Q4 2022 United Community Banks Inc Earnings Call
Good morning, and welcome to the United Community Bank fourth quarter financial results Conference call.
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Good morning, and welcome to United Community Bank's fourth quarter 2022 earnings call hosting our call today, our chairman and Chief Executive Officer, Lynn Harton, Chief Financial Officer, Jefferson Harralson, President and Chief Banking Officer, Rich Bradshaw, and Chief Risk Officer, Rob Edwards United.
The presentation today includes references to operating earnings pretax pre credit earnings and other non-GAAP financial information for these non-GAAP financial measures United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlights section of the earnings release as well as at the end of the Investor presentation.
Both are included on the website at U C B I dotcom.
Copies of the fourth quarter's earnings release, and Investor presentation were filed last night on form 8-K, with the SEC and a replay of this call will be available in the Investor Relations section of the company's website at U C. B I dotcom.
Please be aware that during this call forward looking statements may be made by representatives of United any forward looking statements should be considered in light of risks and uncertainties described on pages five and six of the company's 2021 Form 10-K as well as other information provided by the company in its filings with the SEC and included on.
Its website.
At this time I will turn the call over to Lynn Harton.
Good morning, and thank you for joining our call today.
We continue to be pleased with our overall performance we recorded operating earnings per share of <unk> 75 cents.
Well that is flat with last quarter, it's a significant increase over the same periods in 2020 one.
Our operating return on assets remained strong at 135 basis points.
Our pretax pre provision return on assets reached a new high of 2.87%.
Our net interest margin continued to expand increasing 19 basis points over the third quarter.
And loan growth reached 12.2% annualized for the quarter.
Business conditions for us remains strong and our south eastern economies continue to perform very well however.
However, we are seeing the impact of fed rate increases.
So we're actively searching for higher yielding investments.
We saw deposit outflows of 445 million primarily in D. D. A.
Deposit competition, and resulting deposit betas have increased and will continue to increase in the near term.
We are sort of Lee defending our deposit customer base and believe we will continue to relatively outperform in our funding cost.
Credit results remain very strong however, economic forecasts continue to weaken resulting in a reserve build during the quarter.
While net charge offs did move up to 17 basis points.
These results remain below or better than what we would consider normal.
Non performing assets remain low as do our special mention and substandard accruing loans.
Notwithstanding the continued good results, we are cautious and have tightened underwriting standards several times over the past year.
Finally on the operating side, while we did have an uptick in expenses. Our net interest income grew substantially leading to another improvement in our efficiency ratio, reaching a new record low of 47, 3% on an operating basis.
Strategically while not included in the quarterly results were very excited to have welcomed progress bank entered United on January 3rd.
Progress has a great franchise in some high growth markets, including Huntsville, and the Florida Panhandle as a perfect complement to our existing franchise and will improve our growth prospects for years to come.
David and I asked the founder and CEO of progress has built a great team and we look forward to his continued leadership as United and those great markets.
And now Jefferson will share more details for the quarter.
Thank you Lynn and good morning to everyone I am going to start my comments on page five where you see the highlights of the quarter that shows our strong returns many of which when just went over.
But I'll focus on the two notable items that we broke out this quarter.
The first is that we have a small number of equity investments on our balance sheet. They are not significant dollars about $14 million and usually we don't need to break out the gains or losses here, but this quarter, our equity investments were up $3.6 million, which is unusual and likely will not repeat.
The second item is that we took a 1.8 million dollar tax charge, because we have started the process and intend to surrender $34 million of bold investments in Q1.
We've had this bully investments since before 2007, and it is underperforming and actually negative yielding by surrendering we received a $34 million back over five years and can reinvest at higher market rates.
Let's go to page nine and talk about deposits.
We believe we have one of the strongest core deposit bases in the South East as I mentioned, we are seeing the impact of rapidly rising rates and our deposits shrunk in the quarter.
Price competition for deposits is also increasing and we are seeing our deposit betas increase.
Our cumulative deposit beta moved to 12% for this cycle from 6% cumulative last quarter.
And we expect this to increase in future quarters, both due to higher rates in our various account types and due to a mix change towards Cds.
On page 10, we provide some greater detail on our deposit trends the biggest overarching trend. This quarter was a decline in the average account balance of our commercial customers specifically in DDA accounts, while our number of accounts increased we are seeing businesses make purchases make tax payment.
Make distributions, sometimes move to institutional money markets or Treasury bond funds. We are also seeing some movements to Cds and our business accounts as well.
On page 11, we experienced strong loan growth in the quarter with mortgage being the biggest contributor and fairly diversified growth after that.
Moving to page 12, we feel good about where our balance sheet is in terms of liquidity and capital our loan to deposit ratio did increased to 77%. This quarter from 73% last quarter, we were still below where we had been running historically and like our positioning from a liquidity standpoint.
We talk about capital more on page 13, we are above peers, and our TCE ratio and in our risk based capital ratios. We are using capital in the first quarter with the progress acquisition, but we still expect to be above peers pro forma for the acquisition.
Moving to page 14, we discuss our net interest margin.
We had 19 basis points of net interest margin expansion in the quarter 20 basis points of which came from the impact of higher rates.
And one basis point came from positive mix change.
The impact from positive mix change. This one basis point I mentioned is lower than what it has been in the past few quarters.
In past quarters and in this quarter, we have had the benefit of a shrinking securities portfolio funding higher yielding loans and.
And we expect this to continue but now we also have the negative mix change impact, which is moving us away from low cost DDA towards C d's and other higher cost products.
And also the deposit pricing lag continues to catch up.
While the funding environment is competitive I do believe our Q1 net interest margin is somewhere between down five basis points and up five basis points, including the impact of progress coming into the numbers. So its a bit unclear whether this quarter was the peak in margin or whether it will be in Q1.
Moving to page 15.
Fees were up $1.5 million compared to last quarter with the main driver being the $3 $6 million in unrealized equity gains I mentioned earlier.
Excluding those gains fee income was down in Q4, mainly due to mortgage in the absence of the large MSR gain that occurred last quarter.
Another reason for the decrease in fees was our decision to sell less SBA loans, while we had strong originations we had $47 million of SBA originations. We sold just 17 million because the gain on sale pricing was less favorable than in past periods. So we kept more loans on the balance sheet and stuff.
Yes, we.
We expect to sell this backlog in the first quarter, which will be on top of our normal first quarter cells. Just keep in mind that the first quarter is typically our seasonally weakest quarter for SBA originations.
Finally, we had a small amount of realized securities losses in the quarter as well as a small MSR write down.
Moving to page 16.
<unk> increased in Q4 by $4 $9 million, we have listed the main drivers of the increase on the slide I would also say in addition to this.
As I look at the just less than $2 million increase in communications and equipment line item. That's some of the items in there we're above what I would call a normal run rate after a lower than normal Q3, so ongoing costs will be closer to the middle of where the Q3 and Q4 results came in.
Of course progress will come into the expense numbers in Q1, and we expect to start getting the lion's share of the $13 $5 million in annual cost savings after our second quarter conversion.
On page 17, we talk about credit our net charge offs remained low but moved higher in the quarter to 17 basis points with the biggest driver being our C&I relationship along with some normalization at Davita us that we were expecting.
NPA has moved slightly higher in our special mention and substandard accruing categories were fairly stable.
But there were some inflows and outflows that Rob can talk about in the Q&A.
And we feel good about our credit quality, but acknowledge that we are moving into a period, where we expect credit to normalize.
On page 18, we talk about the reserve and show that we continue to build our reserve in the fourth quarter as we also built our reserves throughout 2022.
Specifically, we set aside a $19.8 million provision and took the allowance for credit losses to 1.18% of loans from 1.12% last quarter and from 97 basis points a year ago.
The driver of the increase is similar to what it has been all year, which is the weakening of the Moody's baseline economic scenario.
We feel great about our pre credit profitability ratios and the growth of the bank as well as our credit quality and liquidity, but we also acknowledge that we could be moving into a tougher economic environment and we believe we are prepared for 2023 whether it be a soft landing or something more challenging.
With that I'll pass it back to Lance.
Thank you Jefferson and many thanks to the United team.
2022 it's been a great year, thanks to your efforts.
Thanks to you we've expanded into dynamic markets in Tennessee, including Nashville in Clarksville.
You earned recognition for being number one in customer service in the South East for the eighth time in the past nine years.
You gave your time and talent to numerous community organizations across our footprint.
You added an updated new systems to allow us to better manage risk and to serve our customers.
You continue to develop your teams about recruiting new bankers and leaders through training like leadership Academy and by taking action on our all employee engagement survey.
Finally, we were recognized as creating a great place to work by American banker for the six year in a row.
It's an honor to work alongside of you and I can't wait to see what 2023 will bring.
And now I'd like to open the floor for questions.
Thank you we will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
Our first question comes from Catherine Miller from K B W. Catherine. Please go ahead.
Thanks, Good morning.
Good morning.
I'm curious and I wanted to start on expenses you mentioned.
That's a run rate to start with is kind of somewhere between the third quarter and the fourth quarter can you just kind of help us think through.
What kind of growth rate, we should be thinking about from that level and it looks like some of the higher FTE expense.
Yes, he expenses, where in this quarter, but you know where we can see more of that next year and I. Just wanted to think about what kind of expense growth rates are appropriate them next year.
That's great that's great. Thanks for the question Kathryn what I mentioned the between third and fourth quarter I was talking specifically about the communications and equipment expense, we had several things come through that line item, but it's just kind of unusual AR write downs of equipment and such that I don't I don't think will recur. So it wasn't so much talking about total expenses between.
Our Q3 and Q4, mostly that single line item. The FDIC, specifically was an increase in the hands of the assessment in late Q3. So we had a Q4 number and a catch up for the four and a little bit of a catch up on the assessment, but does not include the the biggest.
That's an increase that is happening for all.
That's true that's two basis points higher on the assessed net assets.
With that I would expect because we are a little higher than usual this quarter instead of being a million dollars higher next quarter, maybe it's $800000 higher next quarter. So the FDIC will be a higher semi permanent run rate by eight.
$800000 is my.
Best estimate right now the bigger question that you're asking probably is the are the run rate of expenses and again off of a slightly lower.
Base than Q4, I think I'd say.
4% four 5% growth rate given the inflation rates that we're seeing again the last the cost savings coming from our progress great.
Super Helpful. And then you gave some good margin guidance.
Kind of a range that we might peak this quarter and next but how about just kind of the size of the balance sheet and how you were thinking about loan growth into next year. It feels like a lot of your competitors have started to pull back in loan growth expectations.
Just given the economic uncertainty, but just kind of curious how you are thinking about our aggressive here.
So I'd like to start just with the size of their balance sheet, which I expect to be a relatively flat. It was a we had a little growth this quarter, which was a surprise me a little bit I thought we'd be flat and with that I'll pass over to rich on our forecast for for loan growth sure. Good morning, Catherine morning, where we're still thinking about.
Mid single digit loan growth for this quarter and really 'twenty two 'twenty three we probably originally kind of thinking the a range of 7% to 8% and probably.
Per last quarter thinking more in the 8% range, but probably the lower end of the range now.
When the economic headwinds that we're looking at.
This range that I talked about seven seven is correct. Thank you.
And any change in the composition with that and then the VITAS has been.
Relatively larger piece of the of the loan growth over time or do you expect that to pay back end.
Be supplemented in other ways you can wait a minute composition is.
I think the long grass.
Oh, Yeah, I'll I'll address that so I think novartis will continue to be similar in terms of the loan growth well, we do expect to see a little bit go down is mortgage we've seen a Q1 will be down a little bit also we've continue do tightened some of our underwriting criteria, particularly on.
The construction of permanent product.
Okay.
Okay I'll step also by the Keith Thank you so much thanks Catherine.
And our next question is coming from Brad.
Bill stops from Piper Sandler.
Red.
Please go ahead.
Thank you and good morning.
Morning to you.
Maybe just to follow up on Catherine's question, if if if Richards Ryan you guys grow your loan book, maybe a $1 billion or so jeopardy, if I recall.
It is still about 200 million per quarter coming out of the that the bond portfolio.
Is that the right number and I guess, what would be the plan. You know just wanted to maybe bridge. The rest of the loan growth would you kind of lead into the S. H L. B, a little bit more or in your mind, you think it's an environment, where you can kind of stop some of the deposit run off and.
Oh, maybe stabilize those or even even grow deposits a bit.
So I'll start with that rich can jump in and especially on our deposit thoughts, but yes.
Maybe it's a little less than $200 million a quarter, but we do plan on funding.
Funding a lot of our loan growth with a securities shrink.
<unk> I think this quarter, you'll actually see the FHA will be come in a little bit we've done a lot to try to Stoke our deposit growth we've been doing it all year, but we're with given the environment. We're also doing it.
A lot of energizing of the footprint and the geography as well we have some higher rates out there.
To help spur deposit growth might pass it to rich on some of the things that we're doing on the deposit side I can also step in there too yeah.
Just to give you some specifics like you know where where we generally pick a certain.
Time period for a C. D. In this case happens to be 11 months of a special in the $4 15 range and then we have empowered the field. So that's gonna be these day presidents' the president's in the retail management in terms of a product especial index based on fed funds. So we pushed that authorities out in the mall.
So they can make those decisions real time and that's in the mid threes and that's been really geared towards our best relationships.
So that's our main wherever that we want to pull as the really press on the deposit growth engine that we have some confidence and at the bank and the you know if it's not there what do we do to define our FHL beam is there we want to we don't want to lend lean on it too hard.
We have a you know a broker C D.
A lever we can pull we also could.
So some are available for sale securities that small office or create some liquidity. If we wanted to so we're looking at really all things, but the main where we're happy where we are because of the securities funding most of the loan growth and we have a lot of options beyond that if that's a deposit.
Growth isn't there.
Got it. Thank you and then maybe just switching gears to to Roberts curious if you could maybe give us a little color maybe on the the movement.
Within the nonperforming list and then you know maybe some of the key drivers underlying your provision this quarter and you know obviously you were in a dynamic environment, where the key assumptions can change rather quickly but.
As best as your Crystal ball can tell US you know do you think you've sort of built the reserve to a level.
Or maybe you feel more comfortable how all else equal what do you think do we think about next year, there's more of a build to come as you know maybe you guys.
Close the gap to peers, a little bit that you hold a little bit more capital, but just any additional color around credit would be helpful.
I'm glad to Hey, Brad.
So just on the NPA side I would say the drivers for M. P. A that we saw in the Venus was up a couple of million in our manufactured housing was up a million and then really it was the C&I credit.
We took a charge on that drove the rest of that so those were the three elements in the AR and the N P. A that drove the dollars up.
On the on the provision the economic forecast really caught up with the feds a strategy around increasing rates and when rates are rising the investment in equipment and investment in real estate is expected to decline.
And so we saw increases in our C&I and equipment finance and commercial construction categories driven by the expected increase in rates.
So that's that was really the driver. This time of course, we had the loan growth is also a driver and a charge offs player play a role as well as they begin to normalize.
In terms of expectations.
You just have to remember that the the way Cecil works. It's pro cyclical. So you end up building before you get into a recession, if if moody's expectation of the scenario is accurate then I think absent changes in loan growth in the asset mix and.
Charge offs that you know.
It would feel like I would expect the scenarios to be stable, but this quarter. They were catching up a little bit and I'm not entirely as you know, it's uncertain economic times, and so theyre trying to predict something as well that's a fairly uncertain.
Got it thank you and Jefferson just a housekeeping question.
That bullies surrender charge that you noted in the deck.
Is that buried in other expense.
Or is it a is that how it elsewhere.
The tax line.
It's in the tax line, Okay, great sorry, I missed that thank you.
Yes.
Our next question comes from Michael Rose from Raymond James Michael. Please go ahead.
Hey, good morning, Thanks for taking my questions just wanted to circle back into beat Us.
Obviously things are normalizing can you just remind us if if you've changed kind of the mix of what they they've done since you've acquired them, both and kind of what you sell and what should keep on balance sheet. And then also kind of what we should expect for kind of a normalized through the cycle level of charge offs for that business. Thanks.
So I can maybe start on that I think that the.
When we bought the VITAS they were a standalone company they had a higher cost of funds and as they came onto UCP I over the years. They have moved upstream in terms of credit quality. So all in they have a stronger credit quality than than they had in 2018, where we bought them.
Robin do you want to take the credit piece of it yeah. So in terms of you know if you look at slide 21 in the deck, Michael we've kind of have included the 19 in 2020 loss rates.
So it would be I could see us getting into as to the 70 to 80 basis point range as things normalize.
Okay helpful.
And then I wanted to circle back to the kind of expense you know some.
Some of the commentary there obviously understanding there's a lot of moving parts, but it.
It seems like there is potentially a lot of variability from.
Starting point.
So would you be able to just kind of it because I think their expense run rate was somewhere around $13 5 million.
A quarter I just wanted to see if you could if you could verify that and then you know kind of what would.
It would be kind of a core number without that that base just to kind of begin to forecast off of again I know, it's hard because there's a lot of moving pieces and systems conversions coming up in the second quarter et cetera, but just wanted to see if you could provide a little bit.
More finer point on the the starting point for expenses. This quarter. That's why I think it's a million a million and a half lower than what our operating number was this quarter and I think you have the progress number.
Oh about right and so I think you add those together for Q1 now you have some yeah FICA coming back in in Q1 do you have some so you have some seasonal Q1 things that happen, but then you have a cost savings of the 13 and a half million dollars that we expect to get probably starting some in Q2 with a pretty close to.
Full realization in Q3 full run rate realization in Q3.
Okay. Thank you for that and then just finally, just more broadly speaking obviously the progress deal just closed there's a lot of.
Dislocation out in the market I know you guys have.
<unk> been pretty active on the acquisition front, but the economic backdrop at least is deteriorating so that kind of put additional acquisitions for the time being on hold.
Or will you just be continued.
Continue to be opportunistic like you said in the past and you know obviously I think you've identified some end market opportunities within your footprint, who whoever know who knows when making can come but any reason that you wouldnt continue down the M&A path just in light of the backdrop. Thanks.
Yeah. So this is land you know so I would look at it a little bit like like Lynden money, we're going to always lend money, but and then different environment, we're going to be more selective. So I think you know we have always liked a smaller transactions always like transactions in great markets you know.
We always like conservative lenders out, but I would say you know, we'd probably put a little extra look at that we'd probably look a little extra look at liquidity.
And because at the end of the day the sellers of the one that that take the you know that determine the timing so all that to say is.
You you, we would potentially still be in the M&A game, but you know what you would want it to hit all those.
Anything we announced you would expect it to hit all those triggers in terms of small Sars great market.
High liquidity conservative underwriting.
It would be one that you'd you'd want us to do.
Great. Thanks for taking my questions.
And now we have a question from Kevin Fitzsimmons from D. A Davidson.
Please go ahead.
Hey, good morning, everyone most.
Most of my questions have been.
Asked and answered one one question about the <unk>.
I think when you were talking about the loans in the.
Type of loans that might be.
Be dialed back a little I believe it was mentioned.
Residential mortgage was mentioned is that.
And if that's true is that simply that it's getting through it.
<unk> contribution to the loan mix, where you're less comfortable taking that up or is something changing in the market just curious.
Yes.
Good morning, Kevin This is rich and I think we've been very disciplined about concentration risk and that's really the biggest part of the C. P portfolio that we're doing in other areas. It's probably two years ago, we started slowing weigh down on senior care the underwriting criteria for multifamily is certainly.
[noise] become tighter and also just the mere fact that your stress testing interest rates has made that a little bit more of a challenging product but.
But you know we we continue to look at different aspects. When we were talking about office deals. We havent seen an office deal in senior Credit Committee I I can't tell you how long. So those are just some thoughts I'll just add in there and rich did mentioned it but some of it is just interest rate risk management you are putting on you know five.
Five year, seven year, 10 year paper, and a but might be a rising rate environment and we'd rather just have a little bit less of that coming on.
Okay makes sense and.
And I.
I appreciate the you know the range on the margin, it's certainly going to be noisy in the first quarter with the deal coming on but if we're getting beyond first quarter and now we've got the full.
Progress in <unk>.
Fully in and now, let's say, we're done with fed hikes, but not yet to a point, where the fed's cutting.
And not kind of.
Environment do you think you can hold the margin steady would you expect to hold it steady or would it be more likely that we see some <unk>.
Modest grind down to the margin given the lag.
Deposit cost increases I think it's more likely the latter and that's what we're modeling is a slight.
<unk> grind down again, we have some defenses and that you'll be seeing the loan to deposit ratio.
Increasing a little bit you'll see that mix change between.
Securities to loans that we've been talking about for a few quarters now, but I think the the lag effect of funding and the of the price competition that we're seeing out there combined to drive slightly down for the rest of the year.
And Jefferson just on that point about the loan to deposit ratio so with it up to slightly above 77%. So it's still very liquid balance sheet relative to <unk>.
Pre pandemic.
How would you think about that ratio in terms of you know when you're assessing what when and whether to get more aggressive on.
Positive pricing, how how comfortable are you taking or what level are you comfortable taking that ratio up to.
It's a great question and we have so we had been running in the low eighties for for for very.
For a very long time pre COVID-19, where we felt comfortable we'd feel comfortable moving that higher into the mid eighties.
You're going to see some movement on the loan to deposit ratio next quarter progress coming in takes you 279 on its own so I wouldn't see it wouldnt be surprised to see it tick a little higher from there.
We like again, we like where we are we were comfortable in the mid eighties Bud the the balance sheet management, and how we're thinking about liquidity and deposits it really starts.
Starts now so we're not waiting for it to get to 85 were managing and.
Energizing the deposit franchise now to try to protect the loan to deposit ratio besser can now.
Okay, great. Thanks very much.
Our next question is coming from David Bishop from Harvard did great.
David Please go ahead.
Yeah. Good morning, good morning, David.
Good morning question, maybe more for Rob.
You mentioned.
I think it was maybe the senior.
Component in terms of office, but just hopped off a call where there was another bank, but maybe not your footprint, but maybe at the size, we are seeing some deterioration or some concerns.
Around the office segment, just remind us maybe what your exposure is there and maybe what are what you're seeing in terms of the health of your portfolio.
Hey, David This is Rob so it's around $660 million portfolio.
Criticized and classified in that portfolio at the moment is about 1% just over 1%. So we're really not seeing a whole lot of degradation. There. It is a fairly granular portfolio. So not a lot of large dollar projects are traditionally we have focused on medical office.
<unk> riches favorite phrase around this is that the office building needs to be able to fall down on the hotel if it falls down so that's kind of the that's kind of been our emphasis but it's a very granular portfolio and we're not seeing really not seen a lot of change in its performance.
Got it.
And then Oh.
A question from Kevin just curious securities Buffy the bond portfolio.
Quarterly cash flows thanks, I'll hop off.
Yes, so roughly $200 million this quarter, maybe a smidge unless I can get you the exact number.
Perfect. Thanks.
Our next question comes from Jennifer Dunbar from Truest, Jennifer. Please go ahead.
Thank you good morning, Jennifer.
Curious you just.
Closed the progress deal curious how you feel the reliant transaction has gone after a year.
Now he hasn't been unexpected leadership change.
Got it.
It was your largest acquisition I think you missed expensive just curious how you think it has gone so far versus your plan.
Yeah. So I'll start and then let a rich or on a run with that I mean, we've been pleased with it certainly.
The vans are passing was a blow to all of US are all the team there.
But they've really banded together, we think we think is a long term a great place to be we think we've got the great right people to be there.
Rich is heavily recruiting together with John Wilson there. So so look we're very pleased where there we were very pleased that this was the franchise that got us there.
Yeah, we hit a few speed bumps along the way, we don't we don't mind, saying that but long term, it's going to be a great spot, yeah, and I would add that I do feel that John Wilson and Mark Ryan men have turn the ship around it you know it took a little bit, but we're seeing it both and what are the other comment I would make is the worst certain credits in there that weren't our credit.
Appetite and we believe that we've kind of worked through almost all of that during this past year and feel really good about 2023 and the opportunity.
Great.
Question is on asset quality, you said, you know loan losses or are coming closer to normal levels. What do you think normal levels are four used to be I with the loan portfolio mix. It has today.
So.
That's an interesting question I would say you know ive always sort of targeted through the cycle losses of 30 basis points for for where we are today in a normal environment. If I go back to 'twenty 'twenty, we were at 18 basis points. This quarter, we came in at 17 basis.
<unk> I felt really good in 2020 with the 18 basis points, but you know somewhere in that you know 18 to 30 range.
It seems it seems like a sort of through the cycle normalized type range.
Thanks, so much.
Okay.
And we have a question now from Christopher Merrimack from Janney Montgomery Scott.
Police Christopher go ahead.
Thanks, Good morning, Jefferson on the loan yield improvement we saw this quarter did the SBA had any influence on that just retaining those I didn't know if that was meaningful at all.
No I don't think it's big enough to to affect the whole yield there.
Okay fair enough and Rob just a big picture credit question kind of continuing Genies line of credit.
Or rather do you think that the stress testing that is now done on higher yields and possibly being higher down the road to what extent does that influence.
The way you think about the reserve the ability to for our customers to sustain these levels you know ltvs are cap rates et cetera.
So so it's interesting when you talked about higher interest rates.
What we're seeing is that the higher interest rates on the stress testing is just requiring on the front end certainly requiring a stronger capital I don't think we've done a deal in the last 90 days that didn't start with a 50% or 45%.
Equity number in it and you know 55 to 50% to 55% loan to cost in terms of you know if you're just talking about the standard portfolio what impact of higher interest rates have.
I'm not sure we're seeing all of that fully yet, but I think overall interest rates are a component of increasing costs right. So theres wage inflation, there's cost of supplies are up and interest rates are up and what what we see is that some of our C&I borrowers.
Over the last year and a half if just needed to raise prices and if they're on top of that and doing that proactively works out fine and we've had a couple of them that haven't been proactive and they're needing to catch up.
Great Rob that's helpful color. Thank you both I appreciate all the information this morning.
Yeah.
And this concludes our question and answer session I would like to turn the conference back over to Lynn Harton CEO for any closing remarks.
Oh, great well just didn't close that idea because would thank you all for joining the call for your support of always if you've got additional questions. Please reach out to us and we'll look forward to talking again soon.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.