Q1 2024 United Community Banks Inc Earnings Call

Unknown Executive: Good morning, and welcome to United Community Banks' first quarter 2024 earnings call. Hosting the call today are Chairman and Chief Executive Officer Len Harton, Chief Financial Officer Jefferson Haralson, President and Chief Banking Officer Rich Bradshaw, and Chief Risk Officer Rob Edwards.

Good morning, and welcome to United Community Bank's first quarter 2024 earnings call hosting the call today are chairman and Chief Executive Officer, Lynn Harton, Chief Financial Officer, Jefferson Harralson, President and Chief Banking Officer, Rich Bradshaw, and Chief risk Officer, Rob <unk>.

Unknown Executive: United's presentation today includes references to operating earnings, pre-tax, pre-credit earnings, and other non-GAAP financial information. For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlights section of the earnings release, as well as at the end of the investor presentation. Both are included on the website at UCBI.com.

Words United's presentation today includes references to operating earnings pretax pre credit earnings and other non-GAAP financial information for these non-GAAP financial measures United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlights section of the earnings release as well as at the.

And of the Investor presentation.

Both are included on the website at U C B I dot com.

Unknown Executive: Copies of the first quarter's earnings release and investor presentation were filed this morning on Form 8K with the FTC, and a replay of this call will be available in the Investor Relations section of the company's website at ucbi.com. Please be aware that during this call, forward-looking statements may be made by representatives of United. Any forward-looking statements should be considered in light of the risks and uncertainties described on pages 5 and 6 of the company's 2023 Form 10-K, as well as other information provided by the company in its filings with the SEC and included on its website. At this time, I will turn the call over to Lynn Harton.

Copies of the first quarter's earnings release and Investor presentation were filed this morning on form 8-K with the S. E C and a replay of this call will be available in the Investor Relations section of the company's website at U C. B I dotcom.

Please be aware that during this call forward looking statements may be made by representatives of United.

Any forward looking statements should be considered in light of risks and uncertainties described on pages five and six of the company's 20 twenty-three Form 10-K as well as other information provided by the company in its filings with the SEC and included on its website at this time I will turn the call over to Lynn Harton.

Herbert Lynn Harton: Well, good morning, and thank you all for joining our call today. We're pleased to report solid performance this quarter. Operating earnings per share came in at $0.52, down $0.01 from last quarter, in part due to seasonally higher employment costs.

Herbert Lynn Harton: Well good morning, and thank you all for joining our call today.

Herbert Lynn Harton: We're pleased to report solid performance this quarter.

Herbert Lynn Harton: Operating earnings per share came in at 52 cents down one from last quarter in part due to seasonally higher employment costs.

Herbert Lynn Harton: Our operating return on assets was 93 basis points, up slightly from 92 basis points last quarter. As we've continued to work through changes in the interest rate environment, one of our focus areas has naturally been our net interest margin. We were pleased to see those efforts begin to pay off this quarter with the margin holding steady at up one basis point on a gap basis and up two basis points on a core basis, excluding loan accretion income.

Herbert Lynn Harton: Our operating return on assets was 93 basis points up slightly from 92 basis points last quarter.

Herbert Lynn Harton: As we've continued to work through changes in the interest rate environment, one of our focus areas naturally it's been our net interest margin. We were pleased to see those efforts began to pay off this quarter with a margin holding steady up one basis point on a GAAP basis and up two basis points on a core basis, excluding loan accretion.

Herbert Lynn Harton: Income.

Herbert Lynn Harton: We continue to improve our loan and deposit pricing strategies to perform in a higher-for-longer rate environment. We're also seeing the effects of higher rates on loan growth, as growth came in lower than we anticipated at 1.2%. The two portfolios with the highest correlation to interest rates, commercial real estate, including construction, and mortgage, were essentially flat, with our C&I portfolio growing during the quarter.

Herbert Lynn Harton: We continue to improve our loan and deposit pricing strategies to perform in a higher for longer rate environment.

Herbert Lynn Harton: We're also seeing the effects of higher rates on loan growth as gross came in lower than we anticipated at 1.2%.

Herbert Lynn Harton: The two portfolios with the highest correlation to interest rates commercial real estate, including construction and mortgage were essentially flat with our C&I portfolio growing during the quarter.

Herbert Lynn Harton: Deposits appear relatively flat on an overall level, but as Jefferson will discuss, we had solid core deposit growth outside of our higher-rate public funds portfolio. Credit continues to perform well. Total losses came in at 28 basis points. We have two portfolios that are designed to have higher loss levels, Novitas and manufactured housing. Both portfolios also have higher coupon rates to compensate us for those higher loss levels. So, excluding those portfolios, core bank losses were 12 basis points. Non-performing loans increased slightly to 58 basis points, and substandard loans decreased three basis points to 1.3 percent. Overall, credit metrics remain in a range consistent with strong underlying economic conditions.

Herbert Lynn Harton: Deposits appear relatively flat on an overall level, but as Jefferson will discuss we had solid core deposit growth outside of our high rate public funds portfolio.

Herbert Lynn Harton: Credit continues to perform well.

Herbert Lynn Harton: Total losses came in at 28 basis points.

Herbert Lynn Harton: We have two portfolios that are designed to have higher loss levels Nevadas and manufactured housing.

Herbert Lynn Harton: Both portfolios also have higher coupon rates to compensate us for those higher loss levels.

Jefferson: So excluding those portfolios core bank losses were 12 basis points.

Jefferson: Nonperforming loans increased slightly to 58 basis points and substandard loans decreased three basis points to one 3%.

Overall credit metrics remain in a range consistent with strong underlying economic conditions.

Herbert Lynn Harton: We continue to be mindful of how Fed efforts to slow the economy could negatively impact credit performance, but we're pleased with our results and have a positive outlook. Our liquidity position continues to be very strong with a loan-to-deposit ratio of 79% and essentially no wholesale borrowing. I want to turn the call over to Jefferson now for more detail on the quarter. Thank you, Lynn, and good morning to everyone.

Jefferson: We continue to be mindful of how fed efforts to slow the economy could negatively impact credit performance, but we're pleased with our results and have a positive outlook.

Jefferson: Our liquidity position continues to be very strong with a loan to deposit ratio of 79% and essentially no wholesale borrowings.

Jefferson: I'm going to turn the call over to Jefferson now for more detail on the quarter.

Jefferson: Thank you Lynn and good morning to everyone.

Jefferson Lee Harralson: I am going to start my comments on page six and go into some more details on deposits. As Lynn spoke about, our deposit balances in total were essentially flat in the first quarter, and we saw some continued, albeit slower, shrinkage in our demand deposits. Underlying this flat result, we had $228 million of deposit shrinkage in our public funds. This decrease was partly due to seasonality and partly due to our strategy to not match pricing in certain cases.

Jefferson: I'm going to start my comments on page six.

Jefferson: And go into some more details on deposits as.

Jefferson: That's why I spoke to our deposit balances in total were essentially flat in the first quarter and we saw some continued albeit slower shrinkage in our demand deposits.

Jefferson: Underlying this flat result, we had $228 million of deposit shrinkage in our public funds.

Jefferson: This decrease was partly due to seasonality.

Partly due to our strategy to not match pricing in certain cases.

Jefferson Lee Harralson: We were pleased to be able to more than replace the public funds runoff with solid retail and commercial deposit growth this quarter. Our cost of deposits moved up eight basis points in the quarter to 2.32%. Our deposit betas for the cycle were below the industry median a year ago, but they are above the industry median now at 44%, and we are hopeful to move closer to peers to get some of that back in 2021. Return to our Loan Portfolio on page 7. We grew loans in the first quarter by $56 million, which is 1.2% annualized. This is a little lighter than we originally expected.

Jefferson: We were pleased to be able to more than replace the public funds run off with solid retail and commercial deposit growth this quarter.

Jefferson: Our cost of deposits moved up eight basis points in the quarter to 2.32%.

Jefferson: Our deposit betas for the cycle, we're below the industry median a year ago.

Jefferson: But our I bought the industry media now at 44% and we are hopeful to move closer to peers to get some of that back in 2024.

Jefferson: We turned to our loan portfolio on page seven.

We grew loans in the first quarter by $56 million, which is 1.2% annualized.

Jefferson: This is a little lighter than we originally expected we are seeing less demand from our customers who appear to be holding back on projects due to rate and uncertainty.

Jefferson Lee Harralson: We are seeing less demand from our customers who appear to be holding back on projects due to rates and uncertainty. We saw growth in C&I, but this was offset by shrinkage in investor CRE and in residential construction. We saw Navitas loans be relatively flat as we kept loan sales high in that area at $28 million, similar to last quarter.

Jefferson: We saw growth in C&I, but this was offset by shrinkage and investor CRE and residential construction.

Jefferson: We saw no veto loans be relatively flat as we kept loan sales high in that area at $28 million similar to last quarter.

Jefferson Lee Harralson: On page 7, we also lay out that our loan portfolio is diversified and generally more granular and less commercial real estate heavy as compared to peers. Turning to page 8, where we highlight some of the strengths of our balance sheet. We believe that our balance sheet is in a good position with no FHLB borrowings and very limited broker deposits. This gives us some flexibility in managing through a tough interest rate and competitive environment. On page 9, we look at capital. We had increases in our regulatory capital ratios and our TCE, and all of our capital ratios remain above peers.

Jefferson: On page seven we also lay out that our loan portfolio.

Jefferson: As diversified and generally more granular and less commercial real estate heavy as compared to peers.

Jefferson: Turning to page eight where we highlight some of the strength of our balance sheet. We believe that our balance sheet is in good position with no F. H L B borrowings and very limited broker deposits.

Jefferson: This gives us some flexibility in managing through a tough interest rate and competitive environment.

On page nine we look at capital, we had increases in our regulatory capital ratios and.

Jefferson: And our TCE and all of our capital ratios remain above peers.

Jefferson Lee Harralson: Our leverage ratio was also up 21 basis points. We did not repurchase any preferreds in Q1, but we remain opportunistic as we bought back $7 million last year at a discount to par. Moving on to the margin on page 10, the margin came in just slightly higher, up a basis point on a gap basis and up two basis points on a core basis.

Jefferson: Our leverage ratio was also up 21 basis points.

Jefferson: We did not repurchase any preferreds in Q1, but we remain opportunistic as we bought back $7 million last year at a discount to par.

Moving on to the margin on page 10, the margin came in just slightly higher up a basis point on a GAAP basis and up two basis points on a core basis.

Jefferson Lee Harralson: Our loan yield moved up 9 basis points to 6.24%, with our new and renewed loan yield in the 8.5% range for the quarter. We had slightly less loan accretion in the quarter as compared to Q4. Loan accretion went from eight basis points in the fourth quarter to a seven basis point benefit in the first. Our net interest margin should be moving higher in Q2 by five basis points, by our estimation, plus or minus one to two basis points.

Jefferson: Loan yield moved up nine basis points to 6.24% with our new and renewed loan yield in the eight 5% range for the quarter.

Jefferson: We had slightly less loan accretion in the quarter as compared to Q4 loan accretion went from eight basis points in the fourth quarter to a seven basis point benefit in the first.

Jefferson: Our net interest margin should be moving higher in Q2 of <unk>.

Jefferson: Five basis points by our estimation plus or minus one to two basis points.

Jefferson Lee Harralson: On the positive side, our loan yields should continue increasing, and our cost of CDs should be near a top as new CD costs are very near maturing CD costs. That said, we are still seeing mixed changes with DDA and savings shrinking, and mixed changes towards more promotional pricing within now and money market accounts. Last quarter, I mentioned that our terminal deposit data would be 45%, but now we are thinking it's closer to 46%. Moving to page 11. Non-interest income was up $8.6 million to $37.2 million on an operating basis. Our mortgage fee income of $5.6 million drove most of the $8.6 million increase.

Jefferson: On the positive side, our loan yields should continue increasing and our cost of C. DS should be near a top as new CD costs are very near maturing CD cost.

Jefferson: That said, we are still seeing mix changes with DDA and savings shrinking and mix change towards more promotional pricing, but then now and money market accounts.

Jefferson: Last quarter, I mentioned that our terminal deposit beta would be 45%, but now we are thinking it's closer to 46%.

Moving to page 11.

Jefferson: Noninterest income was up $8 $6 million to $37.2 million on an operating basis.

Jefferson: Better mortgage fee income of $5 $6 million drove most of the $8 6 million dollar increase.

Jefferson Lee Harralson: For the quarter, we had $1.4 million of an MSR write-up, which compared to a $2.4 million write-down last quarter. This was a $3.8 million positive swing, and the gain added just under a penny to earnings in Q1. Besides the MSR swing, core mortgage income was $1.8 million higher as we had greater volumes and a mixed change towards fixed-rate products; over 90% were fixed-rate products that we sell and get more of the economics up front.

Jefferson: For the quarter, we had $1.4 million of an MSR write up which compared to a $2 4 million dollar write down last quarter.

Jefferson: This was a $3.8 million positive swing and the gain added just under a penny to earnings in Q1.

Jefferson: Besides the MSR swim core mortgage income was $1.8 million higher as we had greater volumes and a mix change towards fixed rate product over 90% was fixed rate that we sell and get more of the economics upfront.

Jefferson Lee Harralson: Our gain on sale of other loans was down $700,000 in Q1, and this was driven by fewer SBA loans sold, even though the gain on sale percentages were a bit better. Operating expenses on page 12 came in at $140.4 million, up $1.6 million. The primary reason for the increase is a $1.5 million increase in FICA taxes.

Jefferson: Our gain on sale of other loans was down $700000 in Q1.

Jefferson: It was driven by fewer S. P. A wound sold even though the gain on sale percentages were a bit better.

Jefferson: Operating expenses on page 12 came in at $144 million.

Jefferson: $1.6 million.

Jefferson: The primary reason for the increase is a $1.5 million increase in FICA taxes.

Jefferson Lee Harralson: We also saw fewer expenses we were able to defer as more of our mortgages ended up being sold. So the next change towards fixed-rate loans in the mortgage business ended up creating more loan sale gains, but we also had fewer deferred costs, or about $700,000, because fewer loans came on to the balance sheet. Moving to credit quality, net charge-offs were 28 basis points in the quarter, with the bank being very low at just 16 basis points.

Jefferson: We also saw fewer expenses, we were able to defer as more of our mortgages ended up being sold.

Jefferson: So the mix change towards fixed rate loans and the mortgage business ended up creating more loan sale gains, but we also had fewer deferred costs were about $700000.

Jefferson: Because fewer loans came on to the balance sheet.

Jefferson: Moving to credit quality net charge offs were 28 basis points in the quarter with the bank being very low at just 16 basis points.

Jefferson Lee Harralson: Our NPAs were up slightly. Our breakout on Navitas loan losses is on page 18. We first broke out long-haul trucking two quarters ago, and the book has shrunk from 57 million dollars to $38 million over that time.

Jefferson: Our M P as we're up slightly.

Jefferson: Our breakout on the VITAS loan losses are on page 18.

Jefferson: First broke out long haul trucking two quarters ago.

Jefferson: The book has shrunk from $57 million.

Jefferson: $238 million over that time.

Jefferson Lee Harralson: We had $2.4 million of long haul losses in Q1 as compared to $4.4 million last quarter. Navitas losses, excluding long haul, were 1.06%, and we are putting on new loans in the 10.5% range. I will finish on page 14 with the allowance for credit loss. We set aside $12.9 million to cover $12.9 million in net charge-offs, and our ACL stayed relatively flat quarter-to-quarter and is up year-over-year. With that, I'll pass it back to Len.

Jefferson: We had $2 $4 million of long haul losses in Q1 as compared to $4.4 million last quarter.

Jefferson: Novartis losses, excluding long haul, where 1.16% and we are putting on new loans and a 10, 5% range.

Jefferson: I will finish back on page 14, with the allowance for credit losses.

Jefferson: We set aside $12 $9 million to cover $12.9 billion of net charge offs and our ACL stayed relatively flat quarter to quarter and is up year over year.

Jefferson: With that I'll pass it back to Lynn.

Herbert Lynn Harton: Thank you, Jefferson. Before we take questions, I'd like to recognize our teams for a great accomplishment this quarter. At the end of March, J.D. Power recognized United Community as the winner of the Retail Banking Satisfaction Survey for the Southeast in 2023. While not announced publicly, we also know that we were rated as number one in trust in the Southeast. This is the tenth time that United has received this recognition.

Herbert Lynn Harton: Thank you Jefferson.

Herbert Lynn Harton: Before we take questions I'd like to recognize our teams for a great accomplishment this quarter at.

Herbert Lynn Harton: At the end of March J D power recognized United community as the winner of the retail banking satisfaction survey for the South East in 'twenty to 'twenty three.

Herbert Lynn Harton: While not announced publicly we also know that we were rated as number one in trust in the South East.

Herbert Lynn Harton: This is the 10th time that United has received this recognition.

Unknown Executive: This is testament to the dedication of our teams in taking care of our customers. We also received 15 Greenwich Excellence Awards for Small Business Banking, a new high for us. I am fortunate to work with some incredible teammates throughout our company, and I look forward to a great 2024 with them. Now we'd like to open the floor for questions. We will now begin the question and answer session. To ask a question, you may press the star, then 1 on your touch-tone phone.

Herbert Lynn Harton: A testament to the dedication of our teams and taking care of our customers.

Herbert Lynn Harton: We also received 15 Greenwich Excellence awards for small business banking, a new high for us.

Herbert Lynn Harton: I am fortunate to work with some incredible teammates throughout our company and I look forward to a great 2024 with them.

Speaker Change: And now we'd like to open the floor for questions.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Unknown Executive: If you are using a speakerphone, please pick up your handset before pressing. If at any time your question has been addressed, and you would like to withdraw your question, please press star then. At this time, we will pause momentarily to assemble our roster. The first question comes from Catherine Mealor with KBW. Please go ahead. Thanks. Good morning.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: Anytime you question has been addressed and you would like to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Speaker Change: The first question comes from Catherine Mealor with K B W. Please go ahead.

Catherine Fitzhugh Summerson Mealor: Thanks, Good morning, good morning Catherine.

Richard William Bradshaw: Good morning. Let's start on growth. You mentioned that growth was a little bit slower this quarter, and clients are being more conservative and pulling back. How are you thinking about growth for the rest of the year, especially if we don't get rate cuts, and how that may impact origination levels?

Catherine Fitzhugh Summerson Mealor: Start on Chris you mentioned that growth with a little bit slower this quarter and your clients are being more conservative and pulling back how are you thinking about growth for the rest of the year, especially if we don't get rate cut and how that may impact your origination levels.

Catherine Fitzhugh Summerson Mealor: Good morning, Catherine This is rich I'll I'll take that one on good morning, well certainly our interest rates are impacting in also we have customers that have kind of hit the pause button. So we do expect.

Richard William Bradshaw: This is Rich. I'll take that one on. Good morning.

Richard William Bradshaw: Well, certainly interest rates are impacting, and also, we have customers that have kind of hit the pause button. So we do expect low single-digit loan growth greater than Q1. But absent a change from the Fed, we don't see significant loan growth moving forward in 2024.

Rich: Low single digit loan growth greater than Q1, but absent a change from the fed we don't see significant loan growth moving forward in 2024.

Jefferson Lee Harralson: And how about deposit growth? Did that match loan growth? Or are there more initiatives to still maybe even grow deposits at a faster pace than that? Yes, so we, I think what you'll see is the, it's Jefferson, hey Catherine, so the overall strategy is to be a little more aggressive in pricing for our most expensive depositors, who take public funds. So we're not matching some pricing on public funds.

Rich: And how about deposit growth should that match loan growth are there more initiatives to scale.

Speaker Change: Maybe even grow deposits at a faster pace than that.

Speaker Change: Yeah. So we I think what you'll see is the.

Speaker Change: Jefferson Hey, Catherine so the overall strategy is to be a little more aggressive in pricing for our most expensive depositors take public funds. So we're we're not matching some pricing on public funds and so you may see some of our most price sensitive people leave the bank we are.

Jefferson Lee Harralson: And so you may see some of our most price-sensitive people leave the bank. We are getting really nice growth in our retail and commercial, more core areas. And so we're trying to do a bit of a mixed change a little bit.

Speaker Change: We're getting really nice growth in our retail and commercial are more core areas and so we're trying to do a bit of a mix change a little bit. So you know I wouldn't be surprised if we ended up having a quarter, where we had negative deposit growth because of this mix change that we're trying to do but.

Jefferson Lee Harralson: So I wouldn't be surprised if we ended up having a quarter where we had negative deposit growth because of this mixed change that we're trying to do. But I think if I was guiding for the whole year, I think it would be positive growth. And is that mixed change partially what's driving your belief that the margins should expand by five basis points next quarter? That's a little bit of coming on the funding side. That's right.

Speaker Change: Think if I'm guiding for the whole year I think it would be a positive growth.

Speaker Change: Okay and is that that mix change is that partially what's driving your belief that the margin should expand by five basis points next quarter.

Speaker Change: That's a little bit about coming on on the funding side.

Jefferson Lee Harralson: So we are, you know, in the first quarter, we lowered some of our money market rates, we lowered some of our other promotional pricing, and we did match on some of our public funds accounts. And so we're doing it more on a targeted basis, though, versus a kind of a mass basis. We're just trying to optimize our cost of funds and our margin, in our margin even before we get rate cuts. So we're trying to fight back a little bit for the benefit of our margins. So that's some of it. You know, a big piece of it, too, is no longer in the CD book.

Speaker Change: So we are you know in the first quarter, we lowered some of our money market rates, we lowered some of our other promotional pricing we didn't match on the some of our public funds accounts and so we're doing it more on a targeted basis, though versus a kind of a mass basis, we're just trying to optimize.

Our cost of funds and our margin.

Speaker Change: And our margin even before we get rate cuts. So we're trying to fight back a little bit.

Speaker Change: For benefit of our margin. So that's some of it you know a big piece of it too is no longer headwind in the CD book.

Jefferson Lee Harralson: We are seeing CDs come on at about the pace and about the rate that they're coming off, so you don't have that headwind anymore. We have the continued mixed change towards loans on the asset side. We have continued to, We're putting on loans at a higher yield than where our loan book is. So it's really a lot of little things, but I think the CD piece of it is one of the biggest pieces of things that was a headwind that's now not. Great, very helpful, thank you. The next question comes from Michael Rose with Raymond James. Please go ahead.

Speaker Change: We are seeing Cds came on at about the pace.

Speaker Change: And about the rate that they're coming off so you don't have that headwind anymore. We had the continued mix change towards loans on the asset side. We have continued our work.

Speaker Change: Putting on loans at a higher yield than where our loan book is so its really a lot of little things, but I think the C. D piece of it is one of the biggest pieces of things that was a headwind that's now not.

Speaker Change: Okay, great very helpful. Thank you.

The next question comes from Michael Rose with Raymond James. Please go ahead.

Richard William Bradshaw: Hey, good morning, guys. Thanks for taking my questions. So good to see a nice rebound in mortgage this quarter. Just wanted to get a sense for, you know, trends in their pipelines. And then I know some of the loan sale gains were a little bit lower. Just wanted to get kind of your thought process there in the market for SBA and Navitas paper, just as we kind of conceptualize what fee income could look like over the next couple quarters. Thanks. Good morning, Michael.

Michael Edward Rose: Hey, good morning, guys. Thanks for taking my questions. So good to see a nice rebound in mortgage this quarter I'm, just wondering to get a sense for you know.

Michael Edward Rose: Trends there pipelines and then I know the are.

Michael Edward Rose: Some of the loan sale gains were.

Michael Edward Rose: A little bit lower just wanted to get a kind of your thought process. There in the market for for SBA and Davita paper, just as we kind of conceptualize what our fee income could look like over the next couple of quarters. Thanks.

Rich: Good morning, Michael This is rich again in terms of mortgage production, we do expect Q2 to be greater than Q1. We also expect our fee revenue to be greater as well however, with interest rates at seven 5% now we don't see the seasonality be as much of an uptick as you would.

Richard William Bradshaw: This is Rich again. In terms of mortgage production, we do expect Q2 to be greater than Q1. We also expect fee revenue to be greater as well. However, with interest rates at 7.5% now, we don't see the seasonality be as much of an uptick as you would, Normally expect or historically expect and then I'll address the SBA side You know in the SBA world you need to have see a lot of what we do is on the construction side in SBA And you have to have certificate certificate of occupancy in order to sell so a little bit of timing this year we expect to This quarter was a little bit off in terms of number of loans that we could sell But the pipeline is where we want it to be we expect that we will catch up this year Particularly in the second half of the year and what's also given us optimism is the secondary markets up about 20 to 25 percent From last year, so we feel good about that Yes, so from SBA, the first quarter is our slowest seasonal quarter, and we do expect increases, just like Rich said. On the Nevada Sloan sale piece of it, you know, we only grew, we're very flat on the Nevada side for the for the first quarter.

Rich: Normally expect a historically expect and then I'll address the SBA side.

Rich: S. P. A world you need to have see a lot of what we do is on the construction side and S. P. A and you have to have sort of took a certificate of occupancy in order to sell so I'm a little bit of timing. This year, we expect to this quarter was a little bit off in terms of number of loans that we could sell but the pipelines, where we want it to be.

Rich: And we expect that we will catch up this year, particularly in the second half of the year and what's also giving US optimism is the secondary markets up about 20% to 25% from last year. So we feel good about that yes.

Speaker Change: Yeah, so from SBA or the first quarter is our slowest seasonal quarter and we do expect increases just like rich said on the no veto wholesale piece of it you know we only grew very flat onto V. Aside for the for the first quarter. We sold on the higher end of what we have historically sold 28 million.

Jefferson Lee Harralson: We sold on the higher end of what we have historically sold $28 million. So, as we go into the second quarter, we're going to reevaluate, you know, do we sell a little bit less and have that loan growth be a little higher, or do we keep the loan sales where they are and keep that book flat? So I don't know if we've made that decision a little bit yet, but it's possible we could pull back on our loan sales a little bit.

Speaker Change: So that's.

Speaker Change: Does it go into the second quarter, we're going to reevaluate do we sell a little bit less than half that loan growth be a little higher or do we keep the loan sales where they are and keep that book flat. So I don't know if we've made that decision a little bit, but it's possible we could.

Speaker Change: Pull back on our loan sales a little bit but the main driver of that line item is really that S. P. A.

Jefferson Lee Harralson: But the main driver of that line item is really that SBA line because it has a higher gain. So I would expect that line item to increase throughout the year. That's very helpful, Jefferson. Thank you very much.

Speaker Change: Well because it has a higher a higher game. So I would expect that line item to increase throughout the year.

Speaker Change: That's very helpful. Jefferson. Thank you very much just as a follow up.

Jefferson Lee Harralson: Just as a follow-up, I know you guys have talked about M&A, you know, likely being a 2025 dynamic. I totally get that. But you guys have obviously very strong capital levels, and you do have a buyback in place. I know the earnback maybe isn't as good as it would be if you were trading lower, but nonetheless, it's still very attractive.

Speaker Change: I know you guys have talked about M&A, you know likely being a 2025 dynamic totally get that you guys have obviously very strong.

Speaker Change: Capital levels, you do have a buyback in place I know the earn back maybe.

Jefferson: Yeah isn't as good as it would be if you were trading lower but nonetheless still very attractive as we think about any reason that you Wouldnt you now more aggressively look at the buyback and usage of it or just it's uncertain out there you don't know the direction of the economy, so you'd rather just.

Jefferson Lee Harralson: As we think about any reason that you wouldn't, you know, more aggressively look at the buyback and usage of it, or just, it's uncertain out there; you don't know the direction of the economy. So you'd rather just, you know, maintain, you know, relatively high capital levels near term. Thanks. I think it's a little more of the latter.

Jefferson: Maintain you know relatively high capital levels nearer term I think it's a little more of the ladder.

Jefferson Lee Harralson: We do have the preferred buyback still in place, but we saw that price move closer to par since the beginning of the year. So I think we're still, I guess, actively looking at that lever. We like buying it less than par because of the increase to tangible equity if we do. The buyback, we really like having higher capital relative to peers in this environment. So we're always looking at it. We'll always have our authorization, but we're not actively looking at that strategy right now. All right, I'll step back.

Jefferson: Oh, we do have the preferred buyback still in place, but we saw that price move closer to par.

Jefferson: Since the beginning of the year, So I think we're still.

Jefferson: I guess actively looking at that a lever, we like buying out less than par because of the increase to our tangible equity if we if we do.

Jefferson: The the buyback, but we really like having.

Jefferson: Our higher capital relative to peers in this environment. So we're always looking at it will always have our authorization there, but we're not actively looking at that strategy currently.

Speaker Change: Alright, I'll step back thanks for taking my questions.

Unknown Executive: Thanks for taking my questions. The next question comes from Stephen Scouting with Piper Sandler. Please go ahead. Good morning, everyone.

Speaker Change: The next question comes from Stephen Scouten with Piper Sandler. Please go ahead.

Stephen Kendall Scouten: Hey, good morning, everyone.

Richard William Bradshaw: Thanks. Um, I guess on the Navitas loans, it sounds like a you know, 10 and a half percent yield, even though the, You know, net charge ups have been obviously higher that the spreads there remain extremely attractive. So is that kind of the math that would drive, you know, potentially selling a little less and holding a little more? Yeah, and we are looking at that, you know, we want to stay below our kind of self imposed limit. We do have a little room there.

Stephen Kendall Scouten: I guess on the Novartis loans it sounds like you know 10, 5% yield even though the.

Stephen Kendall Scouten: Net charge offs had been obviously higher that the spread there remain extremely attractive. So is that kind of the math that would drive you know potentially spending a little less and holding a little more.

Stephen Kendall Scouten: Yeah, and we are looking at that you know we are want to stay below our kind of self imposed limit. Our we do have a little room. There. We continue to really like the business like the team there and so that is a consideration as we go forward.

Richard William Bradshaw: We continue to really like the business and the team there. And so that is a consideration as we go forward. Okay, and as it pertains to kind of credit around that book.

Speaker Change: Okay, and as it pertains to kind of <unk>.

Speaker Change: Credit around that book and maybe I think you guys kind of called out manufactured housing as well that.

Robert A. Edwards: And maybe I think you guys kind of called out manufactured housing as well that, you know, could have higher losses over time. It seems like, at least for Navitas, that could maybe begin to crest given what you're showing on the long haul trucking balances. Do you have any view on what that book looks like in the quarters ahead and in manufactured housing as well? Hey, Stephen, it's Rob Edwards.

Speaker Change: It could happen.

Speaker Change: Higher losses over time, it seems like at least for Novartis.

Speaker Change: That could be maybe even begin to to crest, given what you're showing on the long haul trucking balances do you have any view on what that book looks like in the quarters ahead in manufactured housing as well.

Speaker Change: Yeah, Hey, Steven it's Rob Edwards on the Davita as book. It is also our view that losses did crashed and have now come down in fact during the quarter in the long haul sector. We saw past dues come down dramatically, so where we're expecting a continued improvement in there.

Robert A. Edwards: On the Navitas book, it is also our view that losses did crest and have now come down. In fact, during the quarter in the long haul sector, we saw past dues come down dramatically. So we're expecting continued improvement in that portfolio to come down in the second quarter and then maybe more normalized results in the third and fourth quarter. As it relates to manufactured housing, Charge-offs are up, but I would say we've done a lot of studies. Freddie Mac has 20 years of results on manufactured housing, and our results are consistent with what you should expect of this portfolio.

Speaker Change: That portfolio.

Speaker Change:

Speaker Change: Come down in the second quarter, and then maybe more normalized results in the third and fourth quarter.

Speaker Change: As it relates to manufactured housing.

Speaker Change: Our charge offs are up but I would say we've done a lot of studies a Freddie Mac has 20 years of results on manufactured housing and our results are consistent with what you should expect of this portfolio and so we're not surprised by the performance.

Robert A. Edwards: And so we're not surprised by the performance, but, you know, I would just say keep in mind that we did stop originating last year, and so the loss rates may seem a little higher than normal, and at any time you have a runoff book as you're not originating new credit, the loss rates will be a little bit higher. But it's consistent with what we have expected and modeled. Okay, very helpful.

Speaker Change: But you know I would just say keep in mind, we did stop originating last year and so are the loss rates may seem a little higher than normal and anytime you have a run off book as a you're not originating new credit the loss rates will be a little bit higher but it it's consistent with our with what we have.

Speaker Change: As expected and modeled.

Speaker Change: Okay very helpful. And then maybe just last thing for me kind of a more big picture question. I'm curious you know it's been a pretty I don't know I'd say, it's a difficult environment for you all to operate in as a bank here today, and hopefully things look a little bit better in 2025, but from a strike. She priority perspective, you know what's the.

Herbert Lynn Harton: And then maybe just last thing for me, kind of a more big picture question. I'm curious, you know, it's been a pretty, I don't know, I'd say it's a difficult environment for y'all to operate in as a bank here today. And hopefully, things will look, you know, a little bit better in 2025. But from a strategic priority perspective, you know, what's the focus for you all today, primarily, as you think about positioning yourself well to outperform your peers when that environment does kind of improve and stabilize? Yeah, thanks. This is Lynn, Stephen.

Speaker Change: Focus for you all today, primarily as you think about positioning yourself well to outperform your peers when that environment does kind of improve and stabilize.

Speaker Change: Yeah. Thanks. This is this is land Steven I would say the primary focus is really on building our organic growth through organic teams rich continues to higher end and work on that Opportunistically really getting our Tennessee franchise stabilized and turned around when that that is really a <unk>.

Herbert Lynn Harton: I would say the primary focus is really on building our organic growth through organic teams. Rich continues to hire and work on that opportunistically, really getting our Tennessee franchise stabilized and turned around when that is really exciting to us. What we see going on there, and that's been a drag on us in the past, we believe Florida is really starting to move forward. And so those internal things on the growth side are what we're focused on.

Speaker Change: Writing to us what we see going on there and that's been a drag on us in the past we believe Florida is really starting to work forward and so those internal things on the growth side are what we're focused on on the pricing side Jefferson mentioned margin. So really doing a lot of just kind of a one off.

Herbert Lynn Harton: On the pricing side, Jefferson mentioned margin. So really, doing a lot of just kind of one-on-one elements around how do we price better? How do we get the balance sheet structured a little better? So I would say it's more internally focused.

Speaker Change: One elements around how do we price better how do we get the balance sheet structured a little better.

Speaker Change: So I would say is more internally focused we do I do continue to look at M&A opportunities frankly surprised at the number of those that are are coming to us and that you wouldn't think this would be a time there are a lot of sellers would raise their hands, but we continue to look at those but I would say the primary focus is.

Herbert Lynn Harton: We do continue to look at M&A opportunities. Frankly, surprised at the number of those that are coming to us and that you wouldn't think this would be a time that a lot of sellers would raise their hands. But we continue to look at those. But I would say the primary focus is internal, getting ready for what we see is a lot of opportunity in 25. Great. That's really helpful, Carlin.

Speaker Change: Internal I'm getting ready for what we see is a lot of opportunity in 'twenty five.

Speaker Change: Great. That's really helpful color I appreciate the time everyone.

Unknown Executive: Appreciate the time, everyone. The next question comes from Russell Gunther with Stevens. Please go ahead.

Speaker Change: The next question comes from Russell Gunther with Stephens. Please go ahead.

Jefferson Lee Harralson: Hey, good morning, guys. I wanted to follow up on the margin discussion. So Jefferson, appreciate the commentary you gave for the coming quarter. Would you expect that type of pattern to continue, absent rate cuts, or how are you kind of contemplating the remainder of the year? And then, if we do get cut, how would you expect the margin to behave? So, thank you for the question, Russell.

Russell Elliott Teasdale Gunther: Hey, good morning, guys.

I wanted to follow up on the margin discussion. So Jefferson I. Appreciate the commentary you gave for the coming quarter would.

Russell Elliott Teasdale Gunther: Would you expect that type of a pattern to continue absent rate cuts or how are you.

Russell Elliott Teasdale Gunther: Kind of contemplating the remainder of the year and then.

Jefferson: As we do get cut if we do get cut how would you expect the margin to behave.

Jefferson: So thank you for the question Russell as you know we are essentially neutral.

Jefferson Lee Harralson: We are essentially neutral to rate cuts right now. We have, in order to have a flat margin, we need to get a 39% down total deposit beta to keep it flat. And we think that we can do that, but a lot of it's going to be determined by what our competitors do, how much rate cutting we do essentially neutral to race. So I think what you're going to see is some of the trends that we're talking about continue in the back half of the year.

Speaker Change: To rate cuts right now we have.

Speaker Change: In order to have a flat margin, we need to get a 39%.

Speaker Change: Total deposit beta to keep it flat and we think that we can do that but a lot of it's going to be determined upon what our competitors do how much re cutting we do before this this this rate cut comps, but we think that we are.

Speaker Change: Essentially neutral.

Speaker Change: Neutral neutral to rates, so I think what you're going to see is some of the trends that we're talking about continue in the back half of the year. So what I would expect our margin.

Jefferson Lee Harralson: So I would expect our margin to increase, absent rate cuts. And if we get rate cuts, I think it's neutral to the margin, but it's very good for the whole bank. I think if we got rate cuts, Rich's forecast on loan growth would change some.

Speaker Change: To increase <unk>.

Speaker Change: Absent a rate cuts and if we get rate cuts.

Speaker Change: I think its neutral to the margin, but it's very good to the whole bank I think if we got rate cuts I think Richard's forecast on loan growth would change some and I think our credit risk or other things changed. So we think we're on a better stronger industry and bank with rate cuts, but on the margin specifically I don't think it changes.

Jefferson Lee Harralson: And I think our credit risk and other things have changed. So we think we're a better, stronger industry and bank with rate cuts. But on the margin specifically, I don't think it changes our margin a lot. And Rich may want to add. Yeah, I was trying to think of the best way to illustrate that.

Speaker Change: March and a lot of them rich may want to add you know I was trying to think the best way to illustrate that currently our underwriting interest rate is eight 5%. So that makes it difficult for some of these deals and projects to pencil out where if rates go down and then all of a sudden you're talking this makes a lot more sense. So that's why we're very optimistic if we see some rate decreases.

Richard William Bradshaw: Currently, our underwriting interest rate is 8.5%. So that makes it difficult for some of these deals and projects to pencil out. Where if rates go down, then all of a sudden, you're talking about, this makes a lot more sense. So that's why we're very optimistic if we see some rate decreases. That's really helpful color, guys.

Speaker Change: Yeah.

Speaker Change: That's really helpful color guys I appreciate it and then last one for me with just the on expenses. So you gave some good.

Unknown Executive: I appreciate it. And then the last one for me would just be on expenses. So it gave some good direction in terms of the dynamics this quarter. Just how do you see that playing out for the remainder of 24 on the non-interest side? Thank you. Yep, thanks, thank you, good question and to lay out the expense, what it looks like this year, number one, we had some eliminations at the end of the year that we started getting benefit from probably in February.

Speaker Change: Direction in terms of the dynamics this quarter, just how do you see that playing out for the remainder of 'twenty four on the noninterest side. Thank you yep. Thank you a good question and.

Speaker Change: Uh huh.

Speaker Change: So do lay out the expense what it looks like this year number one we had some eliminations at the end of the year that we started getting benefit from probably in February.

Unknown Executive: We have four branch closures that should be kind of late April, early May. So we... We have many projects across the bank with targeted outcomes either via new technology making us more efficient or just trying to be more efficient with people or processes. So that is kind of the bigger picture. And the more direct picture is that in the second quarter, we had about a $2 million increase due to merit. We have a little bit of an offset of that from seasonal FICA expenses declining.

Speaker Change: We have four branch closures that should be kind of late April early may.

Speaker Change: So we.

We have many projects across the bank with targeted outcomes, either via a new technology, making us more.

Speaker Change: Our fishing or or or just trying to be more efficient with with what.

Speaker Change: People were processes.

Speaker Change: So yeah. So that is kind of a bigger picture the more direct picture is in the second quarter. We have about a 2 million dollar increase due to merit a.

Speaker Change: We have a little bit of offset of that from seasonal FICA expenses declining then I would expect kind of that normal how.

Unknown Executive: Then I would expect kind of that normal, low single-digit growth rate kind of besides that. So you have a little bit of a bump in Q2 and then flattens out for the rest of the year. That's great, guys. Thanks very much. The next question comes from Gary Tanner with D.A. Davidson.

Speaker Change: Oh, well low single digit growth rate kind of besides that so you have a little bit of a bump in Q2, and then flattens out for the rest of the year.

Speaker Change: That's great guys. Thanks very much.

Speaker Change: The next question comes from Gary Tenner with D. A Davidson. Please go ahead.

Unknown Executive: Please go ahead. Thanks. Good morning.

Gary Tenner: Thanks, Good morning.

Jefferson Lee Harralson: I had a little bit of a follow-up to the NIM question. As we're looking at it from the loan yield side, non-basis points expansion this quarter, a little bit less than you had in the fourth quarter. Barring any changes to the rate environment, do you suspect we'd have a similar amount of yield pickup 2Q, 3Q, or is the kind of lower loan growth outlook maybe an impediment to that level of expansion? Yes, so I think in Q2, that nine basis point range is a good target.

Gary Tenner: It's a little bit of a follow up to the NIM question as we're looking at it from the loan yield side, a nine basis points of expansion this quarter, a little bit less than you had in the fourth quarter.

Gary Tenner: Barring any changes to the rate environment.

Gary Tenner: Do you suspect we'd have a similar amount of you'll pick up to Q3 Q4 is the kind of lower loan growth outlook, maybe an impediment to that level of expansion.

Speaker Change: Yeah. So I think in Q2 that nine basis point range is a good target I can see it waning off a little bit in the third and fourth quarter, if the growth doesn't pick up a little bit.

Jefferson Lee Harralson: I can see it waning a little bit in the third and fourth quarters if the growth doesn't pick up a little bit. Because that replacement with the new 8.5% loans coming on, slowing down, I can see that slowing it down a little bit, but I like the plus 9 for Q2 and then maybe slowing down a little bit from there. Thanks, Jefferson. And then as it relates to your guide, then, you know, that five basis point, you know, plus or minus two basis points, would you say that deposit pricing or loan growth is a bigger lever? right now for you.

Speaker Change: Because of that replacement.

Speaker Change: With that with the new 8.5% loans coming on slowing down I can see that are slowing it down a little bit, but I like the a plus nine for Q2, and then maybe slowing down a little bit from there.

Speaker Change: Thanks, <unk> and then as it relates to your guide then you know that.

Speaker Change: Five basis point, you know plus or minus two basis points is would you say that deposit pricing or loan growth are you know, which one of those is a bigger lever.

Jefferson Lee Harralson: Oh, that's a good question. I would say it's more on the deposit side, our bigger lever; we have a little more control over that, and it seems it has more. I guess, well, yeah, I would say deposit pricing on that, but they are both affected, of course. All right, thanks for the question. The next question comes from Christopher Marinac with Janney Montgomery Scott, LLC. Please go ahead. Thanks. Good morning. I wanted to ask either Rob or Rich just about the inflows and outflows on sort of criticized assets this quarter, you know, whether you look at it from the special mention or the classified side, just wanted to get more detail on the puts and takes of what's coming and going on and off. So, hey, Chris, it's Rob.

Speaker Change: Right now for it.

Speaker Change: Oh, that's a good question I would say it's more on the deposit side is our bigger lever we have a little more control.

Speaker Change: Control over that and.

Speaker Change: It seemed to have more.

Speaker Change: I guess, well, yeah, I would say deposit pricing on that but they both the fact that of.

Speaker Change: Of course.

Speaker Change: Alright, thanks for the questions.

Speaker Change: The next question comes from Christopher Marion Egg with Janney Montgomery Scott LLC. Please go ahead.

Speaker Change: Thanks, Good morning wanted to ask either rob or or or rich just about the inflows and outflows on sort of criticized assets. This quarter, you know whether you're looking at from the special mentioned or the classified side just wanted to get more detail on the puts and takes of what's coming and going on and off.

Speaker Change: Yeah, So hey, Chris it's Rob so on the on the classified side basically we upgraded one very large a sub standard credit C&I credit and so that that played a role there in terms of other items. We do go through a process and we just.

Robert A. Edwards: So, on the classified side, basically, we upgraded one very large substandard credit, C&I credit. And so that played a role there. In terms of other items, we do go through a process. We just finished one in Q1, where we look at maturing loans in the next 12 months and reamortize them, look at the impact of interest rates on payments, and try to identify upcoming problems and address the risk rate at that time. So we did have a senior care project that got downgraded, and we had a large C&I credit that got upgraded. So just some movement in those types of spaces.

Speaker Change: <unk> finished one in Q1, where we look at our maturing loans in the next 12 months and a re amortize them look at the impact of interest rate on payments and trying to identify upcoming problems and address the risk rate at that time. So we did have a senior care project that got downgraded.

Speaker Change: We had a large C&I credit that got upgraded so just some some movement and those types of spaces.

Robert A. Edwards: And Rob, I presume that some of that also is just debt service coverage and normal things, but they're still performing as agreed. That's correct. Yeah, that's right.

Speaker Change: And Rob I presume that some of that also is just debt service coverage at normal things, but they're still performing as agreed.

Robert A. Edwards: Correct Yep, that's right okay.

Robert A. Edwards: Okay. And then my follow-up question just has to do with kind of risk-adjusted returns. I mean, it kind of lends itself to this slide on Navitas every quarter, but it's also part of a broader question.

Robert A. Edwards: And then my follow up question just has to do with kind of risk adjusted returns I mean, it kind of lends itself to the slide on the beat US every corner, but it's also part of a broader question are you comfortable with what you're getting.

Jefferson Lee Harralson: Are you comfortable with what you're getting across the various business lines? Do you think those may even expand as rates stay high for long? That's a great question.

Robert A. Edwards: Loss of various business lines do you think those may even expand as rates stay high for longer.

Speaker Change: That's a great question I'll I'll I'll start with that.

Jefferson Lee Harralson: I'll start with that. So I would say about Navitas, it's a very profitable company, but we're used to it being a lot more profitable than it is today. So we are really looking forward to those losses normalizing between now and Q4 to get that back up to the profitability that we'd like. If you look at our marginal deposit cost and our marginal loan yield, maybe speak to that because it's really a matter of we've got to burn off some of these old fixed-rate loans. That's right.

Speaker Change: So I would say on the V. That's where it's a very profitable company, but we're used to we're used to it being a lot more profitable than it is today. So we are really looking forward to those losses normalizing between now and Q4 to get that back up to the profitability.

Speaker Change: That we like.

Speaker Change: If you look at our marginal deposit.

Speaker Change: E our cost and our marginal loan yield that we're not going to speak to that because it is it's really a matter of who got to burn off some of these old fixed rate loans right. So.

Jefferson Lee Harralson: Yes, so along those lines, if you think about our new loan yield, our new loan is coming on at $8.50, and our new deposits are coming on in the low 4s, you know, that's a really wide, nice incremental margin. Now, you're seeing pricing pressures on both sides of the balance sheet. It's not an easy environment, but, you know, there's optimism as we go into the back half, as we go into 25.

Yeah. So along those lines. If you think about our new loan yield on new loans coming on at eight and a half and our new deposits coming on in the low fours.

Speaker Change: That's a really wide.

Speaker Change: Nice incremental margin now you're seeing pricing pressures on both sides of the balance sheet is not an easy environment, but.

Speaker Change: It's it's there's it's optimism as we go into the back half as we go into 'twenty five because.

Jefferson Lee Harralson: Just like Lynn is saying, these older fixed-rate loans that are hurting our profitability burn out over time, and so time is our friend to increase these ROAs and ROEs that you're seeing. We don't like having our ROA below 1%.

Speaker Change: Just like when are saying these are older fixed rate loans that are that are hurting our profitability our burn out overtime and so time is our friend to increase their use of some of these these are always and always that you're saying you know, we don't like having an ROA below 1% our budget and our forecast have us moving over.

Jefferson Lee Harralson: Our budget and our forecast have us moving over that over time. We expect to be there over time. And so we feel good about our individual businesses and their improvements over time as well. And we can talk about any specific business.

Speaker Change: That over time, we expect to be there over time.

Speaker Change: And so we feel good about our individual.

Speaker Change: Businesses and their improvements over time as well and we can talk about any specific business I don't want to if you're talking about more specific business says, we can talk about that too but.

Jefferson Lee Harralson: If you're talking about more specific businesses, we can talk about that too. But we are targeting to be in a more profitable bank and have our ROAs and ROEs increase over time. And Jefferson?

Speaker Change: We are targeting to be in a more profitable banking and having our ROA and ROE, we use increase overtime and Jefferson I would add we've probably been about two months ago now, but we spent a lot of time on pricing strategy and a new pricing model and that's been in place and we're going to see those benefits now and a little more emphasis on C&I versus Korea.

Jefferson Lee Harralson: I would add, it's probably been about two months ago now, but we spent a lot of time on pricing strategy and a new pricing model. And that's been in place. And we're starting to see those benefits now and a little more emphasis on C&I versus CRE. And that's been a big part of all this.

Speaker Change: That's been a big part of all this.

Jefferson Lee Harralson: We're measuring that on a monthly basis by geography and what the results are. Great. That's super helpful. Thank you all for your contributions there. I mean, it's an interesting illustration that the new borrower paying $850 certainly comes on as a strong credit, strong coverage, so that their ability to repay is still very good.

Speaker Change: We're measuring that on a monthly basis by geography, and how what the results are.

Speaker Change: Great. That's super helpful. Thank you all for the for your contributions there I mean, it it's an interesting illustration that the new borrower paying 850 certainly it comes on is a strong credit strong coverage so that their ability to prepay is still very good.

Unknown Executive: Yep. The next question comes from David Bishop with Hobbs Group. Please go ahead. Yeah, good morning.

Speaker Change: Yep.

Speaker Change: The next question comes from David Bishop with Hub Group. Please go ahead.

David Jason Bishop: Yeah. Good morning, Jeff a follow up question on the on the balance sheet, how should we think about the securities cash flows per quarter and I assume some of that's going to flow into funding loan growth. This year, just curious how those balance sheet dynamics at work.

David Jason Bishop: Jefferson, a follow-up question on the balance sheet. How should we think about securities cash flows per quarter? And I assume some of that's going to flow into funding loan growth this year. Just curious how those balance sheet dynamics should work.

David Jason Bishop: That's right so yours.

Jefferson Lee Harralson: So you're probably getting a couple $100 million a quarter, call it $150 or $200 million a quarter of cash flow coming from the securities portfolio. Our loan growth has been wider than that, so you've seen a lot more reinvestment in the securities portfolio, and that is a reason that you're seeing, and we're expecting to see, that securities yield grow throughout the year because we are investing in new securities. So a lot of that question, the answer we'll see, comes from our expected deposit growth.

Jeff: We're getting a couple of hundred million dollars a quarter of call it 150 or $200 million a quarter of of cash flow coming.

Jeff: From the securities portfolio.

Jeff: Our loan growth has been wider than that so you've seen a lot of more reinvestment of our securities portfolio and that is a reason that you're seeing or are expecting to see that securities yield to grow throughout the year. Because we are investing into new securities. So a lot of that question and the answer will see comes from.

Jeff: Our expected deposit growth.

Jefferson Lee Harralson: If the deposit growth with our strategy that we've been talking about can stay flat, then you're going to see a lot more reinvestment in the securities portfolio, and that can fund the loan growth as well. So my base plan is for relatively flat deposits, take the cash flow from the securities, and see how much of that funds the loans. Maybe it funds all the loans; we don't know.

Jeff: Deposit growth with our strategy that we've been talking about gonna stay flat, then youre going to see a lot more reinvestment in the securities portfolio and that can fund the loan growth as well. So so my base plan is for relatively flat deposits are take the cash flow from the securities.

Jeff: See how much of that funding along with it maybe it funds are all the loans, we don't know, but but but I think maybe the bigger question. You're asking is I think you will see our balance sheet.

Jefferson Lee Harralson: But I think maybe the bigger question that you're asking is I think you will see the balance sheet be relatively flat this year, but it will grow a little bit, all depending upon what the deposits do. I appreciate that, guys. And then there is one final question. You mentioned the hope or desire to potentially start, you know, dialing back rates there. Are you seeing any of your competitors tap down rates yet on money market or CD specials? Or have they stabilized their markets and allowed you to move down? Just curious what you're seeing from a competitive backdrop.

Jeff: Be relatively flat this year, but grow little bit all depending upon where what apologize too.

Speaker Change: Great appreciate that guys and then one final question you did mentioned.

Speaker Change: The whole for desire potentially to start.

Speaker Change: Diamondback rates. There are you seeing any of your competitors are tapped out rates at all.

Speaker Change: Money market or CD specials, or how they stabilize their market, allowing you know moved out just curious what you're seeing from a competitive backdrop. Thanks, maybe I'll start real quick and pass the rich I would say very limited and scattered but we were a little bit about your I would agree and there's there's still every once in a while and irrational one button and it's been it's.

Unknown Executive: Thanks. Maybe I'll start real quick and pass it to Rich. I would say it's very limited and scattered, but we're a little bit, would you?

Unknown Executive: I would agree. And there's still every once in a while an irrational one, but it's calmed down a lot. It certainly has calmed down a lot. Great, thank you. This concludes our question and answer session. I would like to turn the conference back over to Mr. Lynn Harton for any closing remarks. Well, great. Well, thank you all for joining the call. We look forward to receiving additional questions. If you have them, please reach out directly, and we look forward to talking soon.

Speaker Change: Calmed down a lot, but certainly has come down a lot.

Speaker Change: Great. Thank you.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mr. Lynn Harton for any closing remarks.

Herbert Lynn Harton: Oh, great well. Thank you all for joining the call. We look forward to additional questions. If you have them. Please reach out directly.

Speaker Change: And we look forward to talking soon thank you so much.

Herbert Lynn Harton: Thanks so much. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Copyright 2020, New Thinking Allowed Foundation, Copyright 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. BF-WATCH TV 2021

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: Okay.

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