normalization in the second half than what you saw there in the second quarter, which is say, was really sort of extraordinary number.

Speaker 8: Okay guys, congrats. Thanks again.

Speaker 7: Thanks for that, I'll see you later.

Speaker 1: Our next question comes from Michael Rose of Raymond James. Your line is open.

Speaker 6: Hey, good morning everyone. Thanks for taking my questions. Just another one on BHG. So appreciate the all the commentaries relates to the guidance for the for the back half of the year. But as we think about 2023 with those spreads compressing maybe a little bit more allocated to the recourse reserve. Does BHG actually think that they can grow pre tax earnings next year with with those dynamics in place? I know they're building out some different verticals and expanding within some existing verticals but

Okay and then on the expense side, the two Q expenses little elevated this quarter but the guidance was unchanged. Anything that was at a higher accrual in two q- and I'm interprepreting that guidance correctly- implied that the two Q expense levels could be the peak. And it could be lattish from here. Something about that, rightyesso.

Speaker 6: It may be a little bit early, but just wanted to get a sense if it's in the realm of expectations that pre-tax earnings at BHG could actually grow next year.

Speaker 6: a little bit early, but just wanted to get a sense if it's in the realm of expectations that, you know, pre-tax earnings at BHG could actually grow next year. Thanks.

I think that's what we believe today is that expenses will be pretty flat. For the rest of the year. two -q was elevated primarily based on incentives and.

Speaker 3: Yeah, Michael, that's a great question. Our belief in the start of the EHG is they have no intent.

Speaker 3: to the Ronald Back, of Orange Road and any kind of meaningful way. Now, like we talked about here on the call, we're looking at 15% growth in 2022. So using that as kind of a benchmark, I don't think they're looking at any material kind of change there. The... that's fair.

Call it. The increased earnings that we experienced in the second quarter dictated a higher kind allocation of incentives from the back half of the year towards the front half of the year.

So.

And that and primarily in ramad.

Okay great. And then just lastly, on BHG, want to make sure I appreciate the epbetic guidance. Does this now assume that 9% spread that you mentioned earlier was a more normalized level? And then secondly, what does this assume as far as the, what percent originations will be placed on on the bank network for the back half of the year? I think it was around two thirds of level in two Q.

Speaker 3: This is the time of the year when they begin to look at 2023 and the impact of something like you said in new articles, how that's going, they're gonna be looking at, how they're bank networks performing, reduced spreads or go back to the higher spread in a more quality.

Just curious if we're going to stip with that. Yes, I think they'll action back the numbers that I looked at. We didn't disclose them- the numbers I looked at- and say that the bank network probably going to be cut more or less than a half, maybe maybe down two thirds of what they got in the second quarter.

Speaker 3: a better backdrop as far as the economy is concerned. But I'm not hearing anything from them that says they're gonna kind of take their foot off the accelerator.

Speaker 6: So if I heard you're right, and I'm not trying to pin you down here, but 15%

And and the spreads herald.

Oh the spread County direct right, we think this's going to probably a pro time said here over the last half of year. I'm sorry I got to you as that question.

Speaker 6: Is range for next year is in the realm of.

Speaker 6: of possibilities, is that what you're trying to convey?

Okay guys Congrats, thanks again.

Speaker 3: Yeah, I think so. I've not gotten any work on that. There's any less than that. But again, they're going through that. They'll be going through all of those processes here and the third and the fourth floor.

Thank matyougoodbye.

Speaker 6: So I'll have a better idea for you in the third quarter. Got it. I appreciate it. And then just going back to the deposit costs and betas, if I look at this spot.

Our next question comes from Michael rose of Raymond James, your line is open.

Good morningeveryone. Thanks for taking my questions. Just another one on BHG. So appreciate the all the commentaries relates to the guidance for the back half of the year but as we think about 2023, with those spreads compressing maybe a little bit more allocated to the recourse reserve, does BHG actually think that they can grow pretax earnings next year with those dynamics in place? I know there.

Speaker 6: rate at the end of the quarter, it was 67 bps. And I appreciate the commentary that you expect loan betas will be higher than deposit betas, but it does, you know, in theory with a couple more rate hikes of pretty high magnitude imply, you have pretty healthy growth in deposit costs.

Speaker 6: Do you think after this gap up that we get in the third quarter that we're kind of nearing at least a nearer term peak and that you can still see margin expansion a few quarters beyond when the Fed stops raising? Again, just trying to kind of deconstruct the betas on both sides of the balance sheet. Thanks.

Building out some different verticals and expanding within some existing verticals. But it may be a little bit early, but just wanted to get a sense as it's in the realm of expectations, but pretax earnings at be, she could actually grow next year.

Speaker 5: Yeah, I think that's right. We believe.

Thanks.

Yes my last right question and our belief in this song of BHG is: they are knowing ten.

Speaker 3: that the positive rate, you know, that's part of we think our data on the positive rate, is somewhere around 22% out of yesterday.

To thbr back of earnings growth in any kind of a meaningful way. Now, like we talked about here on the call, we looking at 15% growth in 2022, So using that as kind of a benchmark. I don't think they're looking at any material or kind of change there. The that said.

Speaker 3: We think that with rate increases coming in the last part of the year that we'll see an escalation to try to get to in order to get to that 40% for the whole year. So we're trying to give ourselves some room to operate there.

Speaker 3: We think that with rate increases coming in the last part of the year that we'll see an escalation to try to get to in order to get to that 40% for the whole year. So we're trying to give ourselves some room to operate there.

Speaker 3: On the loan side thus far, we're not seeing any feedback at all with respect to those loans that are tied to any sort of crimes, solfer, libel or whatever. Those increased lonely overhead past clients.

This is the time of the year when they begin to look at 2023 and the impact of something like you said: new verticals, how that's going they. 're, when they looking at how they- their bank network performing reduced spreads- are going back to the higher sprints in a more call it.

Speaker 3: And so far we're giving that, we've given our viewers.

Speaker 6: Got it. Maybe one final one for me, just more broadly, probably for Kerry.

Speaker 6: You know, the Atlantic Spanish policy impacted by COVID, can we just get an update there? And then can you give us more of an update on DC and maybe what the expectations could be for growth contribution as we move into the next year, really for both of those new expansions on a combined basis. Thanks.

A better a better backdrop as pporting the economy is concerned but.

I'm not here anything. Then the said they're going to kind of type put off the ST.

If I heard you're right- and I'm not trying to you know- pin you down here.

15 percentage ish range for next year. Is it in the realm of possibilities? Is that what you're trying to convect?

Speaker 2: Yeah, I think it relates to COVID. You know, we, like everywhere, I think have seen a spike in our footprint. We have seen an elevated number of cases in our associate base. But I guess I'm going to say it this way, happily, there's nothing particularly severe. Some of the people are getting COVID or getting it for the second or even third time.

Yes I think so. I've not got any work from the ement in the U less event. Again, they're going to do that. They'll be going through all of those processes here in the third and into the fourth quarter.

So I'll have a better idea of Gun.

The Gun. The third war.

Got it I appreciate it and then just going back to the deposit costs and betas. If I look at the spot.

Speaker 2: many of them are vaccinated and so forth, so it's kind of squinted through not being particularly severe, but clearly our associates can actually have stepped up over the last 30 days or so. I think in terms of DC, Michael, you know, how this game works, you hire the people that begin to call on clients, they begin to book commitments, and then thanks a while for commitment to starting the funding.

Rate at the end of the quarter was it was 67 bits and I appreciate the commentary that you expect loan betas will be higher than deposit betas, but it does in theory, with a couple more rate hikes, a pretty high magnitude, imply pretty healthy growth in deposit costs.

You think after this gap up that we get in the third quarter, that we're kind of nearing at least a neararer-term peak and that you can still see margin expansion a few quarters beyond when the Fed stops raising again? Just just trying to kind of deconstruct debetate on both sides of the balance sheet.

Speaker 2: But I would say it this way that based on where they are in the calling cycle, where they are in the commitment cycle, meaning bonafide legal commitments, closed loan agreements yet to fund, I'm really excited about DC. And my guess is over a 12 to 18 to 24 month period, it'll be our fastest growing unit. We're very excited, encouraged the book of business that's developing there.

Yes I think that's right, we believe.

That deposit rate is no far, we think, our bea on thedeposilits and somewhere around 22%, as yesterday.

andwe think that with rate increases cominging in the last part of the year that we'll see an escalation of got to the order, be that 40% for the whole year, and so we're trying to get ourselves and room to operate there.

Speaker 3: My pleasure, Atlanta. I think your question was headed to that, basically, their first year in operations was the COVID year. And are we thinking that we're gonna back off on our $3 billion bank in five year notion? As a six right now, I think Atlanta have a really strong third quarter.

Speaker 3: And so I think our leadership there has done a great job of pacing through COVID in a way that still we believe has given us a great shot at being that $3 billion franchise, call it by the end of 2024, 2025.

Speaker 2: I'm sorry Michael, I thought your question was about DC, but that's right about Atlanta.

Speaker 6: No, it's both combined. I appreciate all the comments. So good point. Thanks for that. Thank you.

Speaker 9: Alright.

Speaker 10: Thank you.

Speaker 11: Our next question comes from Casey Hare of Jefferies. Your line is open. Thanks. Good morning, guys. I want to follow up on the team pipeline. Obviously, a pretty strong quarter here in the second quarter with 37 producers hired. How is that shaping up in the back half? Can you guys improve upon that?

Speaker 2: Well, I think I would be surprised sitting here today if we don't do at least that in the second half. But, you know, the recruiting five lines before, I guess over here, the learnings, you don't tell a break till they get in the city and so forth. But yeah, I think central answer is yeah, I would expect the second half probably not to first.

Speaker 11: Okay, great. And just on the BHG front, Harold, if I heard you correctly, it sounds like origination's up 40%. That implies an origination level a little bit higher than what we saw in the 2Q. I just was wondering if you could confirm that. And then any color on where spreads are in the early going here in the third quarter.

Speaker 3: Yeah, sure, Katie. Yeah, the point that they grow is an escalation. I think we talked about 30, 35% of them at the end of the first floor until they do leave. But I don't know.

Speaker 3: Kind of momentum here going in the second half of the year, that they think the production will go up here in the second half. And let's take a part of your question on the bounce press.

Speaker 11: Yes, it just spreads any color on spreads in the early going here in the third quarter.

Speaker 3: Yeah, I don't have anything on July , but the month of June spreads were consistent with, you know, call it that 10-inch number.

Speaker 3: So, they didn't see any significant degradation in spread.

Speaker 3: During the second quarter, I'll cut up that.

Speaker 11: Yeah, that's great. Thanks. And just last 1 for me, I know you guys gave the fee guide for 22. Just question on interchange within the other line.

Speaker 11: you know popped up pretty nicely here in the second quarter. Is that a sustainable run rate?

Speaker 3: Yeah, we think we've got a good shot at that. A lot of that was in our purchasing card that we deliver to commercial clients.

Speaker 3: We think there could be some inflationary backdrop there as commercial class, middle-income, and the majority by things before they think prices go up again. So...

Speaker 3: I'll just put it to you like that case. That's what it was saying to my man.

Speaker 9: Gotcha. Thank you guys.

Speaker 9: We'll see that repeat. Bye. Thank you.

And our last question will come from Brian Martin of Janie Montgomery Scott. Your line is open. Hey, good morning, guys. Hey, Harold, can you just talk to me a little bit about, you talked about the liquidity you mentioned earlier, just kind of, where do you expect that to end, you know, kind of end up here of the next couple quarters? It sounds like it's your intent is to bring it lower and just kind of think about, you know, putting that together with kind of the margin outlook. Given the loan deposit data commentary.

that we're going to come back to help fund on the road here in the third quarter.

that we're going to call back to help fund one growth here in the third quarter. So we'll have a little bit of

June 30, the footity of getting used won't both for a little bit. And then we'll see where the polish ain't got it.

So we're going to go to the blue bars on slide 17 to that top right of the short.

I think those blue bars will come down some, but they won't approach college and first quarter 2020 levels.

large will come down some, but they won't approach college in first quarter 2020 levels and here in the third quarter.

Got you. Okay. And then, okay. And then how about just on the reserve, it sounds like the reserve coverage ratio drops a little bit further from here given kind of the trends you're seeing in credit quality. Is that kind of what you guys were suggesting earlier? Maybe I missed some of the commentary there, but just kind of how that ratio, I think looks near the next quarter too.

As far as our ACL, is that what you're asking about, Vern? Yeah, just, yeah, the ACL coverage. And rule? Yeah.

and the lessons alone, you know, we still believe we've got opportunities to reduce it.

That's based on our models that we use to produce our C4 related reserves. And we also, we're still adding back qualitative factors to keep it where it is. And what point did I do want to re-impress out to you? Is that...

Call it 2019, the result was basically in half of where it is today.

So, we don't anticipate going back to that level, nor do we anticipate going back to the day one CSL number, but we do think we've got some more room to continue to reduce reserves. Which we've been steadily doing.

I want the line 16. That's it. Okay.

That is all I have. I appreciate it guys. Thank you. This is today's conference call. Thank you for participating. You may now disconnect.