Q1 2024 First Horizon Corp Earnings Call

[music].

Operator: I will now hand you over to your host, Natalie Flanders, Head of Investor Relations, to begin. Natalie, please go ahead.

Did you over to your host Natalie Flyers head of Investor Relations to begin naturally. Please go ahead.

Thank you Carla.

Natalie Flanders: Thank you, Carla. Good morning. Welcome to our first quarter 2024 results conference call. Thank you for joining us. Today, our Chairman, President, and CEO, Brian Jordan, and Chief Financial Officer, Hope Dmuchowski, will provide prepared remarks, and then we'll be happy to take your questions. We're also pleased to have our Chief Credit Officer, Susan Springfield, here to assist with questions as well. Our remarks today will reference our earnings presentation, which is available on our website at ir.firsthorizon.com.

Natalie Flanders: Morning, welcome to our first quarter of 2024 result results conference call. Thank you for joining US today are chairman, President and CEO, Bryan Jordan and Chief Financial Officer hooked them Chomsky will provide prepared remarks, and then we'll be happy to take your questions. We're also pleased to have our chief credit Officer, Susan Springfield here to assist with <unk>.

Susan L. Springfield: <unk> as well.

Susan L. Springfield: Our remarks today will reference our earnings presentation, which is available on our website at IR Dot first horizon Dot com.

Natalie Flanders: As always, I need to remind you that we will make forward-looking statements that are subject to risk and uncertainties, and therefore, we ask you to review the factors that may cause our results to differ from our expectations on page 2 of our presentation and in our SEC filing. Additionally, please be aware that our comments refer to adjusted results that exclude the impact of notable items. These are non-GAAP measures, so it's important for you to review the GAAP information in our earnings release and on page three of our presentation. And last but not least, our comments reflect our current views, and you should understand that we are not obligated to update them. And with that, I'll turn things over to Brian. Thank you, Natalie. Good morning, everyone.

Susan L. Springfield: As always I need to remind you that we will make forward looking statements that are subject to risks and uncertainties and therefore, we ask you to review the factors that may cause our results to differ from our expectations on page two of our presentation and in our SEC filings.

Additionally, please be aware that our comments will refer to adjusted results, which exclude the impact of notable items.

Susan L. Springfield: These are non-GAAP measures. So it's important for you to review the GAAP information in our earnings release and on page three of our presentation.

Last but not least our comments reflect our current views and you should understand that we are not obligated to update them and with that I'll turn things over to Brian.

Brian: Thank you Natalie and good morning, everyone and thank you for joining our call.

Brian Jordan: And thank you for joining our call. The first quarter of 2024 was another strong quarter for First Horizon, demonstrating our ability to produce consistent returns for our shareholders. We grew revenue both through expanding our margin and improvement in our counter-cyclical businesses while simultaneously reducing expenses and maintaining strong credit performance. In March, we celebrated our 160th year in business and took the opportunity to celebrate the strength and resiliency of our company, which has been driven by dedicated and talented associates. In honor of our 160th anniversary, we recently announced our Grants for Good campaign, which will award $1.6 million in grants to Non-Profit Organizations within our 12-state footprint.

Brian: The first quarter of 2024 was another strong quarter for first horizon, demonstrating our ability to produce consistent returns for our shareholders.

We grew revenue both through expanding our margin and improvement in our countercyclical businesses, while simultaneously, reducing expenses and maintaining strong credit performance.

Brian: In March we celebrated our 160 at year end business.

Brian: And took the opportunity to celebrate the strength and resiliency of our company, which has been driven by a dedicated and talented associate base.

Brian: In honor of our 160 <unk> anniversary, we recently announced our grants for good campaign, which will award $1 $6 million in grants to nonprofits and nonprofit organizations within our 12 state footprint.

Brian: We believe that the communities, where we do business or the foundation of first horizon's long record of success.

Brian Jordan: We believe that the communities where we do business are the foundation of First Horizon's long record of success, and we are proud to continue to support the clients and communities in our market. On slide five, we have shared some of the financial highlights for the quarter. We delivered adjusted EPS of $0.35 per share, up 9% from the prior quarter, with pre-provisioned net revenue of $25 million.

Brian: And we are proud to continue to support our clients and communities in our markets.

Brian: On slide five we have shared some of the financial highlights for the quarter.

Brian: We delivered adjusted EPS of <unk> 35.

Brian: Per share up 9% from the prior quarter with pre provision net revenue of $25 million.

Brian Jordan: Adjusted return on tangible common equity improved to 11.6%, driven by positive operating leverage as well as the benefit of returning excess capital to shareholders. Our improved returns resulted from our ability to drive higher revenue in both our core banking franchise and our countercyclical business. We grew the net interest margin 10 basis points from the fourth quarter from improved pricing on both loans and deposits, driving a $7 million increase in net interest income. FHM Financial had a stronger quarter as well, with a $15 million increase in fixed income fees. In January, our board approved a $650 million share repurchase authorization.

Brian: Adjusted return on tangible common equity improved to 11, 6% driven by a positive operating leverage as well as the benefit of returning excess capital to shareholders.

Brian: Our improved returns resulted from our ability to drive higher revenue in both our core banking franchise and our countercyclical businesses.

Brian: We grew the net interest margin 10 basis points from the fourth quarter from improved pricing, both loans and deposits driving a $7 million increase in net interest income.

Brian: Fhm financial had a stronger quarter as well with a $15 million increase in fixed income fees.

Brian: In January our board approved a $650 million share repurchase authorization.

Hope Dmuchowski: We began to return capital to shareholders this quarter, repurchasing over $150 million of stock, ending the quarter with a common equity tier one ratio of 11.3%. We will continue to opportunistically deploy capital above our 11% near-term target as I look forward to the rest of 2024. I remain incredibly optimistic that First Horizon will continue to deliver strong results quarter after quarter while serving our customers and communities just as we have over the past 160 years.

Brian: We began to return capital to shareholders this quarter repurchasing over $150 million of stock ending the quarter with a common equity tier one ratio of 11, 3%.

Brian: We will continue to opportunistically deploy capital above our 11% near term target.

Brian: As I look forward to the rest of 2024.

Brian: I remain incredibly optimistic that first horizon will continue to deliver strong results quarter after quarter.

Brian: While serving our customers and communities just as we have over the past 160 years.

Brian: We have an attractive footprint, a competitive product set and a strong credit culture that will allow us to profitably navigate the ever changing economic outlook of the upcoming year.

Hope Dmuchowski: We have an attractive footprint, a competitive product set, and a strong credit culture that will allow us to profitably navigate the ever-changing economic outlook of the upcoming year. With that, I'll hand the call over to Hope to run through our financial results in more detail. Hope? Thank you, Brian. Good morning.

Brian: With that I'll hand, the call over to hope to run through our financial results in more detail.

Thank you Brian good morning.

Hope Dmuchowski: On slide six, you will find our adjusted financials and key performance metrics for the quarter. We generated pre-provisioned net revenue of $323 million, up $25 million from the prior quarter. Net interest income increased $7 million from Q4, driven by improvements in both deposit and loan pricing, which expanded the margin by 10 basis points. Fees, excluding the third comp, were up $13 million from last quarter, driven by higher revenues from our fixed income business, which saw a 58% increase in ADR. However, expenses, excluding deferred comp, were down $4 million for the full quarter, driven by a significant reduction to outside services, which, as That reduction was partially offset by personnel increases based on annual merit.

Hope: On slide six you will find our adjusted financial and key performance metrics for the quarter.

Hope: We generated pre provision net revenue of $323 million up $25 million from the prior quarter.

Hope: Net interest income increased $7 million from fourth quarter, driven by improvements in both deposit and loan pricing, which expanded our margin by 10 basis points.

Hope: Fees, excluding deferred comp were up $13 million from last quarter, driven by higher revenues from our fixed income business, which saw a 58% increase in ADR.

Hope: <unk> expenses, excluding deferred comp were down $4 million linked quarter, driven by a significant reduction to outside services, which as previously mentioned were elevated in the fourth quarter.

Hope: That reduction was partially offset by personnel increases for annual Merit.

Hope Dmuchowski: Seasonal Benefits and Revenue-Driven Incentives within our Fix-A-Cum business, expenses remain a lever that we are able to pull to drive increased profitability. We continue to identify and implement operational efficiencies across our bank that will help us offset the increase in our strategic investments to drive enhanced shareholder returns. Provision expense was $50 million this quarter, resulting in a stable ACL coverage ratio of 1.4%.

Hope: Seasonal benefits and revenue driven incentives within our fixed income business.

Hope: Expenses remain a lever that we are able to pull to drive increased profitability.

Hope: Continue to identify and implement operational efficiencies across our bank that will help us offset the increase of our strategic investments to drive enhanced shareholder returns.

Hope: Provision expense was $50 million this quarter, resulting in a stable ACL coverage ratio of 1.4%.

Hope: Our strong performance improved return on tangible common equity by 60 basis points.

Hope Dmuchowski: Our strong performance improved return on tangible common equity by 60 basis points. On slide seven, we outline a couple of notable items in the quarter, which reduced results by two cents per share. First Quarter Notable Items include an incremental expense of $10 million for the FDIC Special Assessment, which stemmed from revised estimates of the FDIC provided in February. We also had $5 million of restructuring expenses associated with personnel initiatives as we remain focused on finding operational efficiencies. We also noted an upcoming event in the second quarter. On April 1st, First Horizon provided notice that it would redeem all outstanding shares of the Series D preferred stock on May 1st.

Hope: On slide seven we outline a couple of notable items in the quarter reduced results by <unk> <unk> per share.

First quarter notable items included incremental expense of $10 million for the FDIC, a special assessments, which stemmed from revised estimates of the FDIC provided in February.

Hope: We also had 5 million of restructuring expenses associated with personnel initiatives as we remain focused on finding operational efficiencies.

Hope: We also noted an upcoming event in second quarter on April 1st first horizon provided notice that it worked to redeem all outstanding shares of the series D preferred stock on May 1st.

Hope Dmuchowski: The Series D shares were acquired during the Iberia merger of equals and do not qualify for capital treatment as the first call date was within a five-year window. The interest rate was set to convert from a fixed coupon to a three-month SOFR plus 4.12% in May. The second quarter will include an approximately $7 million non-cash charge associated with the retirement of this instrument. On slide 8, you will see that margin expanded 10 basis points from the prior quarter to 3.37%, improving MII by $7 million.

Hope: The series D shares were acquired during the Iberia merger of equals and do not qualify for capital treatment is the first call date was within a five year window.

Hope: The interest rate was set to convert from a fixed coupon to a three months, so far plus 412% in may.

Hope: Second quarter will include an approximately 7 million noncash charge associated with the retirement of this instrument.

Hope: Okay.

Hope: On slide eight you will see that margin expanded 10 basis points from the prior quarter to 337% improving M II by $7 million.

Hope: First quarter benefited from a full quarter of repricing on the promotional deposits gathered in 2023 with interest bearing deposit cost declining nine basis points from prior quarter.

Hope Dmuchowski: The first quarter benefited from a full quarter of repricing on the promotional deposits gathered in 2023, with interest-bearing deposit costs declining nine basis points from the prior quarter. Loan yields also expanded nine basis points from the benefit of wider spreads on new and renewing loans, as well as the ability to redeploy lower yielding fixed rate cash flows.

Hope: Loan yields also expanded nine basis points from the benefit of wider spreads on new and renewing loans as well as the ability to redeploy lower yielding fixed rate cash flows.

Hope Dmuchowski: The path for deposit costs over the rest of the year will depend on when the Fed decides to cut rates, as well as the level of competition we see in our market. Meanwhile, loan yields still have room to modestly expand as fixed cash flows continue to reprice. As you can see on slide 9, we've successfully maintained deposit balances while reducing our deposit costs. Period end deposits are flat quarter to quarter with a five basis point reduction to the total deposit rate and a nine basis point reduction to the interest-bearing rate paid.

Hope: The path for deposit cost over the rest of the year will depend on when the fed decides to cut rates as.

Hope: As well as the level of competition, we see in our markets.

Hope: Meanwhile, loan yields still have room to modestly expand as fixed cash flows continue to reprice.

Hope: As you can see on slide nine we've successfully maintained deposit balances, while reducing our deposit costs.

Hope: Period end deposits are flat quarter to quarter with a five basis point reduction to the total deposit rate and a nine basis point reduction to the interest bearing rate paid.

Hope Dmuchowski: We continue to see strong retention on the promotional deposits repriced last quarter, with about 90% retention on both the number of clients and the balance. We had a modest increase in brokered balances as contracts initiated in 2023 funded up ahead of approximately 800 million of brokered CDs maturing in the second quarter. Though we continue to see some rotation out of non-interest bearing in January, balances have been relatively flat since February. We have an overview of our diversified loan portfolio on slide 10. Period end loans were up 1% from the prior quarter.

Hope: We continue to see strong retention on the promotional deposits repriced last quarter with about 90% retention on both the number of clients and the balances.

Hope: We had a modest increase in brokered balances as contracts initiated in 2023 funded up ahead of approximately $800 million of broker Cds maturing in the second quarter.

Hope: Though we continue to see some rotation out of noninterest bearing in January balances were relatively flat since February.

Speaker Change: Do you have an overview of our diversified loan portfolio on slide 10.

Speaker Change: Period end loans were up 1% from the prior quarter.

Hope Dmuchowski: Loans to mortgage companies are up 17% or $343 million at period end, though average balances were down slightly due to typical seasonality in the CRE loans are up $210 million, driven by fund-ups, primarily in multifamily. We added some additional pre-detail in the appendix this quarter, including a geographical breakdown that illustrates the granularity and attractive footprint of the portfolio. Loan yields are up nine basis points, continuing to benefit from wider spreads on new and renewing loans, as well as continued repricing of fixed rate cash. Spreads on new loans increased 46 basis points year over year.

Speaker Change: Loans to mortgage companies are up 17% or 343 million at period end. So average balances were down slightly due to typical seasonality in the business.

Speaker Change: CRE loans are up $210 million driven by Sun depth, primarily in multifamily.

Speaker Change: We added some additional cree detail in the appendix this quarter, including a geographical breakdown that illustrates the granularity and attractive footprint of the portfolio.

Speaker Change: Loan yields are up nine basis points, continuing to benefit from wider spreads on new and renewing loans as well as continued repricing of fixed rate cash flows.

Spreads on new loans increased 46 basis points year over year.

Speaker Change: Fixed rate cash flows should continue to be a tailwind as we have $4 billion of cash flows coming back over the next year with the roll off yield of approximately four 4%.

Hope Dmuchowski: Fixed rate cash flows should continue to be a tailwind, as we have $4 billion of cash flows coming back over the next year, with a roll-off yield of approximately 4.4%. On slide 11, you can see that our counter-cyclical businesses had a relatively strong quarter. Average daily revenue in our fixed income business increased $268,000 from the fourth quarter, contributing an additional $15 million of fee income.

Speaker Change: On slide 11, you can see that our countercyclical businesses had a relatively strong quarter.

Speaker Change: Average daily revenue in our fixed income business increased 268000 from fourth quarter contributing an additional $15 million of fee income.

Speaker Change: The rebound this quarter was driven by improving liquidity conditions in the banking sector and the market's expectation that short term rates had Pete and we're likely headed lower.

Hope Dmuchowski: The rebound this quarter was driven by improving liquidity conditions in the banking sector and the market's expectation that short-term rates had peaked and were likely headed lower. Though the recent inflation numbers have reduced the prospect of rate cuts, we expect business will remain solid, though not as strong as first-quarter levels. Mortgage revenue also increased by $4 million, primarily due to higher volume.

Though the recent inflation numbers have reduced the prospect of rate cuts, we expect business will remain solid, though not as strong as first quarter levels.

Speaker Change: Mortgage revenue also increased by $4 million, primarily due to higher volumes.

Speaker Change: Service charges and fees decreased 2 million due to seasonality and overdraft fees.

Hope Dmuchowski: Service charges and fees decreased $2 million due to seasonality and overdraft. Card and Digital Banking Fees rebounded $3 million. That fourth quarter included a non-recurring impact from an accounting methodology adjustment on interchange rebates. Lastly, our non-interest income declined $6 million, mostly due to lower FHLB dividends as well as a modest reduction in letter of credit and swap, Slide 12. We show that excluding deferred compensation, adjusted expenses are down $4 million, and personnel excluding deferred comp was up $17 million from last quarter with a couple of drivers.

Speaker Change: Card and digital banking fees rebounded 3 million as fourth quarter included a nonrecurring impact from the accounting methodology adjustment on interchange Rebase.

Speaker Change: Lastly, our non interest income declined 6 million, mostly due to lower FH lv dividends as well as a modest reduction in letter of credit and swap fees.

Speaker Change: Slide 12, we show that excluding deferred compensation adjusted expenses are down $4 million.

Speaker Change: Personnel, excluding deferred comp was up $17 million from last quarter with a couple of drivers first salaries and benefits were up $9 million due to our annual Merit increase which were effective January one.

Hope Dmuchowski: First, salaries and benefits are up $9 million due to our annual merit increase, which was effective January 1st, and Seasonality and Certain Benefits lines, such as 401k match and unemployment compensation. Second, incentives and commissions increased $7 million driven by incentives on the Fixed Income Revenue Group. Offsetting these personnel increases is a significant decrease in outside services.

Speaker Change: And seasonality and certain benefits lines, such as four one K match and unemployment compensation second incentives and commissions increased $7 million driven by incentives on the fixed income revenue growth.

Speaker Change: Offsetting these personnel increases is a significant decrease to outside services as a reminder, our fourth quarter marketing expense was elevated for deposit in brand campaigns as well as third party services engaged on our strategic investments.

Hope Dmuchowski: As a reminder, our fourth-quarter marketing expense was elevated for deposit and brand campaigns, as well as third-party services engaged on our strategic investment. As 2024 progresses, we expect technology investment expenses to moderately increase over the year, but those costs will be offset by lower retention expenses and continuing to identify and implement operational efficiency. I'll cover asset quality reserves on slide 13. The loan loss provision was $50 million this quarter, flat to the prior quarter.

Speaker Change: 'twenty 'twenty four progresses, we expect technology investment expenses to moderately increase over the year, but those costs will be offset by lower retention expenses and continuing to identify and implement operational efficiencies.

Speaker Change: I'll cover asset quality reserves on slide 13.

Speaker Change: Loan loss provision was $50 million this quarter flat to prior quarter.

Hope Dmuchowski: Net charge-offs were $40 million or $27 billion. Our largest charge-off this quarter was a $9 million C&I loan to a consumer goods company for which we were already fully reserved. We also had $12 million of partial charge-downs on three commercial real estate loans based on updated appraisal values. The ACL coverage ratio remains stable at 1.40%. We provide additional detail in the appendix that gives some insight into the diversification and granularity of our loan portfolio. However, we have remained disappointed in underwriting and our approach to client selection.

Speaker Change: Net charge offs were $40 million or 27 basis points.

Speaker Change: Our largest charge off this quarter was a 9 million C&I loan to a consumer goods company for which we were already fully reserved.

Speaker Change: We also had 12 million partial charge down on three commercial real estate loans based on updated appraisal values.

Speaker Change: The ACL coverage ratio remained stable at 1.41%.

Speaker Change: We provided additional detail in the appendix that gives some insight into the diversification and granularity of our loan portfolio.

Speaker Change: We have remained disciplined in underwriting and our approach to client selection.

Hope Dmuchowski: While we have seen some additional negative grade migration in the first quarter, overall, we continue to see stable credit performance across markets and industries. On slide 14, you can see that we have maintained strong capital levels while successfully deploying capital to shareholders through the repurchase of almost 11 million shares, utilizing approximately 150 million of our 650 million share repurchase authority. Share repurchases drew a nine basis point reduction in capital this quarter, while CET1 remains very strong at 11.3%.

While we have seen some additional negative grade migration in the first quarter overall, we continue to see stable credit performance across markets and industries.

Speaker Change: On Slide 14, you can see that we have maintained strong capital levels, while successfully deploying capital to shareholders through the repurchase of almost 11 million shares utilizing approximately $150 million of our $650 million of share repurchase.

Speaker Change: Hardy.

Speaker Change: Share repurchases drove a nine basis point reduction in capital this quarter, while CET one remains very strong at 11, 3%.

Hope Dmuchowski: Adjusting for the markup on our securities portfolio and loan book, our pro forma CET1 ratio would be 8.8%, which is well above the regulatory threshold. We will continue to opportunistically deploy capital above our 11% near-term target. First quarter tangible book value per share increased to $12.16, benefiting from 35 cents of net income, offset by $0.15 of dividends.

Speaker Change: Adjusting for the marks on our securities portfolio and loan book, our pro forma CET, one ratio would be eight 8%, which is well above the regulatory threshold.

Speaker Change: We will continue to opportunistically deploy capital above our 11% near term target.

Speaker Change: First quarter tangible book value per share increased to $12 16.

Speaker Change: Benefiting by 35 of net income.

Speaker Change: All set by 15 a dividend.

Hope Dmuchowski: $0.15 from higher mark-to-market impact and $0.04 of share buyback. On slide 15, we've updated our 2024 outlook slightly to reflect better-than-expected performance in our counter-cyclical businesses. We continue to expect our full-year NII growth to fall within the 1-4% range that we originally outlined. We have updated our assumptions for interest rates to reflect the forward curve for March, which includes cuts in June, September, and November. Though the market's expectations have continued to evolve over the last few weeks, we do not believe that it will have a material impact on our outlook.

Speaker Change: <unk> 15 cents from higher Mark to market impact and four cents of share buybacks.

Speaker Change: Okay.

Speaker Change: On slide 15, we've updated our 2024 outlook slightly to reflect better than expected performance in our countercyclical businesses.

Speaker Change: We continue to expect our full year NII growth to fall within the 1% to 4% range that we originally outlined we have updated our assumptions for interest rates to reflect the forward curve for March which includes cuts in June September and November though the market's expectations have continued to evolve over the last few weeks, we do not believe it is.

Speaker Change: Have a material impact to our outlook.

Speaker Change: We saw strong performance from our countercyclical businesses in the first quarter with fixed income fees up $15 million and mortgages up $4 million from prior quarter.

Hope Dmuchowski: We saw strong performance from our countercyclical businesses in the first quarter, with fixed income fees up $15 million and mortgages up $4 million from the prior quarter. We expect these businesses to continue to perform well, which has improved our outlook for non-interest income groups from a range of 4.6% previously to an updated 6 to 10%. The expense outlook remains unchanged.

Speaker Change: We expect these businesses to continue to perform well.

Speaker Change: Which has improved our outlook for noninterest income growth from a range of $4, 6% previously to an updated 6% to 10%.

The expense outlook remains unchanged.

Brian Jordan: Despite increases to revenue-driven incentives in our counter-cyclical businesses, due to the benefit of the operational efficiencies we have implemented. I will wrap up on slide 16, which is a slide that you have all seen a few times now, but it really drives home that we are focused on the company in order to maximize shareholder value. The first quarter was a great start to 2024, and I believe this is the beginning of a strong year for First Horizon.

Speaker Change: Slight increases to revenue driven incentives in our countercyclical businesses.

Speaker Change: Due to the benefit of the operational efficiencies we have implemented.

Speaker Change: I will wrap up on slide 16, which is a slide that you have all seen a few times now, but it really drives home that we are focused on a company in order to maximize shareholder value.

Speaker Change: First quarter was a great start to 2024 and I believe this is the beginning to a strong year for first horizon.

Brian Jordan: We expect to deliver better revenue performance than we laid out in our original guidance while finding operational efficiencies to maintain our expense guidance. We are making tremendous progress on the strategic investments we have been talking about for almost a year now, and these initiatives will allow us to offer our clients and associates better products, better service, and improved First Horizon has a diversified business model that can provide top quartile results throughout any cycle.

Speaker Change: We expect to deliver better revenue performance and we laid out in our original guidance, while finding operational efficiencies to maintain our expense guidance, we are making tremendous progress on our strategic investments we have been talking about for almost a year now and these initiatives will allow us to offer our clients and associates at our products better.

Speaker Change: Service and improved efficiency.

Speaker Change: First horizon has a diversified business model that can provide top quartile results throughout any cycle, we are well positioned to capitalize on our 160 year legacy with our passionate and dedicated bankers clients and communities. We will continue to demonstrate our commitment strength and resilience.

Brian Jordan: We are well positioned to capitalize on our 160-year legacy with our passionate and dedicated bankers, clients, and employees. We will continue to demonstrate our commitment, strength, and resiliency while increasing shareholder returns.

Speaker Change: C. While increasing shareholder returns now I'll give it back to Brian.

Brian Jordan: Thank you, Hope. Our first quarter results reflect the strength of our franchise and the ability to improve profitability in an extremely competitive industry. As Hope mentioned, our teams have made great progress over the last year on our strategic investment, which will allow our associates to serve our clients more quickly and efficiently. I continue to remain confident that this company has the people, the clients, and the enthusiasm to build an unparalleled banking franchise in the South.

Brian: Thank you hope.

Brian: Our first quarter results reflect the strength of refranchising and the ability to improve profitability in an extremely competitive industry.

Let's hope mentioned our teams have made great progress over the last year on our strategic investments, which will allow our associates to serve our clients more quickly and efficiently.

Brian: We continue to remain confident that this company has people the clients and the enthusiasm to build an unparalleled banking franchise in the south.

Brian: My expectation is that the next few months for the economy will look similar to the first quarter, which gives me tremendous confidence in our ability to generate strong returns for our shareholders throughout the rest of the year.

Brian Jordan: My expectation is that the next few months for the economy will look similar to the first quarter, which gives me tremendous confidence in our ability to generate strong returns for our shareholders throughout the rest of the year. Finally, I want to touch on the announcement we made on Monday that our Chief Credit Officer, Susan Springfield, has decided to retire later this year. We have named Tom Hong as her successor.

Speaker Change: Finally, I want to touch on the announcement, we made Monday that our Chief Credit Officer, Susan Springfield has decided to retire later this year.

Speaker Change: We have named Tom hung his or her successor.

Brian Jordan: Tom currently runs our franchise finance business and brings a wealth of credit and client experience to the role. We have already started the transition process, with Tom serving as Deputy Chief Credit Officer as he prepares to officially step into the role on October 1st. Susan will remain with the company until the end of the year to help ensure a seamless transition. Susan's decision to retire is bittersweet, and she will be greatly missed.

Speaker Change: <unk> currently runs our franchise finance business and brings a wealth of credit and client experience to the role.

Speaker Change: We have already started the transition process with Tom serving as Deputy Chief Credit officer as he prepares to officially step into the role on October one.

Speaker Change: Susan will remain with the company until the end of the year to help ensure a seamless transition.

Speaker Change: Susan's decision to retire is bittersweet because she will be greatly missed she has been with the company for nearly 30 years, having served as chief credit officer for 11 of those years.

Brian Jordan: She has been with the company for nearly 30 years, having served as chief credit officer for 11. She led us adeptly through a number of credit cycles, maintaining strong credit quality under her leadership. She has been a vital member of our Executive Management Committee, as well as a mentor and role model to countless young professionals throughout her distinguished career.

Speaker Change: She led us definitely through a number of credit cycles.

Speaker Change: Strong credit quality under her leadership.

Speaker Change: She has been a vital member of our executive management Committee as well as a mentor and Roma role model to countless young professionals throughout her distinguished career.

Operator: We are incredibly grateful for her steadfast leadership and her unwavering devotion to our team and our clients. Thank you, Susan. Carlin, we can now open it up for questions. Thank you, Brian. If you'd like to ask a question, please press star followed by one on your telephone keyboard. If you change your mind, please press star followed by one again. When preparing to ask your question, please ensure your device is on mute.

Speaker Change: Core incredibly grateful for her steadfast leadership and are unwavering devotion to our team and our clients. Thank you Susan.

Speaker Change: Carl we can now open it up for questions.

Carl: Thank you Bryan if you'd like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by two when preparing to ask your question. Please ensure your devices on mute locally.

Carl: Our first question comes from Ebrahim <unk> from Bank of America.

Ebrahim Huseini Poonawala: Our first question comes from Ebrahim Poonawala from Bank of America. Hey, good morning. Morning, Ebrahim. Hey Brian, how are you?

Ebrahim: Hey, good morning.

Ebrahim: Good morning Ebrahim.

Ebrahim: Hey, Brian how are you.

Hope Dmuchowski: I guess maybe this is the first question for Hope around NII Outlook. In the past, Hope, you provided support rates and deposit costs. Just give us, if you don't mind, if you can drill down into what the support rate was at the end of 1Q and how we should think about that drifting higher, I'm assuming, if we don't get much in terms of rate cuts for the rest of the year. Thanks, Ebrahim. It's good to hear from you this morning.

Ebrahim: I guess, maybe just first question for hope alone and I outlook in the past hope you provided or spot rates on deposit costs can you just give us if you don't mind.

Ebrahim: We can drill down into what the spot rate was at the end of <unk> and how we should think about that just being hired him assume assuming if we don't get too much in terms of rate cuts for the rest of the year.

Ebrahim: Yeah.

Thanks, Abraham good to hear from this morning.

Hope Dmuchowski: Our spot rate at the end of the quarter was slightly up on interest-bearing and total deposits, but on average kind of flat. Some of it is mixed, some of it's timing, so I really want to focus on what our overall deposit cost was for the quarter. Our FATAs went from a peak of $63,000 down to $6,000. We continue to have momentum in retaining the balances and repricing them. We're probably at the bottom of being able to reprice those promotional deposits, and we are seeing increased competition.

Ebrahim: Our spot rate at the end of the quarter was slightly up on interest bearing.

Speaker Change: And total deposits on average kind of flat.

Speaker Change: Some of it is mix some of it's timing so I really want to focus on what was our overall deposit costs for the quarter. Our betas went from a peak of 63 down to 60, we continue to have momentum entertaining the balances in repricing them, we're probably at the bottom of being able to reprice as promotional deposits and we are seeing increased call.

Speaker Change: Petition as you mentioned the longer it takes us to get that first rate cut the harder I think it's going to be to continue to drive deposit costs down meaningfully.

Hope Dmuchowski: As you mentioned, the longer it takes us to get that first rate cut, the harder I think it's going to be to continue to drive deposit costs down meaningfully. We could be a couple of basis points here or there within a month or a spot rate within a quarter, but I think we're probably close to where the deposit cost will be for the rest of the year, within 1% maybe on the margin on either side.

We could be a couple of basis points here or there within a month or a spot rate within a quarter, but I think we're probably close to where the deposit costs will be for the rest of the year with within you know 1% maybe on the bet on either side. It is really hard to predict the market is just changing so quick and competition will flow one month, and then pick up the next week and so.

Hope Dmuchowski: It is really hard to predict. The market is just changing so quick, and competition will flow one month and then pick up the next week, and so it's going to be kind of a month by month cycle for the industry, I think. I got it. And let me go ahead. Go ahead, Ebrahim.

Speaker Change: You know it is going to be kind of a month by month look.

Speaker Change: Former ATA industry I think.

Speaker Change: Brian.

Speaker Change: Yeah.

Speaker Change: Right.

Speaker Change: So go ahead of the room.

Speaker Change: Yeah, No and I guess, just taking a step back when we look at that 1% to 4% NII Guide is it is the delta gonna be it on what gets you to 4% is it going to be just loan growth or whether or not we get immediate cuts like what's more impactful.

Hope Dmuchowski: Yeah, and I guess just taking a step back, when we look at that 1 to 4% NII guide, is the delta going to be around what gets you to 4%? Is it going to be just loan growth? Or whether or not we get any rate cuts? Like, what's more impactful?

Speaker Change: Yeah, Ebrahim, if you get to the higher end of that guidance, we would definitely have to see less rate cuts, we have an asset sensitive balance sheet.

Hope Dmuchowski: Yeah, Ebrahim, if you get to the higher end of that guidance, we would definitely have to see fewer rate cuts. We have an asset-sensitive balance sheet. And so less rate cuts puts us at the higher end; more rate cuts puts us at the lower end. The thing that I can't handicap right now within, you know, 1 to 2% for the full year is what are deposit costs going to do for the rest of the year.

Speaker Change: And so with less rate cuts put us it puts us at the higher end more right customers at the lower end the thing that I I can't Handicap right now within 1% to 2% on a full year is what are the deposit cost can do for the rest of the year. We had originally given guidance, assuming we see a rate cut at some point early half of the year and we start to see competition.

Hope Dmuchowski: We had originally given guidance assuming we would see a rate cut at some point in the early half of the year. But when we start to see competition for deposit costs going down as an industry, and if we don't see any rate cuts, we don't see rate cuts until late in the year. That's where it gets a little harder for me to predict.

Speaker Change: For deposit cost to be going down as an industry and if we don't see any rate cut we don't see breakout for late in the year.

Speaker Change: Where it gets a little harder for me to predict but think about it as one would be on the lower end with the current curve and less rate cuts is more positive for us to get to the higher end of that guidance.

You'll remember when we laid out that guidance in the fourth quarter, we laid it out based on four rate cuts in 2024.

Hope Dmuchowski: But think about it, as we'll be on the lower end with the current curve, and less rate cuts would be more positive for us to get to the higher end of that guidance. You'll remember when we laid out that guidance in the fourth quarter, we laid it out based on four rate cuts in 2024, and, you know, the over and under betting seems to be that we're going to, the market has two today, and there are questions about whether we get two or not. So that will dictate how we do it.

Speaker Change: The over and under bedding seems to be we're going to the market as to today and their questions about whether we'd get to or not so that would dictate it.

Speaker Change: Was it in loan pricing will both be affected by how many could we actually do get so.

Speaker Change: <unk> pointed out the most important.

Speaker Change: Aspect of managing the margin as well.

Speaker Change: We're not playing solitaire, we're doing this in a committed competitive marketplace.

And we've seen pricing competition increased fairly significantly and I think you're seeing that show up in some of the earnings releases that are out there and so we'll continue to protect our deposit base will continue to protect our customer base and we will continue to compete on our own.

Brian Jordan: So deposit and loan pricing will both be affected by how many cuts we actually do get. As Hope pointed out, the most important aspect of managing the margin is... We're not playing solitaire, we're doing this in a competitive marketplace, and we've seen pricing competition increase fairly significantly, and I think you're seeing that show up in some of the earnings releases that are out there. And so we'll continue to protect our deposit base, we'll continue to protect our customer base, and we'll continue to compete on a long-term basis to grow the franchise.

Speaker Change: A long term basis of growing the franchise.

Speaker Change: I'd say were every bit as focused on managing both sides of the balance sheet you saw improvement on loan spreads and you've seen improvement on deposit pricing.

Speaker Change: That will continue we just think it's sort of stabilized at this point given what's going on competitively.

Speaker Change: Thanks for taking my question.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Michael Rose from Greenland James.

Michael Edward Rose: Hey, good morning, everyone. Thanks for taking my questions and I think in the prepared remarks, you mentioned that.

Brian Jordan: I would say we're every bit as focused on managing both sides of the balance sheet; you saw improvement on loan spreads, and you've seen improvement on deposit pricing. And, and we think that will continue. We just think it's sort of stabilized at this point, given what's going on competitively. Thanks for taking my question. Thank you. Our next question comes from Michael Rose from BrainBurn. Hey, good morning, everyone.

Michael Edward Rose: Loan yields have the potential to move higher.

Michael Edward Rose: Just as our cash flows.

Michael Edward Rose: <unk>.

Michael Edward Rose: To mature can you just give us a sense for what the magnitude of that could be and.

Speaker Change: Brian If you can just generally comment on on loan demand and some of your markets. At this point, obviously I think some areas of commercial real estate, a little bit weaker, but you are seeing some fund ups from existing commitments.

Speaker Change: Commitments and just what Youre seeing generally in the C&I side. Thanks.

Speaker Change: Thanks, Michael.

Speaker Change: As I mentioned in my prepared comments, we do have a fair amount of.

Michael Edward Rose: Thanks for taking my questions. I think in the prepared remarks, you mentioned that loan yields have the potential to move higher just as cash flows continue to mature. Can you give us a sense for, you know, what the magnitude of that could be? And, you know, Brian, if you can just generally comment on loan demand in some of your markets. At this point, obviously, I think some areas of commercial real estate are a little bit weaker, but you are seeing some fund-ups from existing commitments, and just what you're seeing in general on the CNI side. Thanks.

Speaker Change: Cash flow coming in that we will be able to redeploy from a loan growth perspective.

Speaker Change: We're forecasting kind of flat to maybe slightly up as we look at where to redeploy that mortgage warehouses. One of those that is a seasonal product for us and tends to fund up in Q2, and Q3 and it's our highest yielding.

Speaker Change: I think that we have worse. So when we look at kind of how old it year projected you need to look at the seasonality of that business. We continue to see on renewing business and new business expanding margins anywhere from 150 basis point spread all the way up to 300 and somewhat above 300, and our core businesses and so.

Hope Dmuchowski: Thanks, Michael. As I mentioned in my prepared comments, we do have a fair amount of cash flow coming in that we will be able to redeploy. From a loan growth perspective, we're, you know, forecasting kind of flat to maybe slightly up. As we look at where to redeploy, that mortgage warehouse is one of those that is a seasonal product for us and tends to fund up in Q2 and Q3, and it's our highest yielding asset that we have.

Speaker Change: When you think about our specialty businesses, they have a higher spread anything by regional businesses that they are off slightly on the lower end of that.

Speaker Change: I feel confident that we will be able to even with slowing along demand that we'll be able to put this into our portfolio.

Folio on the client side and be able to be there for our existing clients and bring new clients into the first REIT in the franchise with an expanding alone.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Alright, cool off pick up phone on loan demand low demand is okay. Its not great. It really is in pockets that you see real strength you have some aspects of the Carolinas, where loan demand has been very good and you see other pockets, where it's probably a bit softer as you mentioned, we do have that.

Hope Dmuchowski: We're, you know, so when we look at kind of how the year will be projected, you need to look at the seasonality of that business. We continue to see renewal business and new business expanding margins anywhere from, you know, 150 basis points spread all the way up to 300 and some above 300 in our top businesses. And so when you think about our specialty businesses, they have a higher spread. When you think about regional businesses, they are slightly on the lower end of that, but I feel confident that we will be able to, even with slowing the loan demand, that we'll be able to put this into our portfolio on the client side and be able to be there for our existing clients and bring new clients into the First Horizon franchise with an expanding loan margin. Michael, I'll pick up on loan demand. Loan demand is fine. It's not great.

Speaker Change: Benefit of some fund up both from existing relationships.

Speaker Change: And you started to see the tick up in seasonality in our mortgage warehouse lending business and Thats, usually stronger in the second and third quarters of the year as the movie season.

Speaker Change: Kicks in.

Speaker Change: But overall, we're still seeing good opportunities, we're still being very selective about how and where we participate particularly on price and structure, but we're looking for long term.

Speaker Change: Growth and really those generational opportunities to move business.

Brian Jordan: It really is in the pockets that you see real strength. You have some aspects of the Carolinas where loan demand has been very good, and you see other pockets where it is probably a bit softer. As you mentioned, we do have the benefit of some funding on some existing relationships, and you started to see the tick up in seasonality in our mortgage warehouse lending business. And that's usually stronger in the second and third quarters of the year, when the moving season kicks in. But overall, we're still seeing good opportunities. We're still being very selective about how and where we participate, particularly on price and structure.

Speaker Change: But I expect that.

Speaker Change: Loan demand is likely to remain somewhat more modest broadly speaking in the economy simply because we're in that space between rates not going up anymore and rigs not coming down and I think people are still a little bit cautious and it's going to take a little bit more certainty.

Speaker Change: When the fed is going to move and I think people will start to wane in the economy is still very good in our view relative to all that's going on in the world and how much rates have been moving up.

Speaker Change: As you know we benefit from being in a sector of the U S. South it has a very strong.

Brian Jordan: But we're looking for long-term growth and really those generational opportunities to move business. But I expect that loan demand is likely to remain somewhat more modest, broadly speaking, in the economy simply because we're in that space between rates not going up anymore and rates not coming down. And I think people are still a little bit cautious, and it's going to take a little bit more certainty about when the Fed is going to move before people start to lean in.

Speaker Change: General economic dynamics, so we think that loan demand will be fairly self but improve over the course of the year.

Speaker Change: That's great color and maybe just as my follow up maybe one for Susan Congratulations on your upcoming retirement.

Speaker Change: Reserve can you just describe or what drove kind of the increase in non performers and then if you have an update to the criticized balances at quarter end I think they were a little over.

Brian Jordan: The economy, still very good in our view relative to all that's going on in the world and how much rights have been moving up. You know we benefit from being in a sector of the U.S. South that has a very strong general economic dynamic, so we think loan demand will be fairly soft, but improve over the course. That's great color. And maybe, just as a follow-up, maybe one for Susan and congratulations on your upcoming retirement. Well deserved.

$2 billion at the at the end of the fourth quarter.

Susan L. Springfield: Sure and thanks, Michael for the nice comments.

Reserve: As it relates to new nonperforming and we saw nonperforming go up about $43 million and that's.

Reserve: They were.

Reserve: A few new nonperforming loans that that increase was largely driven by too crowded.

Reserve: One was a senior living.

Speaker Change: So they say.

Susan L. Springfield: Can you just describe what drove kind of the increase in non-performers? And then if you have an update to the criticized balances at quarter end, I think there were a little over 2 billion at the end of the fourth quarter. Thanks.

Speaker Change: Senior living assisted living memory care facility and the other was a a consumer finance company again, so when we're seeing some slight movement in npls were still seeing it kind of not any specific industry or sector.

Susan L. Springfield: And thanks, Michael, for the nice comments. As it relates to new non-performing loans, we saw non-performing go up about $43 million, and that's Transcript by Transcription Outsourcing, LLC. One was a senior living.

Speaker Change: And as it relates to criticize we have had a.

Speaker Change: Continued focus on conservative grading them unless we so lets.

Speaker Change: Seasonal getting in year end financials on on borrowers we did see criticized balances go up.

Susan L. Springfield: Assisted Living Memory Care Facility, and the other was a consumer finance company. Again, so when we're seeing some slight movement in NPLs, we're still seeing it kind of, not any specific industry or sector. And as it relates to criticism, we have had a continued focus on conservative grading, and as we are somewhat seasonal getting in year-end financials on borrowers, we did see criticized balances go up about 20%, but most of that was been Special mention is kind of a watch status, so those are not defined weaknesses at this point, they're more potential weaknesses where we're just taking a more frequent look working with borrowers.

Speaker Change: About 20%, but most much of that was in.

Speaker Change: Social mentioned kind of a watch status. So those are not defined weaknesses at this point there are more.

Speaker Change: For a potential weaknesses, where we're just taking a.

Speaker Change: Or frequent look working with borrowers the other thing that I'm really pleased to see and this is in commercial real estate as well as C&I.

Speaker Change: As borrowers really coming to the table wanting to work with US we're wanting to work with them.

Speaker Change: We've seen good opportunities to bring in additional activity reserves et cetera.

Susan L. Springfield: The other thing I'm really pleased to see, and this is in commercial real estate as well as C&I, is borrowers really coming to the table, wanting to work with us; we want to work with them. We've seen good opportunities to bring in additional equity reserves, etc. as we have funds that may be temporarily challenged due to the interest rate environment, and then classified ones were up less than 10%. Perfect. Thanks for taking my questions.

As we have funds that may be temporarily challenged due to interest rate environment.

Speaker Change: And then classified ones where.

Speaker Change: Were up less than 10% quarter over quarter.

Speaker Change: Yeah.

Speaker Change: Perfect. Thanks for taking my questions I appreciate it.

Speaker Change: Thanks, Michael.

Speaker Change: Our next question comes from John Harts was shrunk from RBC.

John G. Pancari: Let's close John.

John G. Pancari: Good morning, everyone.

John G. Pancari: Hey, John.

John G. Pancari: It's like trying to pronounce hopes last name, it's just as challenging.

Speaker Change: [laughter] just Susan for you just to follow up on Michael's question anything new or surprising that youre seeing on credit.

Susan L. Springfield: I appreciate it. Our next question comes from John Harfstrom from RDN. That's close, John Arfstrom. Good morning, everyone. It's like trying to pronounce Hope's last name.

Speaker Change: To what do you think we should expect on nonperforming trends for 2024 can you just set the expectation there.

Jon Glenn Arfstrom: It's just as challenging. Susan, for you, just to follow up on Michael's question, anything new or surprising that you're seeing on credit? And what do you think we should expect on non-performing trends for 2024? Can you just set the expectation there?

Speaker Change: Yeah.

Speaker Change: Uh huh.

Speaker Change: Really seeing anything that surprises me I'm again, where stewart with each one kind of has the stories, we're talking borrower by borrower.

We've had.

Speaker Change: A number of deep dives and portfolio reviews across lines of business in different regions.

Susan L. Springfield: Yeah. I'm not really seeing anything that surprises me. Again, each one kind of has its story. We're talking barware by barware.

Speaker Change: Great conversations.

Speaker Change: Our bankers about what's going on our bankers are having great conversations with clients.

Susan L. Springfield: We've had a number of Deep Dives and Portfolio Reviews across lines of business in different regions. Great conversations. Our bankers are always talking about what's going on. Our bankers are having great conversations with clients. As I mentioned earlier in response to Michael's question, I'm still really pleased to see how we're able to be at the table and talk about strike sizing alone or, "What do we need to do? What do you think is going to happen when we get updated projections from clients?".

Speaker Change: As I mentioned earlier to Michael's question, I'm still really pleased to see.

Speaker Change: How we're able to be at the table talk about right sizing alone or.

Speaker Change: What do we need to do what what do you think's going to happen getting updated projections from clients. So we still feel good about.

Speaker Change: So the ultimate performance of the portfolio.

Speaker Change: Think depending on what happens with interest rates John.

Susan L. Springfield: I still feel good about the Ultimate Performance of the Portfolio. I think depending on what happens with interest rates, John, that's probably going to affect it. If, obviously, if we start seeing rates start to go down, I think you'll see... Non-performing loans start to slow in terms of any increase. The good news about not having any increased rates right now, though, you're seeing a lot of borrowers who have adapted to this new interest rate and were able to pass along costs. Transcripts provided by Transcription Outsourcing, LLC, being more fish.

John G. Pancari: That's probably going to affect.

John G. Pancari: Obviously, if we start seeing rates start to go down and I think you'll see a nonperforming loan start to slow in terms of any increases.

John G. Pancari: The good news about not having any increased rates right now, though you're seeing a lot of borrowers who have adapted to this new interest rate environment.

John G. Pancari: Whether you're able to pass along cost.

John G. Pancari: And their businesses or just learning how to do things differently.

John G. Pancari: Being more efficient learning how to operate in a higher interest rate environment. So is this we're still we're still being cautious from I mentioned, we're always selective.

Susan L. Springfield: Learning How to Operate in a Higher-Interest-Rate Environment. So with this, we're still being cautious, but I mentioned we're always selective. We're disciplined in how we underwrite, disciplined in client selection, and so that's serving us well, but we're keeping an eye on the portfolio. John, I would add to that.

John G. Pancari: We are disappointed in how we underwrite disciplined client selection and so that's that's serving us well, but we're keeping an eye on them on the portfolio.

Speaker Change: John I would add to that.

I'm not really surprised at all if anything I see in terms of credit performance.

Brian Jordan: I'm not really surprised at all by anything I see in terms of credit performance. You know you're getting what you would expect with higher inflation and higher interest rates and a lot of movement in a fairly short period of time and across the entire economy you're going to have borrowers who are a little more stressed by that and it's going to show up in terms of their performance, I would say Susan and her credit teams, as well as our relationship teams, our RMs and PMs, have been very proactive in doing deep dives through our portfolio, understanding at a transaction level borrowers' financial position, and as Susan said, being very proactive in working with borrowers, and as Susan also said, we've had tremendous success with borrowers who want to work with us and stepped up with right-sizing loans, etc.

Speaker Change: Yeah.

John G. Pancari: Getting what you would expect with higher inflation and higher interest rates and a lot of movement in a fairly short period of time.

John G. Pancari: And then across the entire economy, you're gonna have borrowers who are a little more stressed by that and it's going to show up in terms of their performance.

John G. Pancari: I would say Susan and her credit teams as well as our relationship teams are all rooms in P. M. So it's been very proactive in doing deep dives through our portfolio understanding at a transaction level borrowers financial position as Susan said being very proactive.

And working with borrowers and as Susan also said, we've had tremendous success with borrowers who want to work with us and stepped up with right sizing loans et cetera.

Brian Jordan: So I'm not surprised, and in fact, I'm very pleased with the performance that I see, given the nature of what's going on in the underlying economy. In the way we've structured this long portfolio, I'm very comfortable that we're in a pretty good position. Okay, good, fair enough.

John G. Pancari: I'm not surprised that in fact, I'm very pleased with the performance that I see given the nature of what's going on in the underlying economy.

John G. Pancari: And the way we structured this loan portfolio I'm very comfortable that we're in a pretty good position.

Speaker Change: Okay fair enough.

Jon Glenn Arfstrom: And then Hope, for you on slide eight, the bottom of slide eight, you're highlighting $5 billion in loans and securities that are rolling off, and you talk about what the repricing uplift is from that. And I think, I think the message here is that you expect the margin to grind higher because of some of this repricing of the deposit. Repricing opportunities are probably done. So it's more about this asset repricing that's going to grind the margin higher over time. Is that the right message? That's the right message, John.

Speaker Change: And then hope for you on slide eight the bottom of slide eight you are highlighting <unk> 5 billion in loans and securities that are rolling off.

Speaker Change: Can you talk about what the repricing.

Speaker Change: <unk> uplift is from that and I think I think the message here is that you expect the margin to grind higher because of some of this repricing the deposits.

Speaker Change: Repricing opportunities are probably done so it's more about this asset repricing.

Speaker Change: It's going to drive the margin higher over time is that is that the right message.

Speaker Change: That's the right message John I think the positive, but they could go a couple of basis points lower a couple of basis points higher than quarter to quarter. They may change until we see that first rate cut but yeah. We have 4 billion rolling off at 2.25% yield.

Hope Dmuchowski: I think the positive, I think, could go a couple basis points lower, a couple basis points higher, and quarter to quarter, that may change until we see that first rate cut. But, you know, we have $4 billion rolling off at a 2.25% yield. And, you know, you're seeing 6% and 7% yield pretty steadily in the market and some 8% in our specialty businesses. And so absolutely putting that to work on the client side of the balance sheet versus parking insecurities or something else is our intention with that money to be able to increase our spread. Okay, all right. Thank you very much.

Speaker Change: And you know, you're seeing six and 7% yields pretty steadily in the market and some eights and our specialty businesses and so absolutely putting that to work on the client side of the balance sheet versus parking it securities or something else is that retention with that money to be able to increase our spreads.

Okay, Alright, thank you very much.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Casey Haire from Jefferies.

Casey Haire: Great. Thanks, good morning, everyone.

Casey Haire: Question for you.

Casey Haire: On the NII outlook.

Casey Haire: The DDA attrition a little bit lower as you guys kind of highlighted in January just wondering what does this guide presume for DDA mix going forward.

Casey Haire: Thank you. Our next question comes from Casey Haire. Great, thanks. Good morning, everyone.

Casey Haire: Yeah, you know the the guide is that range you know a four basis point range. There. So you know assuming today, we're assuming kind of flat balances.

Hope Dmuchowski: Hope, question for you on the NII outlook. DDA attrition is a little bit lower, as you guys kind of highlighted in January. Just wondering, what does this guide presume for the DDA mix going forward?

Casey Haire: With noninterest bearing if we where do you see a larger pick up and that again that could help us get to the higher end of the range and I don't see any risk to not taking us below the range. If we saw.

Hope Dmuchowski: Yeah, you know, the guide is a range, you know, a four basis point range there. So it is, you know, assuming today that we're assuming kind of flat balances with non-interest bearing, if we were to see a larger pickup in that, again, that could help us get to the higher end of the range, but I don't see any risk to that taking us below the range. If we saw, you know, the immaterial runoff, we would think we're at the bottom, right?

Casey Haire: Immaterial run off what we think we're at the bottom right. We saw some January outflows in February and March are really stabilized first quarter does tend to be a little bit more seasonally low and then come back through the year.

Speaker Change: Okay very good.

Speaker Change: And then just a big big.

Speaker Change: Big picture question on.

Speaker Change: Getting ready for the 100 billion and cat four.

Hope Dmuchowski: We saw some January outflows, but February and March are really stabilizing. The first quarter does tend to be a little bit more seasonally low, and then comes [inaudible] Okay, very good. And then just a big, big, big picture question on, You know, getting ready for the $100 billion and Cat 4, when I compare you guys versus the Cat 4 group, you guys are in pretty good shape. If there is a weak link, it's on the liquidity side.

When I compare you guys versus.

Speaker Change: The Carrefour group you guys are in pretty good shape. If there is a weak link its on the liquidity side and I'm just wondering when do you guys start to.

Speaker Change: I know you have time, but when do you start address that.

Speaker Change: Build off the Securities book, and then drive down that that loan to deposit ratio.

Speaker Change: Yeah.

Speaker Change: The there's a lot of work going on all around the industry to understand the impact on potential category for banks as you know Casey we've done a lot of work around it and I think we are in pretty good shape. We have continued to run stress testing, we have some of the infrastructure in place.

Hope Dmuchowski: And I'm just wondering, when do you guys start to, I know you have time, but when do you start to address that and build out the securities book and or drive down that loan to deposit ratio? Yeah, the, um...

Brian Jordan: There's a lot of work going on all around the industry to understand the impact on potential Category 4 banks. As you know, Casey, we've done a lot of work on it, and I think we are in pretty good shape. We have continued to run stress testing.

Speaker Change: Not all and we will build that infrastructure out on the compliance.

The balance sheet structure issues really fall into two major categories. One you highlighted which is liquidity. The other is a potential for T. Lack in and we don't have a lot of total loss absorbing capital or long term debt on our balance sheet either.

Brian Jordan: We have some of the infrastructure in place, not all, and we will build that infrastructure out on the compliance side. The balance sheet structure issues really fall into two major categories, one you highlighted, which is liquidity. The other is the potential for TLAC, and we don't have a lot of total loss-absorbing capital or long-term debt on our balance sheet either, and in some sense, those two can be mutually beneficial in the sense that if we raise debt, we can use that to fund high-quality liquid assets. As you said, we have time. We don't feel any particular urgency to start changing the shape of the balance sheet today.

Speaker Change: In some sense those two can be mutually solving in the sense that if we raise that we can use that to fund.

Quality liquid assets.

Speaker Change: As you said, we have time, we don't feel any particular urgency to start moving the shape of the balance sheet today, we're mindful.

Speaker Change: Of those two balance sheet hurdles that we would have to get over and as we get greater clarity from the Basel III and gain the fdic's proposals around too.

Brian Jordan: We're mindful of those two balance sheet hurdles that we would have to get over, and as we get greater clarity from the Basel III endgame, the FDIC's proposals around TLAC, we'll have, Great, thank you. Just one last question for Susan, you mentioned, or Hope mentioned, a handful of losses within the CRE bucket on updated appraisals. Just wondering if you could provide some color as to what the price decline was on those underlying properties.

Speaker Change: We'll have a better sense of the steps that we need to take over the next two or three years to get prepared for crossing that threshold.

Speaker Change: Yeah.

Speaker Change: Great. Thank you just last question for Susan you mentioned.

Speaker Change: Hope much in.

Speaker Change: A handful of losses within the CRE bucket on updated appraisals just wondering if you could provide some color as to what the.

Susan L. Springfield: The price decline was on those underlying properties.

Speaker Change: Yeah I.

Susan L. Springfield: I mean, on the specific ones, I'd say on average, we saw probably about a 20% decline. I did talk to... kept in close contact with our chief appraiser, just on a larger perspective, Casey, just on what we're seeing in terms of reappraisals, both on non-performing properties, but also just office in general, and it really varies a good bit by market. Transcripts provided by Transcription Outsourcing, LLC. And in some markets or certain office properties that may have had a major tenant that they haven't yet replaced, you can see it in the 25% range. So it is kind of on an individual basis.

I mean on the specific ones.

Speaker Change: I'd say on average we saw probably about a 20% decline am I did talk to.

Speaker Change: Kept in close contact with our chief Appraiser, just shown in a larger perspective Casey just on what we're seeing in terms of reappraisal blizzcon.

Speaker Change: Nonperforming properties, but also just office in general and it really varies a good bit from market strong markets like in Florida, you're seeing smoke.

Speaker Change: 3% to 5%, 3% to 5%.

Speaker Change: And then some some markets or certain office properties that may have had a major tenant but they haven't yet replaced you can see it in the 25% range.

Speaker Change: So it is kind of on an individual basis.

Susan L. Springfield: As it relates to the credits where we took a partial charge related to new updated appraisals this quarter, it was in 3 different markets, and one was actually more of a mixed-use facility, just that office had the most space, and so we classify that as office. All three were in our footprint. Okay, so they, it sounds like most were offices. One was a mixed use, or were these varied by underlying property type?

Speaker Change: As it relates to the credits, where we took a partial charge related to do updated appraisals this quarter.

Speaker Change: It was in Q3.

Speaker Change: Different markets and one was actually more of a mixed use facility. Just said also said the most space until we classify that as office.

Speaker Change: All three were in our footprint.

Speaker Change: Okay.

Speaker Change: Uh huh.

Speaker Change: It sounds like most of our office one was a mixed use or was are these varied by underlying.

Speaker Change: Property type.

Susan L. Springfield: Of the 12 million that we took in and were in charge of commercial real estate, two were pure office, and then one was a mixed use that had some office space, which was the predominant space, but it also had some retail and multifamily. Gotcha. Thank you. Thank you, Casey. Our next question comes from Jared Shaw. Hey, good morning.

Speaker Change: Of the 12 million that we took in and charge offs in commercial real estate to where pure office and then one was a mixed used to have some office space, which is the dominant space. It also had some retail and multifamily.

Speaker Change: Got you. Thank you.

Speaker Change: Thanks, Jason.

Speaker Change: Our next question comes from Jared Shaw from Barclays.

Jared David Wesley Shaw: Hey, good morning.

Jared David Wesley Shaw: Good morning, Jerry.

Jared David Wesley Shaw: Unknown Attendee, Maybe sticking with Casey's question on the CRE, what drove the revaluation? Is that because you, you know, you saw individual credit migration? Or is this part of a broader revaluation of all CRE?

Jared David Wesley Shaw: Maybe sticking with the with Casey's question on CRE what drove the.

Jared David Wesley Shaw: The reevaluation is that because you use you.

Jared David Wesley Shaw: You saw individual credit migration or is this part of our broader reevaluation of all CRE I guess, if it is not broader what.

Susan L. Springfield: I guess if it's not broader, what happens to drive a revaluation? Yeah, there are a number of things, Jared, that first of all, whenever we downgrade loans to non-PAS, we have a policy where we do updated appraisals on commercial real estate loans that get downgraded to non-PAS within several months of a downgrade. And then if we start to see further deterioration, and in this case, these were non-performing loans, then we'll, in all, in these three cases, these were, we reappraised six months later, just having to look at what may be going on.

Jared David Wesley Shaw: What happens to to drive the revaluation.

Speaker Change: Yeah. There are a number of things Jared that that first of all when whenever we downgrade loans to non path.

Speaker Change: We have a policy, where we do have updated appraisals.

Speaker Change: On commercial real estate loans that get downgraded in Montana.

Speaker Change: Within several months of a downgrade and then as we if we start to see further deterioration in this case these for nonperforming loans.

Speaker Change: And in all three cases these were we reappraised six months later I'm, just having to look at what.

Speaker Change: What might be going on and the other thing that can trigger it is if there's something in an individual one on it could be the loss of a tenant that was maybe it was being renegotiated thought it was gonna come off or maybe its renegotiated at a lower rate that could cause the need for an appraisal. So.

Susan L. Springfield: The other thing that can trigger it is if there's something in an individual loan. It could be the loss of a tenant that was, maybe it was being renegotiated, thought it was gonna come up, or maybe it was renegotiated at a lower rate.

Susan L. Springfield: That could cause the need for an appraisal. So we believe in being conservative, and if we need to reappraise, we will. Like in this case, within six months of the last one, then we'll do that to make sure we've got the valuation. Okay, so those three loans you talked about, they were previously non-performers, and they hit the six month mark. So you did an additional reappraisal. I guess what happened with that first reappraisal? So if these are down, you know, call it 20%, what was that first reappraisal step down from maybe peak to peak to current?

Speaker Change: We believe in being conservative and if we need to reappraise well.

Speaker Change: So like in this case or within six months of the last one and then we'll do that to make sure. We've got the valuations correct.

Speaker Change: Okay. So those those three loans you talked about they were previously non performers may hit the six month. So you did an additional reappraisal I guess, what what happened with that first reappraisal. So if these are down call. It 20% what was that first reappraisal step down.

Speaker Change: From peak to peak to current.

Speaker Change: Hello, Matt.

Susan L. Springfield: I'm one of them, I mean. Well, I guess on those three loans that were previously non-performers, you talked about a 20% markdown now from what I'm assuming is the six-month prior reappraisal. What's the magnitude of the sort of origination to current markdown?

Speaker Change: One of them I mean.

Speaker Change: Yeah.

Well I guess on those three loans that were previously non performer, what you talked about a 20%.

Speaker Change: Mark down now from what I'm, assuming is the six months prior reappraisal.

Speaker Change: What's the magnitude of sort of origination to current.

Susan L. Springfield: Right. So in terms of having to look back at that, but again, on average, what we're seeing. I hate to do averages because it really does vary by property. So in one case, it was down, you know, 20-25% from an original appraisal. But then our charge was not nearly that much because we've got significant equity that we've got in these properties when we underwrite. In other cases, we're seeing appraisal changes of 10%. There's a different number for each building.

Speaker Change: Mark down.

Speaker Change: Right so.

Speaker Change: In terms of have to look back at that but again on average what we're seeing.

Speaker Change: And I hate to do averages because it really does vary by property.

Speaker Change: In one case it was it was down 20, 25% from an original appraisal.

Speaker Change: But then our charge was not nearly that much because we've got significant equity.

Speaker Change: That we've got in these properties fully underwrite them.

Speaker Change: In other cases, we're seeing appraisal changes of 10% so it's.

Speaker Change: There's a different number for each building.

Susan L. Springfield: Okay. All right. That's a good call there.

Speaker Change: Okay.

Speaker Change: That's good color. Thanks.

Hope Dmuchowski: And then maybe shifting to the fixed income business, really good trends in ADRs this quarter. I guess in a stable rate environment, what's driving the expectation for lower ADRs going forward? Was that just you saw some, maybe a spurt of activity early on and then it tapered off, or how should we be thinking about the pace of that for the rest of the year? Jared, I'll start that.

And then maybe shifting to the fixed income business.

Speaker Change: Really good trends in <unk> this quarter.

Speaker Change: I guess in a stable rate environment whats driving the expectation for lower ADR is going forward or is that just you saw you saw some.

Speaker Change:

Speaker Change: Maybe a spurt of activity early on and then it tapered off or how should we be thinking about the pace of that for the rest of the year.

Speaker Change: Yeah, Jared I'll I'll start that yeah. So the first is there was a pent up demand there has not been a lot of balance sheet repositioning there has not been a lot of liquidity put to use. So we started to see it happen in December and we had a really good December which we talked about in our last earnings call and that just carried through into Q1.

Hope Dmuchowski: The first is that there was pent-up demand, right? There had not been a lot of balance sheet repositioning. There had not been a lot of liquidity put to use. So we started to see that happen in December.

Hope Dmuchowski: We had a really good December, which we talked about in our last earnings call, and that just carried through to Q1. And so we think some of that is behind us, and it was more of just kind of a catch up. Additionally, the current week has given us a little bit of pause in that we are talking about not if we'll see rate cuts, but could we see a rate increase this year? What will that look like?

And so we think some of that is behind us and it was more of just kind of a catch up. Additionally, you know that the current weak had has given us a little bit of a pause in that we are talking about not if we'll see rate cuts, but could we see a rate increase this year what will it look like in that has stalled will stall that business for a period of time and.

Hope Dmuchowski: And that will stall that business for a period of time. And if you run the current guidance, which I know you all do after this call, it assumes kind of a 500K-ish ADR for the rest of the year, which is still significantly stronger than we saw last year in every quarter except for Q4. Okay. Okay, thanks. And then finally, just for me on the buyback, you know, the strong activity this quarter, should we be thinking that you continue being pretty aggressive on that with that $650 million authorization? Or was there anything unique in the first quarter that that may have accelerated some of that?

Speaker Change: If you do run the current guidance I know you all do I call. It assumes kind of a 500 K is ADR for the rest of the year, which is still significantly stronger than we saw last year in every quarter, except for Q4.

Speaker Change: Okay.

Speaker Change: Okay. Thanks, and then finally just for me on the on the buyback.

Speaker Change: Strong activity this quarter.

Speaker Change: Should we should we be thinking that you you continue being pretty aggressive on that on that $650 million authorization or was there any.

Speaker Change: Anything unique in first quarter that that may have accelerated some of that.

Speaker Change: No we will continue to be very opportunistic, but we still believe that the stock is and has been on sale and we will look for opportunities to.

Brian Jordan: No, we'll continue to be very opportunistic. But we still believe that the stock is and has been on sale, and we'll look for opportunities to manage our excess capital relative to that 11% near-term target. And the buyback is a great vehicle for doing that in the absence of a significant pickup and balance sheet growth, i.e.

Speaker Change: Manage our excess capital relative to that 11% near term target and the buyback is a great vehicle for doing that in the absence of a significant pick up in and balance sheet growth loan growth.

Speaker Change: Great. Thanks, a lot.

Jared David Wesley Shaw: Sure thing. Thank you, Jared. Our next question comes from Chris McGratty from KB. Oh, great. Thanks.

Speaker Change: Sure thing Thank you Jared.

Speaker Change: Our next question comes from Chris Mcgratty from K B W.

Christopher William Marinac: Oh, great. Thanks.

Christopher Edward McGratty: Good morning, just wanted to follow up on Jared's question on the buyback. Brian, you mentioned 11% in the near term. I guess what would lead you to change that directionally, either up or down, and maybe there's something you could consider this year. Well, right now, I don't think I'm thinking about changing 11% near term. I think there's still enough uncertainty about the economy and the interest rate environment that we want to see a few more cards. If anything changed, it would have to be a significant pickup in the economic environment and inflation abating significantly. And I don't anticipate either one of those at this point.

Christopher William Marinac: Good morning, just wanted to follow up on <unk> question on the buyback, Brian you mentioned, 11% as the near term I guess, what would what would.

Christopher William Marinac: Lead you to change that directionally, either up or down.

Christopher William Marinac: And maybe is there something you can consider this year.

Brian: Well right now I don't think I don't think about change and an 11% near term I think there is still enough uncertainty.

And the economy and the interest rate environment that we want to see a few more cards.

Brian: If anything changed it would have to be a significant pick up in the economic environment.

Brian: And inflation abating significantly and I don't anticipate either one of those at this point. So we'll manage to the 11% near term, we'll have greater clarity probably by the end of this year about what Basel III is likely the Basel III end game is likely to look like.

Brian Jordan: So we'll manage to the 11% near term; we'll have greater clarity, probably by the end of this year about what Basel III is likely to look like. And we can manage from there. So we're comfortable with that target.

And we can manage familiar so we're comfortable with that target.

Hope Dmuchowski: And, as we pointed out earlier, we start with a 11.3% ratio and CT1. And so we have a little bit of a gap there, and we're going to have some earnings. So we think we've got the capacity with the authorization that we can make a significant dent in that authorization over the next three quarters. Okay, great. And just maybe one more on the fee income business, a lot of talk about the fixed income, mortgage banking is a smaller line item, but directionally had a decent jump link quarter. Maybe what's in your assumptions in your guide hope for, for the mortgage, just to gain on sale business? It's not materially up from here.

Brian: And as we pointed out earlier, we start with the.

Brian: 11, 3% ratio and CET, one and so we have a little bit of gap there and we're going to have some earnings. So we think we've got the capacity with the authorization that we can make a significant dent in that authorization over the next three quarters.

Speaker Change: Okay great.

Speaker Change: Maybe one more on the fee income business a lot of talk about the fixed income the <unk>.

Speaker Change: Mortgage banking is a smaller line item, but directionally at a decent jump.

Speaker Change: Jump linked quarter, maybe what's what's in your assumptions in your guide hope for for the mortgage just the gain on sale business.

Speaker Change: It's not materially up from here Q1, what was coming off of a pretty you.

Christopher Edward McGratty: Q1 was, you know, coming off a pretty, you know, record low last year for mortgage originations, and Q4 was somewhat anemic in that space. And so we're not expecting a big upturn, but just continued originations. Okay, thank you.

Speaker Change: Record low last year for mortgage originations and Q4, what was somewhat anemic in that space and so we're not expecting a big upturn, but just a.

Speaker Change: You know continued originations coming in.

Speaker Change: Okay. Thank you.

Steven A. Alexopoulos: Our next question comes from Steven Alexopoulos from JP. [inaudible] Brian, I wanted to go back to your answer to Casey's question about crossing 100 billion. And I'm curious, given how this New York community situation played out, has that impacted how you think about crossing this threshold? And, you know, previously, you said that you thought a transaction was a preferred method. Curious if you still feel that.

Speaker Change: Okay.

Speaker Change: Our next question comes from Steven Alexopoulos from Jpmorgan.

Speaker Change: Hey.

Speaker Change: Sure.

Steven A. Alexopoulos: Brian I wanted to go back to your answer to Casey's question crossing 100 billion.

Steven A. Alexopoulos: And I'm curious given how this new York community situation played out how has that impacted how are you.

You think about crossing that threshold previously you said that you saw the transaction was a preferred method curious if you still feel that way.

Brian: Oh, sorry, the last part again, it broke up a little bit, but I still feel what way about what well.

Brian Jordan: I'll say the last part again, it broke up a little bit, but I still feel one way about what, well, in the past, yeah, in the past, you indicated that, you know, you didn't want to crawl over 100 billion; you wanted to do more of a leap over it via transaction. I'm just curious if you still feel that way, just so you know, your community. Well, yeah, that's a, yeah, I guess you have to combine a couple of thoughts.

Brian: Yes in the past you indicated that you didn't want to crawl over 100 billion you wanted to more or less to leap over at bio transaction I'm. Just curious if you still feel that way to see you know your community played out.

Speaker Change: Well, yeah. That's yeah, I guess you have to couple of a couple of thoughts. One is if you put M&A in a separate bucket I still have significant reservations about one what can get approve into how long it takes to get it approved and so.

Brian Jordan: One, if you put M&A in a separate bucket, I still have significant reservations about one, what can get approved, and two, how long it takes to get it approved. And so that's not something without greater clarity that looks like a good idea independently. And then you couple it with crossing the $100 billion threshold, and in particular, how much readiness do you have to have? Is there really a three-year phase in if you cross in the context of an M&A transaction?

Speaker Change: That's not something without greater clarity to that.

Speaker Change: Looks like a good idea independently and then you couple it with crossing the $100 billion ratio and in particular, how much readiness do you have to have is there really a three year phase in if you crossed in the context of an M&A transaction I would tell you well I don't have any inside information.

Brian Jordan: I would tell you, while I don't have any inside information, my gut would tell me that what happened recently is likely to make it more difficult to cross, and I think you'll have to show a significantly greater degree of preparedness to be a Category 4 bank or a very near-term path to achieving that. So I think it makes it, and said another way, it makes it more likely that if you cross the $100 billion threshold in the near term, it's likely to be in an organic fashion, and then you sort of deal with, is M&A the right strategy, and does it make sense from a shareholder and a capital deployment perspective, independent of trying to cross that threshold? That's helpful. That makes sense.

Speaker Change: My gut would tell me that what happened recently is likely to make it more difficult to cross and I think you'll have to show.

Speaker Change: Our significant growth.

Speaker Change: Greater significantly greater degree of preparedness to be a category four bank or a very near term path for achieving that so.

Speaker Change: It makes it certainly.

Speaker Change: Said another way it makes it more likely that if you crossed 100 billion dollar threshold in the near term is likely to be in an organic fashion and then you then you sort of deal with as M&A.

Speaker Change: The right strategy and does it make sense from a shareholder and a capital deployment perspective independent of trying to cross that threshold.

Speaker Change: Right.

Speaker Change: That's helpful that makes sense.

Steven A. Alexopoulos: If I could shift gears and talk about T&I loan growth, when I look at balances, they're pretty flat versus the prior quarter, up a bit from first last year. It's funny, when I look at your markets, whether it's what's going on in Nashville or Texas or Florida, they're on fire. GDP is probably 4% in your markets.

Speaker Change: If I could shift gears and talk about loan growth when I look at balances were pretty flat versus the prior quarter up a bit versus last year and it's funny when I look at your markets, whether it's what's going on in Nashville, like Texas, or Florida, they're on fire GDP by 4% in your market why are you not seeing stronger commercial loan growth.

Susan L. Springfield: Why are you not seeing stronger commercial loan growth? I'll take care of that, Steve. In terms of seeing our loan growth, first of all, we have been focused on making sure that we're taking care of existing clients first. We're also very focused on sole relationship businesses. And as Brian said earlier, we continue to remain selective in terms of new underwriting and bringing on new clients. That being said, we are open for business.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: I'll take I'll take part of that Stephen in terms of C&I loan growth first of all we.

Speaker Change: We have been focused on making sure that we're taking care of existing clients first.

Speaker Change: We're also very focused on full relationship businesses and as Brian said earlier, we continue to.

Speaker Change: Remained selective.

Speaker Change: In terms of a new underwriting.

Speaker Change: Bringing on new clients that being said, we are open for business and.

Susan L. Springfield: And we are seeing some good opportunities and have brought in both new customers to the bank as well as some increased opportunities with existing clients. And we are hearing, when we have pipeline calls, we are hearing some additional opportunities for us to, again, lend to existing customers but also bring in some generational opportunities in our communities as well as in our specialty lines of business. So I think that you will continue to see some opportunities for loan growth across our markets and our. As I pointed out earlier, Steve, there are pockets that are stronger than others and some that are a little softer.

Speaker Change: And we are seeing some good opportunities and have brought in.

Speaker Change: Both new to bank as well as some increased opportunities with existing clients.

Speaker Change: And we are hearing when we when we have pipeline calls we are hearing some additional <unk>.

Speaker Change: <unk> for us to wait again, Linda existing customers, but also bring in some generational opportunities at our communities as well as in our specialty lines of business.

Speaker Change: I think you will continue to see some opportunities for loan growth across our markets.

Speaker Change: Is that as I pointed out earlier, Steve there are pockets that are stronger than others and some that are a little softer.

Brian Jordan: And Susan is exactly right. If you step back, we are looking to build relationships and do relationship banking. And we really want to move on from bank relationships. Doing the transaction, lending money, getting it out the door is the easy part of the business.

Susan L. Springfield: Susan is exactly right.

Susan L. Springfield: If you step back we are looking to to build relationships and do relationship banking and we really want to move bank relationships doing the transaction lending money getting it out the door is the easy part of the business. It's really how you build relationships and long term.

Susan L. Springfield: It's really how you build relationships in the long-term nature of the banking business. And I think our teams are doing an outstanding job of working for a relationship. And we've taken some opportunities where there is not the opportunity for a long-term relationship to step away from some transactions. So we're trying to manage our balance sheet in a way that manages the balance between profitability and growth.

Susan L. Springfield: Term nature of the banking business and I think our teams are doing an outstanding job of working through our relationship and we've taken some opportunities where there is not the opportunity for a long term relationship to step away from some transactions. So we're trying to manage our balance sheet in a way that that manager.

Susan L. Springfield: Is the balance between profitability and growth.

Speaker Change: Okay. That's.

Susan L. Springfield: And maybe, Susan, I could squeeze one more in for you on commercial real estate. I see the maturity schedule on the slide. Can you tell us what the balance of commercial real estate loans that came due here in the first quarter? And how did those work out in terms of refinancing, extension, Oh, in terms of things that came up through, we've had, in terms of things that have come up, we've been, again, as I said earlier, we've had really good outcomes in terms of working with borrowers on the appropriate way to refinance when there is a maturity.

Speaker Change: That's fair and maybe Susan if I could squeeze one more in for you.

Susan L. Springfield: Commercial real estate I see the maturity schedule here on the slide can you tell us what what was the balance of commercial real estate loans that can do here in the first quarter and how did those work out in terms of refinance extensions things like that.

Susan L. Springfield: Well in terms of things that came up through we've had on in terms of things that come up we have been again as I said earlier, we've had good.

Susan L. Springfield: Really good outcomes in terms of working with borrowers on.

Susan L. Springfield: The appropriate way to refinance when there is a maturity and it could be things are clicking along like they should then we look at just kind of a traditional renewal looking at rates and structure them, sometimes we do talk with borrowers about bringing money to the table either is it terms of the pay down.

Susan L. Springfield: It could be that things are clicking along like they should, and we look at just kind of a traditional renewal, looking at rates and structure. Sometimes we do talk with borrowers about bringing money to the table, either in terms of a pay down or Reserves. So again, we're having, I think, really good success. One of the things I do want to emphasize is that we've been very disciplined in our underwriting, really through all the cycles.

Susan L. Springfield: Or some reserves.

So we're again, we're having really good success one of the things I do want to emphasize and.

Is that we can see I mentioned this earlier, we've been very disciplined in our underwriting it's really through all of the cycle and if you look at things like our office portfolio and this is with updated appraisals and Hum are.

Susan L. Springfield: And if you look at things like our office portfolio, and this is with updated appraisals in them, our Stabilized Loan-to-Value on office is about 60%. There's a lot of cushion that we have in our commercial real estate. Local Business

Susan L. Springfield: Our stabilized loan to value on the office is about 60%.

Susan L. Springfield: There's a there's a lot of cushion that we have in our commercial real estate.

Susan L. Springfield: Both of the business.

Susan L. Springfield: And that allows us, One, to continue to have good outcomes, but also the ability to work with borrowers, and when borrowers have that kind of equity. In front of our vet, there's even more of an incentive to work with us. The last thing I would add is that we've also seen in certain cases where we have been able to, and Brian talked about exiting things that aren't relationships, but I would tell you I've also, Still will occasionally see us get refinanced out of something that, that might not hurt our feelings that we're being refinanced out of, either because of a credit grade, or potentially a borrower that didn't come to the table with quite the right approach that worked for us.

Susan L. Springfield: That allows us.

One to continue to have good outcomes, but also the ability to to work with borrowers and bars and that kind of equity.

Susan L. Springfield: In front of ours that there's even more of an incentive to work with us.

Susan L. Springfield: The last thing I would add is that we've also seen in certain cases, where.

Susan L. Springfield: Where we have been able to talk about exiting things that aren't relationships, but I would tell you I've also.

Susan L. Springfield: Still will occasionally see us get refinanced out of something that yeah.

Susan L. Springfield: Right not hurt our feelings that were being refinanced out of either because of a credit grade.

Susan L. Springfield: Or potentially have a borrower that that didn't come to the table.

Susan L. Springfield: It's the right approach that worked for us so.

Susan L. Springfield: So it's good to see that there are still some opportunities out there, too, when it doesn't fit our risk profile going forward, that there are opportunities for them to refinance. So all in all, I feel good about things that have come up for maturity, our ability to work with them, and the options that we have. Thanks for the color, and Susan, congratulations on your upcoming retirement.

Susan L. Springfield: It's good to see that there are still some opportunities out there to when it doesn't fit our risk profile going forward is that there are opportunities for them to refinance so all in all I feel I feel good about.

Susan L. Springfield: Things that have come up for maturity, our ability to work with them and the options that we have.

Speaker Change: Thanks for the color and Susan congratulations on your upcoming retirement.

Susan L. Springfield: Thank you. I really appreciate it. Our next question comes from Timur Braziler from. Hi, good morning. Good morning.

Susan L. Springfield: Thank you I really appreciate it.

Speaker Change: Our next question comes from T Rowe, but as you know from Wells Fargo.

T Rowe: Hi, good morning.

T Rowe: Good morning.

T Rowe: One more for you Susan on commercial real estate, just looking at the allowance build over the last couple of quarters compare to the coverage ratio on the CRE book the coverage ratio it looks like it's a 115% today.

Timur Felixovich Braziler: One more for you, Susan, on commercial real estate. Just looking at the allowance bill over the last couple of quarters compared to the coverage ratio on the CRE book, the coverage ratio looks like it's 115% today, but that's been tracking lower.

T Rowe: <unk> been tracking lower I guess, how should we be thinking about the coverage ratio here and if we don't get any kind of improvement in rates and we see some broader kind of degradation in that space.

Susan L. Springfield: I guess how should we be thinking about the coverage ratio here? And if we don't get any kind of improvement in rates, and we see some broader kind of degradation in that space? Are you modeling it to a coverage ratio? Are you modeling it to an allowance ratio? Maybe just give us the puts and takes of those two.

Susan L. Springfield: Are you modeling it to a coverage ratio of your modeling it to an allowance ratio and maybe just give us the puts and takes of those two.

Susan L. Springfield: As it relates to the allowance process, I would tell you we don't really... We don't shoot for a specific number. We go through a process. This is one process each and every quarter.

Susan L. Springfield: Okay.

Susan L. Springfield: As it relates to the allowance process I would tell you. We don't really we don't shoot for a specific number we go through a process a disciplined process each and every quarter.

Susan L. Springfield: I look at various scenarios, such as different economic outlooks, things that are the base case, things that are the ultra-stress cases. We don't put a lot of emphasis on upside cases, but there are those out there as well, and then we have qualitative overlays related to certain segments. That we may decide needs either that may need more than what just an economic outlook would look like. As you know, with CECL, CECL is considered a lifetime loss approach.

Susan L. Springfield: Look at various scenarios such as different economic outlook things that are.

Base case things that are ultra stress cases.

Susan L. Springfield: We don't we don't put a lot of emphasis on on an upside cases, but there are those out there as well.

Susan L. Springfield: And then we have qualitative overlays related to certain segment.

Susan L. Springfield: That we may decide need either that may need more than what just an economic outlook would look like as you know with Cecil.

Susan L. Springfield: Cecil is considered a lifetime loss.

Susan L. Springfield: Approach so based on what we know today and what we are.

Susan L. Springfield: So based on what we know today and what external autonomists and our own internal experts are saying, we believe this is the right reserve coverage based on several different outcomes that could emerge. But as I mentioned earlier, each quarter we're re-evaluating that, and as you know, things like interest rate outlooks can change pretty dramatically quarter to quarter. All that being said, I do think the economy, Brian talked about this, I think the economy remains strong.

Susan L. Springfield: Right.

Susan L. Springfield: External autonomous and our own internal experts are saying we believe this is the right reserve coverage based on.

Susan L. Springfield: Several different outcomes that could emerge.

Susan L. Springfield: But as I mentioned earlier each quarter, we're reevaluating that and as you know.

Susan L. Springfield: As we all know things like interest rate outlook can change pretty dramatically quarter to quarter.

Susan L. Springfield: All that being said I do think the economy, Brian talked about this I think the economy remains and will remain.

Susan L. Springfield: We're still seeing borrowers being able to adapt to higher inflation and higher interest rates. But this is something that we take a look at each and every quarter. Great, thanks. And then my follow-up question, looking at slide 22 on the C&I loan buckets, the 12% of C&I that's to finance and insurance companies, can you just give us a reminder what that composition is? And maybe more specifically, what component of that balance is to borrowers rather than using those funds as leverage for commercial loans?

Susan L. Springfield: <unk> strong, we're still seeing borrowers being able to adapt to higher inflation higher interest rates.

Susan L. Springfield: But it's just something that we take a look at each and every Florida.

Speaker Change: Great. Thanks, and then my follow up I'm looking at slide 22.

Speaker Change: C&I loan buckets, the 12% of C&I, that's to finance and insurance companies can you just give US a reminder, what that composition is and maybe more specifically what component of that balance is to borrow.

Speaker Change: Borrowers that are using those funds as leverage for commercial loans.

Susan L. Springfield: Transcripts provided by Transcription Outsourcing, LLC. In our asset-based lending business, we lend to companies that lend to others. A good part of that is consumer finance companies, and we've had We've been in that business for many, many years, and we've got very sophisticated borrowers.

Speaker Change: Yeah.

Speaker Change: Finance and insurance bucket has a number of different things in it.

Speaker Change: Okay.

Speaker Change: The things that you you know our asset based lending business, we'd willing to companies that went into other others.

Speaker Change: A good part of that is consumer finance company.

Speaker Change: And we've had it.

Speaker Change: <unk> been in that business for many many years totally got a.

Speaker Change: Very sophisticated borrowers I would tell you just as a sidebar, we've often seen them adapt nicely to higher interest rate environment.

Susan L. Springfield: I would tell you, just as a sidebar, we've also seen them adapt nicely to our interest rate environments as it relates to how they deploy. I don't have the exact number with me on how much of it is to then further commercial funds. It's not a big number for us. We do have some of that, kind of a business-to-business site lending arrangement, but it's not a significant portion of that finance and insurance fund. So those are the ones I would highlight.

Speaker Change: Relates to how they deploy them I don't have the exact number with me on how much of it is to then further commercial fund it's not a it's not a big number for us.

Speaker Change: We do have some of that kind of a business to business type lending arrangement.

Speaker Change: It's not a significant portion of that.

Speaker Change: Finance and insurance bucket.

Speaker Change: So those are those are those are the ones I would highlight in that bucket.

Okay. Thanks, Thank you for the question.

Susan L. Springfield: Okay, thanks. Thank you for the questions. Thank you. Our next question comes from Ben Gerlinger. Good morning, everyone.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Ben Garlinger from C T.

Benjamin Tyson Gerlinger: Hey, good morning, everyone.

Benjamin Tyson Gerlinger: Morning, Ben. I was curious. I know we've belabored quite a bit here on guidance changes, and it seems like the uptick in fees is one big positive.

Benjamin Tyson Gerlinger: Good morning, good morning.

Benjamin Tyson Gerlinger: So I was curious I know belabor.

Benjamin Tyson Gerlinger: Labour to quite a bit here on the guidance change it seems like.

Benjamin Tyson Gerlinger: Uptick in fees.

Benjamin Tyson Gerlinger: Walnuts are big positives, so everything from going from four to six now six to 10.

Benjamin Tyson Gerlinger: So I think going from four to six, now six to 10. Should we kind of assume the expenses are closer to that six grand, given you've cited being fixed income and mortgage, which are typically higher frequency ratio businesses? Or can you also see fees at the high end and expenses on the lower end? Just kind of think about the cadence of the two throughout the year.

Benjamin Tyson Gerlinger: Should we kind of assume the <unk>.

Benjamin Tyson Gerlinger: <unk> or closer to the six range, given you've decided to being fixed income and mortgage which are typically higher efficiency ratio businesses or can you also see fees of the higher expenses on the lower or just kind of.

Benjamin Tyson Gerlinger: Thinking about the cadence of the two throughout the year.

Hope Dmuchowski: Ben, thanks for the question. You know, I would not say that the expenses will be on the high end. That's a foregone conclusion.

Benjamin Tyson Gerlinger: Ben Thanks for the question you know I would not.

Benjamin Tyson Gerlinger: Say that the expenses will be on the high end and that's a foregone conclusion as we mentioned we are continuing to look at operational efficiencies. We are looking at what is the right way to run the organization in a lower loan growth environment. We have spent a significant amount of technology, that's going to go into place. This year that creates additional efficiency. We're looking at every contract was coming up.

Hope Dmuchowski: As we mentioned, we are continuing to look at operational efficiencies. We are looking at, you know, what is the right way to run the organization in a lower, low growth environment? We have invested in a significant amount of technology that's going to go into place this year to create additional efficiency.

Hope Dmuchowski: We're looking at every contract that's coming up and looking at what we're doing for it. And so our goal would not be on the high end of that, but things can change. But no, I would not make that assumption.

Benjamin Tyson Gerlinger: I'm looking at what we're doing for them and so our goal would not to be on the high end of that but.

Benjamin Tyson Gerlinger: But things can change, but no I would not make that that in that assumption.

Benjamin Tyson Gerlinger: If I thought we were in the high end of that, honestly, I probably would have just increased guidance at the same time I told you to increase revenue and de-risk. Gotcha. Okay, that's great. It kind of leads to my next question, actually, because I know you're at the center. Did you take out a cut guide? me kind of implies you're close to a higher end. Like, if we get to the middle of the year, would it even be worth going?

Speaker Change: I thought we were at the high end of that honestly I, probably would've just increased guidance at the same time, it'll either be an increased revenue and derisking.

Speaker Change: Gotcha, Okay. That's what I was kind of leads into my next question actually because I know youre asset sensitive you took out of our guidance.

Speaker Change: To me it kind of implies close to the higher end.

Speaker Change: Like if we get to the middle of the year would it even be worth doing.

Hope Dmuchowski: plus one to four to something like two to five, or is that too nuanced to think about? Ben, I wish I could. If you saw the number of models we run every single month, and as soon as we get to ALCO every month, somebody has said something, Powell's released something, there's new CPI data, which puts it out. And so I just don't think we're in an environment where we could be that specific.

Speaker Change: Plus 1% to four to something like two to five or is that too nuanced so to think about.

Speaker Change: Then I wish I could have you saw the number of models. We run every single month and as soon as we get to alcohol every month somebody had said something paolo or at least something theres, new CPI data, which which puts it out and so I. Just don't think we're in an environment, where we can be that specific if we thought it was going to be kind of like our fee income we knew that the high end of the guidance.

Hope Dmuchowski: We thought it was going to be kind of like our fee income. We knew that the high end of the guidance was probably the low side, but we immediately let you guys know that we don't expect to, you know. We don't expect to come in. We could have said we expect to be on the high side instead of saying previous high side or low side. Forecasting NII in this environment is very, very hard, even within a 3% range with as many moving parts as we have.

Speaker Change: It was probably the low side, but we immediately like you guys know that we don't expect to.

Speaker Change: We don't expect to come in because we expected on the high side and then we said previous highs on a low side forecasting NII in this environment is very very hard even within that 3% range with as much moving parts we have.

Benjamin Tyson Gerlinger: Gotcha. Okay, I appreciate it. For what it's worth, I run one model, and we'll come up with similar numbers.

Speaker Change: Gotcha.

Speaker Change: I appreciate it's probably just worth I want a rubber one model clinical similar number so I appreciate the heavy lifting to do in Europe.

Benjamin Tyson Gerlinger: So I appreciate the heavy lifting you guys are doing here. Thanks, Ben. Our next question comes from Christopher Marinac from Dainey, Montego. Thanks, Susan. Good morning. Susan, I wanted to ask you about loan modification. How often are you using it?

Speaker Change: Thanks Ben.

Speaker Change: Our next question comes from Christopher <unk> from Janney Montgomery Scott.

Christopher: Hey, Thanks, Good morning, Susan I wanted to ask about loan modification, how often are you seeing.

Christopher William Marinac: Chris, you broke up the last part of that question. Can you repeat it? Press, are you there? Let's move on to the next question, and Chris can hop back into the Q&A section. Chris, are you back?

Christopher: No.

Chris you broke up the last part of that question can you repeat it.

Speaker Change: Chris are you there.

And Carlo let's move on to the next question and Chris can hop back in the broker might be but.

Chris you back.

Susan L. Springfield: Yeah, Carlos, move on to the next question, and Chris can hop back in the queue if he needs to. Alright, our next question comes from Brennan Crowley. Morning, guys.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yes, Carlos move onto the next question and Chris can hop back in the queue if he needs to.

Speaker Change: Alright, our next question comes from Brandon <unk> from Baird.

Brennan L. Crowley: Thanks for taking my question. You know, given these guys, and I know at one point last year, kind of 2024 positive operating numbers with this guy, I'm going to kind of walk back a bit, and I know it's difficult with the investment initiative underway here, but given what you've seen through three months and the Olympic guide today, is that something that's a possibility for this year? Thanks for the question, Brennan. I think, you know, if you look at where the guide is, it is neutral on operating leverage or slightly positive, depending on which side of the range we are on. So, in short, Dan, just get the spots done.

Brandon: Hey, good morning, guys. Thanks for taking my question.

Brandon: Given any guide I know at one point last year kind of 2020 for positive operating leverage.

Brandon: You can kind of walk back a bit and I know, it's difficult with the investment initiative under way years, Mike given what you've seen two or three months.

Speaker Change: Got it today.

Speaker Change: Profitability for this year.

Mike: Thanks for the question, Brian I think if you look at where the guide is it is neutral on operating leverage or slightly positive depending on which side of the range we comment.

So in short answer yes, we have seen in Boston.

Mike: Yes.

Speaker Change: Alright, great. Thank you guys.

Hope Dmuchowski: Thank you guys. And then just as a quick follow-up, and maybe I missed this in the prepared remarks, but I saw that the investment portfolio yield actually is actually, I'm just kind of wondering if you could talk about the driver there, and then maybe how you guys plan to manage the portfolio and roll off over the next couple of quarters. First, I'll mention we're currently not reinvesting in our securities portfolio, so we're letting it run off and redeploying that into the loan side of our balance sheet. But a lot of the volatility that you saw this quarter is just the market to market, where the market is at the end of the quarter. There was nothing material change in our balance sheet.

Speaker Change: And then just as a quick follow up maybe I missed this in the prepared remarks, but saw that the investment portfolio yield actually fell sequentially can you just kind of wondering if you could talk about the driver there and then.

Speaker Change: Maybe how you guys plan to manage portfolio and roll off over the next couple of quarters.

Speaker Change: Yeah first of all I mentioned, we're currently not reinvesting in our securities portfolio. So we're letting it run off and redeploying that into the loan side of our balance sheet, but a lot of the volatility that you saw this quarter just the mark to market, where the market is at the end of the quarter. There was nothing material change in our balance sheet.

Brennan L. Crowley: Okay, great. Thanks, guys. Our next question comes from Samuel Varga from the U.S. Good morning, morning.

Speaker Change: Okay, great. Thanks, guys.

Speaker Change: Our next question comes from from Wells Fargo from UBS.

Wells Fargo: Hey, good morning.

Wells Fargo: Good morning.

Samuel Varga: I just wanted to ask one last question on NII. I appreciate you touched on the $4 billion of fixed rate loan repricing. Could you give some color on how even that is through 2024? Is it similar to securities where it's pretty much the same every quarter, or is it a bit more front or back loaded? It's pretty consistent through the quarter. There's not a bulge quarter or it being backloaded.

UBS: I just wanted to ask one last follow up on NII I. Appreciate you touched on the $4 billion on the fixed rate loan repricing could you give some color on how even that is through 2024 similar to security, where it's pretty much. The same every quarter or is it a bit more front or back loaded.

Speaker Change: Yeah, its pretty consistent through the quarter theres, not a bulge corner, where arent being back loaded.

Hope Dmuchowski: Okay, great. I appreciate it. Thanks for taking my question. And our next question comes from Christopher Marinac from JNU. Thanks. Sorry for my issue there earlier. Susan, I wanted to ask you about loan modifications and how often they are a tactic for resolving any type of loan this year and next. Well, I mean, anytime we have either one, if there's a true maturity, we're always looking at, you know, what do we need to do? That's, that's really not a true modification.

Speaker Change: Okay, Great I appreciate it thanks for taking my question.

Speaker Change: Yep.

Speaker Change: And our next question comes from Christopher <unk> from Janney Montgomery Scott.

Christopher: Thanks, sorry for my issue there earlier, Susan I wanted to ask you about loan modifications and how often they are a tactic for resolving any type of loans this year and next.

Well I mean anytime we have.

Or what if if there'd been treated maturity, we're always looking at what do we need to do that that's really not true modification in terms of modifications and we have one better are noncash or handle in our special assets group.

Christopher William Marinac: In terms of modifications, when we have loans that are non-PAS and are handled in our special assets groups, there are situations where it might be in our best interest if we're the lead bank or the sole bank to work with them on modifications, and then obviously on some of the deals where we're part of a bank group and the bank group has to work together on what could be inappropriate. Loan Modification.

Christopher:

There are situations, where it might be in our best interest to them. If we're the.

Christopher: The lead bank or the sole bank.

Christopher: To work with them on modifications.

And then obviously it was on some of the deals where we're part of a bank group and the Bank group has to work together on what could be inappropriate.

Christopher: I'm on vacation I would tell you, Chris we have a history of.

Christopher William Marinac: I would tell you, Chris, that we have a history of wanting to work with farmers and figure out the best outcomes, which obviously for us are the best outcomes for our shareholders. We've also been complimented frequently by our borrowers about our ability to work with them and, in some cases, keep them in business. And as I mentioned earlier, in many cases, we've got a lot of equity ahead of us.

Christopher: You know wanting to.

Christopher: Work with fireworks and figure out the best outcomes.

Christopher: That policy for us are the best outcomes for our shareholders.

Christopher: But we've also are complemented frequently by our our borrowers about our ability to work with them and in some cases keep them in business.

Christopher: And as I mentioned earlier in many cases, they've got a lot of equity ahead of us instead.

Christopher William Marinac: So they have a vested interest in working with us to come up with something that makes sense and is economically viable for both the bank and the client. A loan modification used to be an accounting term of art.

Christopher: So they have a vested interest in working with us for them to come up with something that makes sense.

Christopher: Oh, it is economically viable for both the bank and apply it.

Christopher: Hello modification as used to be an accounting term of art and I'll Echo what Susan said, you know I, often say this and I don't say it lightly to our clients and we look at it as a partnership and so we use.

Susan L. Springfield: And I'll echo what Susan said. You know, I often say this, and I don't say it lightly to our clients, that we look at it as a partnership. And so we use that long-term relationship, and we work through the ups and downs. And I don't consider that a change; I just consider that supporting the long-term relationships that really drive the profitability of our organization and our balance sheet. And at the same time, it makes our customers and our community, No, that's great.

Christopher: That long term relationship and we work through the ups and downs and I don't consider that modification I just consider that supporting the long term relationships that really drive the profitability of our organization and our and our.

Christopher: Our balance sheet and at the same time makes our customers and our communities stronger.

Speaker Change: No that's great. Thank you both for your color on that and Susan just a quick follow up on debt service coverage ratios. How is the stress process going for customers are you seeing instances, where you have to criticize alone due to just higher interest rates and the DSC are as following.

Brian Jordan: Thank you both for your comments on that. Susan, just a quick follow-up on debt service coverage ratios. How is the stress process going for customers? Are you seeing instances where you have to criticize a loan due to just higher interest rates and the DSCRs falling?

Christopher William Marinac: Yeah, Chris, I would say that's actually the predominant reason that we're taking loans to special mention and the initial criticized data. Transcript by Transcription Outsourcing, LLC. The downgrades mostly have been into that special mention category.

Susan L. Springfield: Yeah, Chris I would say that's actually the predominant reason that we're taking loans to special mention in the initial criticized status would be the debt service coverage, while still over still.

Susan L. Springfield: Still able to service to learn it might be less than either a covenant or where the borrower expected to be at a certain point in time.

Susan L. Springfield: That's a very dynamic category, and we do see borrowers come back out of it, you know, their operating expenses or, If interest rates do start coming down, I expect you'll see... a good bit of a lot of upgrades. Great. Thank you again and best wishes for your success, Susan. Thanks Chris, I appreciate it. We currently have no further questions. I will hand it back over to Brian Jordan.

We do expect and I mentioned earlier, the downgrades, mostly had been into that special mention category. That's a very dynamic category and we do see borrowers come back out of it as they adjust either.

Susan L. Springfield: Their operating expenses or if interest rates do start coming down I expect you'll see.

Susan L. Springfield: A good bit of a lot of upgrades.

Susan L. Springfield: Right.

Speaker Change: Great. Thank you again and best wishes for your success Susan.

Brian Jordan: Thank you, Carla. Thank you everyone for joining the call this morning. We appreciate your time and appreciate your interest in our company. Please reach out if you have any further questions or if you need any additional information. We'll be happy to try to help. Hope everyone has a great day. This concludes today's call. Thank you for joining UMN.

Susan L. Springfield: Thanks, Chris I appreciate it thanks, Chris.

Susan L. Springfield: We currently have no further questions I will hand back over to Bryan Jordan to conclude.

Unknown Attendee: Thank you Carla Thank you everyone for joining the call. This morning, we appreciate your time and appreciate your interest in our company. Please reach out if you have any further questions or if you need any additional information we'll be happy to try to hill hope everyone has a great day.

Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.