Q2 2024 United Community Banks Inc Earnings Call

Good morning and welcome to United Community Bank's second quarter 2024 earnings call.

Unknown Executive: 2024 Earnings Call. Hosting our call today are Chairman and Chief Executive Officer Lynn Harton, Chief Financial Officer Jefferson Haralson, President and Chief Banking Officer Rich Bradshaw, and Chief Risk Officer Rob Edwards. 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.

Speaker Change: Hosting our call today are Chairman and Chief Executive Officer Lynn Harton, Chief Financial Officer Jefferson Haralson, President and Chief Banking Officer Rich Bradshaw, and Chief Risk Officer Rob Edwards.

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.

Unknown Executive: Copies of the second quarter's earnings release and investor presentation were filed this morning on Form 8K with the SEC, 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 statement 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 Hartnett.

Copies of the second quarter's earnings release and investor presentation were filed this morning on Form 8K with the SEC. 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.

Speaker Change: Any forward-looking statement should be considered in light of 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.

Herbert Lynn Harton: Well, good morning, and thank you for joining our call today. We were pleased with our performance this quarter. On an operating basis, our earnings per share of 58 cents was up 5% from last year and 11.5% from last quarter. We moved above a 1% ROA on an operating basis, reaching 1.04% for the quarter. Our net interest margin expanded by 17 basis points due to our focus on disciplined deposit pricing, as well as ongoing loan repricing.

Herbert Lynn Harton: Well, good morning and thank you for joining our call today. We were pleased with our performance this quarter. On an operating basis, our earnings per share of 58 cents was up 5% from last year and 11.5% from last quarter.

Speaker Change: We moved above a 1% ROA on an operating basis, reaching 1.04% for the quarter. Our net interest margin expanded by 17 basis points due to our focus on disciplined deposit pricing, as well as ongoing loan repricing.

Herbert Lynn Harton: Our margin increase led net interest revenue to increase by $9.6 million for the quarter. While non-interest income was down $3 million from last quarter on a gap basis, excluding a non-recurring gain we realized in the first quarter, our non-interest income was essentially flat. We held expenses on an operating basis flat for the quarter, and we continue to look for opportunities to reduce our expenses and improve our results. Tangible book value increased by 9% on an annualized basis.

Speaker Change: Our margin increase led net interest revenue to increase by $9.6 million for the quarter. While non-interest income was down $3 million from last quarter on a gap basis, excluding a non-recurring gain we realized in the first quarter, our non-interest income was essentially flat.

Speaker Change: We held expenses on an operating basis flat for the quarter, and we continue to look for opportunities to reduce our expenses and improve our results. Tangible book value increased by 9% on an annualized basis.

Jefferson Lee Harralson: Credit trends remain solid and stable. Net charge-offs were 26 basis points, down slightly from 28 basis points last quarter. Equipment finance charge-offs continue to normalize as we expect, and we're down 24 basis points sequentially. Non-performing assets were up slightly from 58 basis points to 64, while special mention and substandard accruing loans dropped by 10 basis points. We have some additional information in the appendix this quarter on our office and multifamily portfolios, both of which continue to perform well.

Speaker Change: Credit trends remain solid and stable. Net charge-offs were 26 basis points, down slightly from 28 basis points last quarter. Equipment finance charge-offs continue to normalize as we expect, and were down 24 basis points sequentially.

Speaker Change: Non-performing assets were up slightly from 58 basis points to 64, while special mention and substandard accruing loans dropped by 10 basis points.

Speaker Change: We have some additional information in the appendix this quarter on our office and multifamily portfolios, both of which continue to perform well.

Jefferson Lee Harralson: While credit continues to be strong, we are selective on new credit and are actively managing existing relationships given the uncertainty in the environment. This, along with caution on the part of our borrowers, contributed to a small decline in our loan outstandings this quarter. We continue to hire new teams and see new opportunities, and we believe growth will improve for the balance of the year. On the deposit side, we consciously allowed some higher-rate, unprofitable balances to exit, primarily in our public funds business.

Speaker Change: While credit continues to be strong, we are selective on new credits and are actively managing existing relationships given the uncertainty in the environment.

Speaker Change: This, along with caution on the part of our borrowers, contributed to a small decline in our loan outstandings this quarter. We continue to hire new teams and see new opportunities, and we believe growth will improve for the balance of the year.

Lynn Harding: On the deposit side, we consciously allowed some higher rate, unprofitable balances to exit, primarily in our public funds business. We continue to see some movement from non-interest bearing to higher rate products.

Speaker Change: On the deposit side, we consciously allowed some higher rate, unprofitable balances to exit, primarily in our public funds business.

Jefferson Lee Harralson: We continue to see some movement from non-interest bearing to higher-rate products. However, the cost of our interest-bearing deposits increased just three basis points this quarter, compared to eight basis points last quarter. Our liquidity position continues to be very strong, with a loan-to-deposit ratio of 80% and essentially no wholesale borrowing. I'll now turn the call over to Jefferson for more detail on the quarter.

Speaker Change: We continue to see some movement from non-interest bearing to higher rate products. However, the cost of our interest bearing deposits increased just three basis points this quarter compared to eight basis points last quarter.

Lynn Harding: However, the cost of our interest-bearing deposits increased just three basis points this quarter, compared to eight basis points last quarter. Our liquidity position continues to be very strong, with a loan to deposit ratio of 80% and essentially no wholesale borrowings.

Speaker Change: Our liquidity position continues to be very strong, with a loan-to-deposit ratio of 80%, and essentially no wholesale borrowings.

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

Speaker Change: I'll now turn the call over to Jefferson for more detail on the quarter.

Jefferson Lee Harralson: Thank you, Lynn, and good morning to everyone. I am going to start my comments on page 6 and go into some more details on deposits. As Lynn mentioned, our total deposit balances were down in the second quarter, primarily due to our strategy. With loan demand being lighter and with significant cash on hand, we were able to lower our public funds pricing and pricing on some of our more promotional deposit accounts, which translated into some deposit shrinkage, but also into a higher margin.

Jefferson Harralson: Thank you, Lynn, and good morning to everyone. I am going to start my comment on page six and going to some more details on deposits. As Lynn mentioned, our total deposit balances were down in a second quarter, primarily due to our strategy. With a loan demand being lighter and with significant cash on hand, we were able to lower our public funds pricing and pricing on some of our more promotional deposit accounts. Which translated it into some deposits shrinkage, but also into a higher margin. We did continue to grow total accounts in the quarter and continued our momentum there, but we were able to be more strategic on the more expensive pieces of our funding base.

Jefferson Lee Harralson: Thank you, Lynn, and good morning to everyone.

Jefferson Lee Harralson: I am going to start my comments on page 6 and go into some more details on deposits.

Jefferson Lee Harralson: As Lynn mentioned, our total deposit balances were down in the second quarter, primarily due to our strategy.

Jefferson Lee Harralson: With loan demand being lighter and with significant cash on hand, we were able to lower our public funds pricing and pricing on some of our more promotional deposit accounts, which translated into some deposit shrinkage, but also into a higher margin.

Jefferson Lee Harralson: We did continue to grow total accounts in the quarter and continued our momentum there, but we were able to be more strategic on the more expensive pieces of our funding base. Excluding public funds, our deposits shrunk $132 million, or 2.6% annualized, with the mix staying relatively stable.

Speaker Change: We did continue to grow total accounts in the quarter and continued our momentum there, but we were able to be more strategic on the more expensive pieces of our funding base.

Jefferson Harralson: Excluding public funds, are deposits shrunk $132 million or 2.6% annualized, with the mixed staying relatively stable. Our cost of deposits moved out three basis points in the quarter to 2.35%. We turned to our loan portfolio on page seven; loan shrunk in the quarter by $164 million. Loans being down is a combination of us being cautious on new loans, us moving some downgraded loans out of the bank, and lighter loan demand from customers, who appear to be holding back on projects due to rates and uncertainty. We saw the venif loans grow a little bit in the quarter, as we pull back on loan sales given the lighter demand in other areas.

Speaker Change: Excluding public funds, our deposits shrunk $132 million, or 2.6% annualized, with the mix staying relatively stable.

Jefferson Lee Harralson: Our cost of deposits moved up three basis points in the quarter to 2.35%. We turn to our loan portfolio on page seven; loans shrunk in the quarter by $164 million. The loans being down are a combination of us being cautious on new loans, us moving some downgraded loans out of the bank, and lighter loan demand from customers who appear to be holding back on projects due to rates and uncertainty.

Speaker Change: Our cost of deposits moved up three basis points in the quarter to 2.35%.

Speaker Change: Return to our loan portfolio on page 7, loans shrunk in the quarter by $164 million.

Speaker Change: Loans being down is a combination of us being cautious on new loans, us moving some downgraded loans out of the bank, and wider loan demand from customers who appear to be holding back on projects due to rates and uncertainty.

Jefferson Lee Harralson: We saw Navitas loans grow a little bit in the quarter as we pulled back on loan sales given the lighter demand in other areas. 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. We believe this gives us some flexibility in managing through a tough interest rate and competitive environment. On page 9, we look at capital.

Speaker Change: We saw Navitas loans grow a little bit in the quarter as we pulled back on loan sales given the lighter demand in other areas.

Jefferson Harralson: On page seven, we also lay out that our loan portfolio is diversified and generally more granular and less commercial real estate-heavy as compared to peers. During the page eight, where we highlight some of the strengths of our balance sheet, we believe that our balance sheet is in good position with no FHLB borrowings and very limited broker deposits. We believe 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 capital regulatory ratios and our TCE, and all of our capital ratios are made above peers.

Speaker Change: 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.

Speaker Change: Turning to page 8, where we highlight some of the strengths of our balance sheet, we believe that our balance sheet is in good position with no FHLB borrowings and very limited broker deposits.

Speaker Change: We believe this gives us some flexibility in managing through a tough interest rate and competitive environment.

Speaker Change: On page 9, we look at capital. We had increases in our capital regulatory ratios and our TCE, and all of our capital ratios remain above peers. Our leverage ratio was also up 24 basis points in the quarter.

Jefferson Harralson: Our leverage ratio was also up 24 basis points in the quarter. Moving on to the margin on page 10, the margin came in 17 basis points higher in the second quarter on a gap basis. And was up 15 basis points on a core basis. Our loan yield moved up 19 basis points to 6.43%, with our new and renewed loan yields remaining in the 8.5% range for the quarter. We had slightly more loan accretion in a quarter compared to Q1, moving from a benefit of seven basis points in the first quarter to nine in the second.

Jefferson Lee Harralson: We had increases in our capital regulatory ratios and our TCE, and all of our capital ratios are above peers. Our leverage ratio was also up 24 basis points in the quarter. Moving on to the margin on page 10.

Jefferson Lee Harralson: The margin came in 17 basis points higher in the second quarter on a gap basis and was up 15 basis points on a core basis. Our loan yield moved up 19 basis points to 6.43%, with our new and renewed loan yields remaining in the 8.5% range for the quarter. We had slightly more loan accretion in the quarter compared to Q1, moving from a benefit of seven basis points in the first quarter to nine in the second.

Speaker Change: Moving on to the margin on page 10, the margin came in 17 basis points higher in the second quarter on a gap basis and was up 15 basis points on a core basis.

Speaker Change: Our loan yield moved up 19 basis points to 6.43%, with our new and renewed loan yields remaining in the 8.5% range for the quarter.

Speaker Change: We had slightly more loan accretion in the quarter compared to Q1, moving from a benefit of seven basis points in the first quarter to nine in the second.

Jefferson Lee Harralson: From here, I expect our loan yield to continue to increase and that our cost of funds is near a top. That said, we are still having some, albeit slower, negative mix changes, and we have a significant amount of CDs maturing in the third quarter. Currently, our CDs are coming on at about the same rate as maturing CDs, but industry competition could also change.

Jefferson Harralson: From here, I expect our loan yield to continue to increase, and that our cost of funds is near a top. That said, we are still having some, albeit for, negative mixed changes, and we have a significant amount of CDs maturing in the third quarter. Currently, our CDs are coming on at about the same rate as maturing CDs, but industry competition could also change. Take it together, our net interest margin should be flat in the third quarter, plus or minus one to two basis points. Moving to page 11, non-interest income was relatively flat, excluding MSR right-ups in both quarters.

Speaker Change: From here, I expect our loan yield to continue to increase and that our cost of funds is near a top.

Speaker Change: That said, we are still having some, albeit slower, negative mix changes, and we have a significant amount of CDs maturing in the third quarter.

Speaker Change: Currently, our CDs are coming on at about the same rate as maturing CDs, but industry competition could also change. Take it together, our net interest margin should be flat in the third quarter, plus or minus one to two basis points.

Jefferson Lee Harralson: Taken together, our net interest margin should be flat in the third quarter, plus or minus one to two basis points. Moving to page 11, non-interest income was relatively flat, excluding MSR write-ups in both quarters, better service charge income, offset lower other fees, and mortgage volume was relatively flat, although mortgage volume was higher due to seasonality.

Speaker Change: Moving to page 11, non-interest income was relatively flat, excluding MSR write-ups in both quarters.

Jefferson Harralson: Better service charging income, offset lower other fees, and mortgage was relatively flat. Mortgage volume was higher due to seasonality, and our mortgage production continued to be predominantly fixed rate that we fell into the secondary market, generating fewer loans for the balance sheet. Our gain-on-sale of SBA in Navita phones was down slightly compared to last quarter. We decided to sell fewer Navita phones in a quarter to partly offset the soft loan demand at the bank. Our wealth management revenue was $6.4 million in the second quarter, up slightly from Q1, and I will direct you to page 16.

Speaker Change: Better service charge income, offset lower other fees, and mortgage was relatively flat.

Speaker Change: Mortgage volume was higher due to seasonality and our mortgage production continued to be predominantly fixed rate that we sell into the secondary market generating fewer loans for the balance sheet.

Jefferson Lee Harralson: And our mortgage production continued to be predominantly fixed-rate loans that we sell into the secondary market, generating fewer loans for the balance sheet. However, our gain on sale of SBA and Navitas loans was down slightly compared to last quarter. We decided to sell fewer Navitas loans in a quarter to partly offset the soft loan demand at the bank. Our wealth management revenue was $6.4 million in the second quarter, up slightly from Q1, and I will direct you to page 6.

Speaker Change: Our gain on sale of SBA and Navitas loans was down slightly compared to last quarter. We decided to sell fewer Navitas loans in a quarter to partly offset the soft loan demand at the bank.

Speaker Change: Our wealth management revenue was $6.4 million in the second quarter, up slightly from Q1, and I will direct you to page 16.

Jefferson Harralson: On an ongoing basis, we review all of our business lines, and we underwind a study of our wealth businesses and how they fit together. We concluded that our retail trust and insurance businesses have a great interconnection with the bank and bank customers, and we're a great long-term fit, while our registered investment advisor FinTrust was not. We also found growing FinTrust was expensive, and generally would require capital to buy advisors and their books at relatively high prices. At that time, we decided to invest in and grow our private bank, trust, and retail businesses and to sell the RIA.

Jefferson Lee Harralson: On an ongoing basis, we review all of our business lines, and we underwent a study of our wealth businesses and how they fit together. We concluded that our retail, trust, and insurance businesses have a great interconnection with the bank and bank customers, and we're a great long-term fit, while our registered investment advisor, FinTrust, is not. We also found growing Fintrust was expensive and generally would require capital to buy advisors and their books at relatively high prices.

Speaker Change: On an ongoing basis, we review all of our business lines, and we underwent a study of our wealth businesses and how they fit together.

Speaker Change: We concluded that our retail, trust, and insurance businesses have a great interconnection with the bank and bank customers and were a great long-term fit, while our registered investment advisor, FinTrust, was not.

Speaker Change: We also found growing FinTrust was expensive and generally would require capital to buy advisors and their books at relatively high prices.

Jefferson Lee Harralson: At that time, we decided to invest in and grow our private bank, trust, and retail businesses and to sell the RIA, and we signed a contract to sell it in June to another large private registered investment advisor. While the deal will not close until the third quarter, most likely, we wrote down some of the goodwill associated with Fintrust by $5.1 million. For the second quarter, Fintrust was in our numbers and accounted for 44% of the AUA, but only accounted for one-third of the wealth management revenue. FinTrust contributes about $2 million in fees per quarter. Its expenses are roughly equal to its revenue, so the sale will not impact EPS going forward. Back to page 12.

Speaker Change: At that time, we decided to invest in and grow our private bank, trust, and retail businesses and to sell the RIA. We signed a contract to sell it in June to another large private registered investment advisor.

Jefferson Harralson: And we found a contract to sell it in June to another large private registered investment advisor. While the deal would not close until the third quarter, most likely, we wrote down some of the goodwill associated with FinTrust by $5.1 million. For the second quarter, FinTrust was in our numbers and accounted for 44% of the AUA, but only accounted for one-third of the wealth management revenue. FinTrust contributes about $2 million of fees per quarter. Its expenses are roughly equal to its revenue, so the sale will not impact EPS going forward. Back to page 12, operating expenses came in at $140.6 million, of just $200,000 from Q1.

Speaker Change: While the deal will not close until the third quarter most likely, we wrote down some of the goodwill associated with Fintrust by $5.1 million.

Speaker Change: For the second quarter, Fintrust was in our numbers and accounted for 44% of the AUA.

Speaker Change: but only accounted for one-third of the wealth management revenue.

Speaker Change: Fintrust contributes about $2 million of fees per quarter. Its expenses are roughly equal to its revenue, so the sale will not impact EPS going forward.

Jefferson Lee Harralson: Operating expenses came in at $140.6 million, down just $200,000 from Q1. We had our annual merit process that moved expenses higher. We also had higher health insurance costs.

Speaker Change: Back to page 12, operating expenses came in at $140.6 million of just $200,000 from Q1.

Jefferson Harralson: We had our annual merit process that moved expenses higher, and we also had higher health insurance costs, but this was offset by lower other expenses, including lower incentives and lower fraud losses. Moving to credit quality, net charge-offs improved to 26 basis points in the quarter, with the bank being very low at just 15 basis points. Our NPAs were up slightly. Our breakout of nevitiful losses is on page 19. Nevitiful losses were improved at 1.42%, and nevitiful losses excluding long haul trucking were 1.01%, which was also just slightly improved, and we are putting on new loans in the 10 and a half percent range.

Speaker Change: We had our annual merit process that moved expenses higher. We also had higher health insurance costs, but this was offset by lower other expenses, including lower incentives and lower fraud losses.

Jefferson Lee Harralson: But this was offset by lower other expenses, including lower incentives and lower fraud losses. Moving to credit quality, net chargeoffs improved to 26 basis points in the quarter, with the bank being very low at just 15 basis points. Our NPAs were up slightly. Our breakdown of Neveda's losses is on page 19. Nevidus losses were improved at 1.42%, and Navitas losses, excluding long-haul trucking, were 1.01%, which was also just slightly improved.

Speaker Change: Moving to credit quality, net charge-offs improved to 26 basis points in the quarter with the bank being very low at just 15 basis points.

Speaker Change: Our NPAs were up slightly. Our breakout of NVIDIA losses are on page 19.

Speaker Change: Neveda's losses were improved at 1.42%.

Speaker Change: And Navitas losses, excluding long-haul trucking, were 1.01%, which was also just slightly improved. And we are putting on new loans in the 10.5% range.

Jefferson Lee Harralson: And we are putting on new loans in the 10.5% range. I will finish back on page 14 with the allowance for credit loss. We set aside $12.2 million to cover $11.6 million in net charge-offs, and our ACL increased slightly in the quarter and is up year over year. With that, I will pass it back to Lynn.

Jefferson Harralson: I will finish back on page 14 with the allowance for credit losses. We set aside $12.2 million to cover $11.6 million in net charge-offs, and our ACL increased slightly in the quarter, and is up year over year.

Speaker Change: I will finish back on page 14 with the allowance for credit losses.

Speaker Change: We set aside $12.2 million to cover $11.6 million in net charge-offs, and our ACL increased slightly in the quarter and is up year over year. With that, I will pass it back to Len.

Jefferson Harralson: With that, I will pass it back to Lynn. Thank you, Jefferson.

Herbert Lynn Harton: Before we take questions, I'd like to add to Jefferson's comments on our decision to sell our registered investment advisor, Fintrust. Several quarters ago, I asked Melinda Davis-Lux on my team to review our various wealth-related businesses and develop a more comprehensive strategy. In that process, she interviewed and spent time with multiple external resources, team members of our different wealth businesses, as well as our frontline bankers. As a result of that review, and under her leadership, we began to execute on building a more integrated wealth strategy.

Lynn Harding: Before we take questions, I'd like to add to Jefferson's comments on our decision to sale our registered investment advisor, Fin Trust. Several quarters ago, I asked Melinda Davis Lux on my team to review our various wealth-related businesses and develop a more comprehensive strategy. In that process, she interviewed and spent time with multiple external resources, team members of our different wealth businesses, as well as our frontline bankers. As a result of that review and under her leadership, we began to execute on building a more integrated wealth strategy. We want a bank-centric model designed to be understandable to bankers and deepen our relationship with clients.

Len: Thank you, Jefferson. Before we take questions, I'd like to add to Jefferson's comments on our decision to sell our registered investment advisor, Fintrust.

Len: Several quarters ago, I asked Melinda Davis-Lux on my team to review our various wealth-related businesses and develop a more comprehensive strategy.

Melinda Davis-Lux: In that process, she interviewed and spent time with multiple external resources, team members of our different wealth businesses, as well as our frontline bankers.

Speaker Change: As a result of that review, and under her leadership, we began to execute on building a more integrated wealth strategy.

Herbert Lynn Harton: We want a bank-centric model designed to be understandable to bankers and deepen our relationship with clients. We want to minimize internal competition and conflict, and we want the business to be scalable and profitable. The development of this more focused strategy led to our decision to sell Fintrust, although we recognize a small loss this quarter in doing so in the form of a goodwill write-down.

Speaker Change: We want a bank-centric model designed to be understandable to bankers and deepen our relationship with clients. We want to minimize internal competition and conflict. And we want the business to be scalable and profitable.

Lynn Harding: We want to minimize internal competition and conflict, and we want the business to be scalable and profitable. The development of this more focused strategy led to our decision to sell Fin Trust. While we recognize the small loss of this quarter and doing so in the form of a goodwill write down, it will be capital agreed upon closing in the third quarter, and will have no impact on our ongoing net income. Additionally, I believe the Fin Trust team will be more successful individually within a dedicated RIA business. I appreciate Melinda's leadership on this, and I'm excited about the outstanding leadership team she has assembled to drive this business.

Speaker Change: The development of this more focused strategy led to our decision to self-entrust.

Speaker Change: While we recognize a small loss this quarter in doing so in the form of a goodwill write-down, it will be capital accretive upon closing in the third quarter and will have no impact on our ongoing net income.

Herbert Lynn Harton: It will be capital accretive upon closing in the third quarter and will have no impact on our ongoing net income. Additionally, I believe the Fintrust team will be more successful individually within a dedicated RIA business. I appreciate Melinda's leadership on this, and I'm excited about the outstanding leadership team she has assembled to drive this business. As we move forward in 24, we will continue to sharpen our focus and execution throughout the company as we build a great bank with the incredible teammates we have here at United. And now we'd like to open the floor for questions. We will now begin.

Speaker Change: Additionally, I believe the Fintrust team will be more successful individually within a dedicated RIA business.

Speaker Change: I appreciate Melinda's leadership on this, and am excited about the outstanding leadership team she has assembled to drive this business.

Lynn Harding: As we move forward in 24, we will continue to sharpen our focus and execution throughout the company as we build a great bank with the incredible teammates we have here at United.

Speaker Change: As we move forward in 24, we will continue to sharpen our focus and execution throughout the company as we build a great bank with the incredible teammates we have here at United.

Unknown Executive: And 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 star, up, and one on your telephone keypad. If you were using a speaker phone, please pick up your hands up before pressing or keys. To withdraw your question, please press star up, then two. At this time, we will pause momentarily to assemble our roster.

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

Unknown Executive: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Stephen Scouten with Piper Sandler. Please go ahead.

Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.

Steven Stone: The first question comes from Steven Stone with Piper Sandler. Please go ahead.

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

Stephen Kendall Scouten: Yeah, thanks. Good morning.

Stephen Kendall Scouten: Yeah, thanks. Good morning.

Stephen Kendall Scouten: I guess maybe if I could start with loan growth and kind of...

Speaker Change: Maybe some color around the view that growth will improve through the balance of the year versus the commentary about taking a more cautious stance on new originations.

Unknown Executive: I guess maybe I could start with loan growth and kind of maybe some color around the view that growth will improve through the balance of the year versus the commentary about taking a more cautious stance on new originations. Just kind of wondering what that looks like. Is there a focus on a different segment of the loan book, or is it just that we could actually grow a lot faster if we wanted, but we're going to be cautious, which will still provide some growth, just maybe not as much as it could have been? If you could just kind of point me in the right direction there, that would be great. Good morning.

Speaker Change: I'm just kind of wondering what that looks like. Is there a focus on a different segment of the loan book, or is it just that, hey, we could actually grow a lot faster if we wanted, but we're going to be cautious, which will still provide some growth, just maybe not what it could have been? If you could just kind of point me in the right direction there.

Richard William Bradshaw: Good morning, Stephen. This is Rich.

Speaker Change: Good morning, Steve. Stephen, this is Rich. With regards to Q2 results, as you know, high interest rates,

Richard William Bradshaw: With regard to Q2 results, as you know, high interest rates, credit tightening, and election uncertainty kind of dampened owner and sponsor confidence. We do see that improving a little bit, and I've spent time talking to each state president as well as all the senior credit officers individually as well to see what activity looks like going forward. And right now, it does look like it's picking up in Q3 as compared to Q2, and there is more optimism even in Q4.

Speaker Change: Credit Tightening and Election Uncertainty kind of dampened

Speaker Change: Owner and Sponsor Confidence

Speaker Change: We do see that improving a little bit and I've spent time talking to each day president as well as all the senior credit officers individually as well to see what activity looks like.

Speaker Change: Going forward...

Speaker Change: and right now it does look like it's picking up in Q3 as compared to Q2, and as well as more optimism even in Q4. So we're feeling better about continued loan growth throughout the year.

Richard William Bradshaw: So we're feeling better about continued loan growth throughout the year. And in terms of products, we see Cree starting to come back a little bit because it's been flattened. We've seen a lot of tapering of that product over the last year. It's starting to come back a little bit, and the secondary markets there are coming back as well. And then we've got a lot of focus on owner-occupied Cree and have some specific specials on that, and that's performed very well for us.

Speaker Change: And in terms of products...

Speaker Change: We see Cree starting to come back a little bit. Because it's been flattened, we've seen a lot of...

Speaker Change: Tapering of that product over the last year. It's starting to come back a little bit in the secondary markets They are coming back as well, and then we've got a lot of focus on owner-occupied Cree and have some specific Specials on that and that's people Performed very well for us

Unknown Executive: Okay, great. That's a helpful color rich.

Speaker Change: Okay, great. That's helpful, Culler. Rich, thanks for that. And if I could just dig into the NIMM for a second.

Unknown Executive: Thanks for that. And if I could just dig into the NIM for a second, it You guys noted the relative stability around funding costs, but it also looked like loan yields jumped quite a bit. And I was wondering if there was anything maybe unusual there or any sort of the maybe non-accrual loans that were removed from the balance sheet, if that had a larger impact. And just kind of what you think, and they said maybe a flat quarter of a quarter, but how you think about those, Funding Costs and Loan Yields Commitment Forward. All right.

Speaker Change: You guys noted the stability, relative stability around funding costs, but it also looked like loan yields jumped quite a bit, and I was wondering if there was anything maybe unusual there, or any sort of the, you know, maybe non-accrual loans that were removed off the balance sheet, if that had a larger impact.

Speaker Change: And just kind of what you think, I know you said maybe flat, quarter of a quarter, but how you think about those.

Jefferson Lee Harralson: All right. Thanks, Stephen, for that question. It's nothing really unusual there; you did get the benefit from the higher loan accretion, which helped. I do think you're going to see maybe kind of a six to seven basis points increase in loan yield just from back book repricing and then putting on new loans at $850. The cost of funds is a little bit low, and some of it's going to be our decision as to whether we sell Navitas loans or keep Navitas loans. The more we keep, the more it can help that loan yield, and that helped us a little bit this quarter.

Speaker Change: Funding Costs and Loan Yield Commitment Forward specifically.

Speaker Change: All right. Thanks, Stephen, for that question.

Speaker Change: It's nothing really unusual there. You did get the benefit from the higher loan accretion which helped. I do think you're going to see maybe kind of six to seven basis points increase and loan yield just from back book repricing and then putting on new loans at $850.

Speaker Change: The cost of funds is a little, and some of it is going to be our decision too of whether we sell Navitas loans or keep Navitas loans, the more we keep.

Speaker Change: The more it can help the loan yield, and that helped us a little bit this quarter.

Jefferson Lee Harralson: The cost of funds is a little different, you know; our actual June 30 cost of funds was a little lower than the first quarter average, which gives some optimism about the third quarter. But at the same time, we have a very significant amount of CDs repricing. A lot of banks have a lot of CDs repricing, so it's hard to tell exactly what this new money is going to come in at. But, you know, like I said in the prepared remarks, flat is probably good for your model, but if there's some optimism, it could be better if it plays out like our current strategy has it. But I think flat is a good number, given the uncertainty of some of our strategies.

Speaker Change: The cost of funds is a little different.

Speaker Change: You know, our actual June 30 cost of funds was a little lower than the first quarter average, which gives some optimism.

Speaker Change: to the third quarter, but at the same time we have a very significant amount of CDs repricing. A lot of banks have a lot of CDs repricing, so it's hard to tell exactly what this new money is going to come in at.

Speaker Change: But, you know, taken together, like I said, in the prepared remarks, you know, flat's probably a good

Speaker Change: For your model, but if there's some optimism, it could be better if it plays out like our current strategy has it. But I think flat is a good number given the uncertainty of some of our strategies.

Unknown Executive: Got it. Okay. Great. I'll let somebody else have one. Thanks for the call again.

Speaker Change: Got it. Okay. Great. I'll let somebody else have a moment. Thanks for the call, again.

Michael Edward Rose: Our next question comes from Michael Rose with Raymond James. Please go ahead.

Speaker Change: Our next question comes from Michael Rose with Raymond James. Please go ahead.

Herbert Lynn Harton: Hey, good morning, guys. Thanks for taking my questions. Just on a core basis, it looks like expenses were a little bit lower than, I guess, what I was looking for, than consensus was looking for. Can you just give us an update on kind of some of the strategic priorities as you, you know, kind of reinvest in the franchise and start to grow loans? Just following on from Stephen's questions and, you know, what we could think about, I know it's a little early, but as we think about next year, would, you know, continued investments in the franchise lead you to something closer to kind of a mid-single-digit growth rate, you know, just balancing investments and inflation with ongoing cost reduction initiatives? Thanks.

Michael Edward Rose: Hey, good morning, guys. Thanks for taking my questions.

Michael Edward Rose: Just on a core basis, it looks like expenses were a little bit lower than I guess what I was looking for, than consensus was looking for. Can you just give us an update on kind of some of the strategic priorities as you, you know, kind of

Stephen Kendall Scouten: Reinvest in the franchise and start to start to grow loans. Just tailing off Stephen's questions and

Speaker Change: You know, what we could we could think about, I know it's a little early, but as we think about next year, would, you know, continued investments in the franchise lead you to something closer to kind of a mid single digit growth rate, you know, just balancing investments, inflation with ongoing cost reduction initiatives. Thanks.

Herbert Lynn Harton: Yeah, Michael, this is Len. I'll start, and Jefferson can add in later. You know, our goal this year was to sit down earlier this year and say, look, as a team, let's figure out a way to hold our employee expenses flat if we can. That was a challenge I gave them as we moved through the year, at the same time knowing that we've got to invest in growth, just like you mentioned. I think we've got to do both those things.

Speaker Change: Yeah, Michael, this is Len. I'll start and Jefferson can add in. You know, our goal, we sat down earlier this year and said, look,

Speaker Change: As a team, let's figure out a way to...

Speaker Change: Hold our employee expenses flat if we can. That was a challenge I gave them.

Speaker Change: As we move through the year, at the same time, knowing that we've got to invest in growth, just like you mentioned.

Jefferson Lee Harralson: I think we've got to do both those things. So we just completed a review of positions where we believe we had excess capacity.

Herbert Lynn Harton: So we just completed a review of positions where we believe we had excess capacity. Some of it was because of volume declines in some areas, some businesses, some technology improvements, frankly, and some other areas where we put in and just always anticipated reducing employment in those areas because of those improvements. And in some cases, organizational redundancy. We've grown quickly.

Jefferson Lee Harralson: Some of it's because of volume declines in some areas, some businesses.

Jefferson Lee Harralson: Some technology improvements, frankly, in some other areas where we put in and always anticipated reducing employment in those areas because of those improvements, and in some cases organizational redundancy. We've grown quickly, we had some things there we could clean up as well. So we've eliminated a number of positions at the end of this quarter to do that, and our goal is...

Herbert Lynn Harton: We had some things there we could clean up as well, so we eliminated a number of positions at the end of this quarter to do that. And our goal in doing that was not to drive expenses down, but to know that we need to invest and want to invest. Rich has got a number of teams he's talking to. Linda's got a number of teams she's talking to. Frankly, you've got to make some investments in some control functions that our stakeholders need and want us to have control functions in place. So it was an ambitious target to set out. I'm not promising we'll be able to do that, but that's the mandate the team has been operating under.

Jefferson Lee Harralson: In doing that was not to drive

Jefferson Lee Harralson: expenses down.

Richard William Bradshaw: But knowing that we need to invest and want to invest, Rich has got a number of teams he's talking to. Melinda's got a number of teams she's talking to. Frankly, you've got to make some investments in some control functions that our stakeholders, for us to continue to grow as we've had, our stakeholders need and want us to be able to have control functions in place.

Speaker Change: I'm not, I'm not, it was an ambitious target to set out. I'm not promising we'll be able to do that, but that's the mandate the team has been operating under. So I think that's well said. I'll only add in that...

Jefferson Lee Harralson: So I think that's well said. I'll only add that I think that nets out to a low single-digit overall growth rate and expenses, and that is enabled by some of these production-related, technology-related cuts that we've made.

Speaker Change: I think that nets out to a low single-digit overall growth rate and expenses and that is enabled by some of these production-related, technology-related cuts that we've made.

Herbert Lynn Harton: Very helpful. And then maybe just as a follow-up, and assuming we are going to get some rate cuts, I would assume some of your fee businesses, especially mortgage, would, you know, continue to do a little bit better, just on a core basis. I would assume that the expectation for next year would be, you know, decent positive operating leverage. Is that the way we should kind of think about it?

Speaker Change: Very helpful. And then maybe just as a follow-up and assuming we are going to get some...

Speaker Change: Some rate cuts, I would assume some of your fee businesses, especially mortgage, would continue to do a little bit better, just on a core basis. I would assume that the expectation for next year would be decent positive operating leverage. Is that the way we should kind of think about it?

Herbert Lynn Harton: So we're going to budget positive operating leverage every year, and we're going to do what we need to do to generate it. It's not easy every year, but I think we'll have loan growth. We'll have customer growth. I think we had some mortgage growth last year. I think we'll have growth in our core businesses, and our design will be to keep our expense growth lower than our revenue growth every year, but I think that's going to be doable in 2025 as well. I'll pass this over to Rich for some comments, too. Yeah, Michael, you asked about...

Speaker Change: Yes, for sure.

Speaker Change: We're going to budget positive operating leverage every year, and we're going to do what we need to do to generate some. It's not easy every year.

Speaker Change: But, um, so...

Speaker Change: But I think we'll have loan growth, we'll have...

Speaker Change: Customer growth, I think we will have some mortgage growth last year. I think we'll have growth in our core businesses and our design.

Speaker Change: Will be to keep our expense growth lower than our revenue growth every year, but I think that's going to be

Speaker Change: doable on 25 as well.

Richard William Bradshaw: Michael, you asked about 2025, and we are very optimistic about that. We're still in the best markets. The three lift-outs we've done in Rome, Georgia, East Tennessee, and Middle Tennessee have gone really well and are continuing to go well. And I will tell you, we continue to work on several others and are very excited about that. So we're very optimistic about 2025.

Richard William Bradshaw: I'll pass it over to Rich for some comments too. Yeah, Michael, you asked about, you know, 2025 and we are very optimistic about that. We're still in the best markets.

Richard William Bradshaw: The three lift outs we've done in Rome, Georgia, East Tennessee, and Middle Tennessee have gone really well and are continuing to go well. And I will tell you we continue to work on several others and are very excited about that. So we're very optimistic about 2025.

Unknown Executive: Thanks. Thanks, guys. Maybe just one final one for me.

Speaker Change: Thanks guys. Maybe just one final one for me. I think you guys had said that M&A wasn't really in the cards until next year. Is that still the case?

Unknown Executive: I think you guys had said that M&A wasn't really in the cards until next year. Is that still the base case? I mean, there's a lot going on in the political circle, and people are getting excited about just kind of a deregulatory backdrop if one party wins. But just wanted to get any sort of updates on your thought process around deals. Thanks.

Speaker Change: The base case, I mean, I know a lot's going on in the political circle, and people are getting excited about just kind of the deregulatory backdrop, if one party wins, but just wanted to get any sort of, you know, updates in your thought process around around deals. Thanks.

Herbert Lynn Harton: Sure, Michael. This is Len again.

Len: Sure, Michael. This is Len again. So I would say, you know, we're in an open but conservative posture on M&A. You know, I don't feel like we have to do M&A. And frankly, there's been some positives to the slowdown that we've had, particularly in the ability to focus on some project work.

Herbert Lynn Harton: So I would say we're in an open but conservative posture on M&A. I don't feel like we have to do M&A. And frankly, there are some positives to the slowdown that we've had, particularly the ability to focus on some project work. But what we're seeing is, of course, the math is getting better on M&A, particularly on rate marks. They've improved through time and with a little bit of rate moderation, but you've still got some marks on credit, particularly commercial real estate. The banks that we tend to look at tend to be smaller banks, and they tend to be commercial real estate heavy. So that's a little bit of a headwind.

Len: But what we're seeing is, of course, the math is getting better on M&A, you know, particularly on rate marks. They've improved through time and a little bit of rate moderation. You've still got some marks on credit, particularly commercial real estate. The banks that we tend to look at tend to be the smaller banks, and they tend to be commercial real estate heavy. So that's a little bit of a headwind. You know, it's been interesting, too, to really look at the value of the individual deposit franchise of the banks that we're looking at, because we have seen several...

Herbert Lynn Harton: It's been interesting too to really look at the value of the individual deposit franchises of the banks that we're looking at because we have seen several recently that are considering selling, and some are better than others. So, you know, our focus is on franchises we think will give us the opportunity to be additive with additional products, a balance sheet, and where we can bring new talent in. Based on what we're seeing, we think we'll see a number of those opportunities in the coming quarters and, you know, hopefully, be able to execute on a small number of the best of them.

Speaker Change: Recently, they are considering selling and some are better than others.

Speaker Change: So, you know, our focus is on franchises we think will give us the opportunity to be additive with additional products, balance sheet, where we can bring new talent in.

Speaker Change: Based on what we're seeing we think we'll see a number of those opportunities in the coming quarters and

Speaker Change: You know, hopefully be able to execute on a small number.

Herbert Lynn Harton: In the deals we do, we really don't worry about the regulatory side, just because we are smaller. But it is going to be interesting to see what the political and regulatory world looks like post-November, for sure.

Speaker Change: of the best of them. In the deals we do, we really don't worry about the regulatory side, just because of being smaller. But it is going to be interesting to see what the political and regulatory world looks like in post-November, for sure.

Unknown Executive: Get your popcorn ready. Thanks, guys. I appreciate you taking the time to answer my question.

Speaker Change: Get your popcorn ready. Thanks guys, appreciate you taking my questions.

Catherine Fitzhugh Summerson Mealor: The next question comes from Catherine Mealor with KBW. Please go ahead.

Michael Edward Rose: Thanks, Michael.

Speaker Change: The next question comes from Catherine Mealor with KVW. Please go ahead.

Unknown Executive: Thanks. I just had a follow-up question. You mentioned that part of the higher margin this quarter was just from keeping more Nevidus loans on the balance sheet, and of course, you benefit from a higher yield on those loans. As you think core loan or ex-Nevidus loan growth improves in the back half of the year, would you imagine that you start to sell more of that product, or is the kind of balance between gain on sale versus on the balance sheet still attractive enough where Nevidus will continue to grow at this rate?

Catherine Fitzhugh Summerson Mealor: Thanks, I just had a follow-up on, you mentioned that part of the higher margin this quarter was just from keeping more Navitas loans on balance sheet and of course.

Catherine Fitzhugh Summerson Mealor: You benefit from a higher yield on those loans. As you think ex-movetus loan growth improves in the back half of the year, would you envision that you start to sell more of that?

Speaker Change: Product, or is the kind of balance between gain on sale versus on balance sheet still attractive enough where Nazeetus will continue to grow at this rate?

Jefferson Lee Harralson: That's a great question. Last quarter, we sold about $27 million. This quarter, we sold about $8 million. And with the loan growth we're just talking about, it's still kind of in the low single-digit range. So I think we're, would lean towards, depends on the pricing, but it leans towards keeping more Navitas loans in the back half. So I don't know if it would be as low as eight, but I think it'd be in the lower end of that $8 to $26 million range. So it's kind of lean towards keeping more, given that even with better loan growth from here, it's still on the lower end of what we had budgeted this year.

Speaker Change: It's a great question. Last quarter we sold about $27 million. This quarter we sold about $8 million.

Speaker Change: And with the loan growth we're just talking about, it's still kind of low single-digit range. So I think we're, would lean towards, depends on the pricing, but it leans towards keeping more.

Speaker Change: Navitas loan is in the back half, so I don't know if it would be as low as $8 million, but I think it would be in the lower end of that $8 to $26 million range. So, it's kind of leaned towards keeping more, given that even with better loan growth from here, it's still on the lower end of what we had budgeted this year.

Jefferson Lee Harralson: And then thoughts on, just to circle back on the on the loan yield outlook, I mean, this quarter was so high, I'm assuming kind of this pace of, of loan yield expansion is not repeatable in the next couple of quarters. Any kind of thoughts on just as you look at what you see in your fixed rate book repricing and maybe growth, kind of what you would expect on a per quarter basis over the next couple quarters for your loan yields to increase by. Great.

Speaker Change: Okay, great, great.

Speaker Change: And then, thoughts on, just to circle back on the loan yield outlook, I mean, this quarter was so high, I'm assuming kind of this...

Speaker Change: pace of low-yield expansion is not repeatable in the next couple of quarters. Any kind of thoughts on just as you look at what you see in your fixed-rate book repricing and maybe growth, kind of what you would expect on a per-quarter basis over the next couple of quarters for your low yields to increase by?

Jefferson Lee Harralson: I think if you look at the back book, what we're adding, and put that together, it is probably six to seven basis points, a quarter of additional loan yield. OK.

Speaker Change: Right, so I think if you look at the back book, look what we're adding, put that together is probably six to seven basis points, a quarter of additional loan yield.

Unknown Executive: All right, great. Thanks so much. That's all I have.

Speaker Change: Okay.

Speaker Change: Great. All right, great. Thanks so much, that's all I got.

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

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

Jefferson Lee Harralson: One quick question on my end, Jefferson. You mentioned a couple of times the prospects of CD repricing in the third quarter as a potential headwind. Just wondering if you could detail the amount and rate of CDs that got maturing in the third quarter.

Gary Peter Tenner: Thanks, good morning.

Gary Peter Tenner: One quick question on my end. Jefferson, you mentioned a couple times kind of the prospects of CD repricing in the third quarter as a potential headwind. I'm just wondering if you could detail the amount and rate of CDs that got maturing in the third quarter.

Jefferson Lee Harralson: Thanks Gary, great question. We have about a billion dollars of CDs maturing this quarter. They're maturing at about 420. Right now, they're coming on at about 420, so there's some optimism that the headwind of CDs is already fully realized. But it's a large amount that it's hard to forecast, and again, other banks also have a lot of CDs maturing as well, so we have some conservatism built in our forecast for that to move a little bit higher.

Jefferson Lee Harralson: Thanks Gary, great question. We have about a billion dollars of CDs maturing this quarter.

Speaker Change: They're maturing at about 420. Right now they're coming on at about 420, so there's some optimism that the headwind of CDs...

Speaker Change: has is already fully realized.

Speaker Change: But it's such a large amount that it's hard to forecast, and again, other banks also have a lot of CDs maturing as well. So we have some conservatism built in our forecast.

Jefferson Lee Harralson: Right now, it's not, so again, maybe there's a little conservatism in the forecast, but it isn't giving us a headwind to our margin. But we think it could very well could, given the amount and what we're seeing from other banks.

Speaker Change: For that to move a little bit higher. Right now it's not. So again, we have maybe there's a little conservatism in the forecast, but right now it's 420 compared to 420. So it's a

Speaker Change: It's a

Speaker Change: Not giving us a headwind to our margin, but we think it very well could given the amount and what we're seeing from other banks.

Jefferson Lee Harralson: Okay, appreciate that. And actually, while we're on that topic, can you give us the fourth quarter maturity schedule as well, with a break?

Speaker Change: Okay, I appreciate that. And actually, while we're on that topic, can you give us the fourth quarter maturity schedule as well?

Jefferson Lee Harralson: is roughly a billion.

Jefferson Lee Harralson: It's roughly a billion dollars. I need to get it. It might be a little plus or minus. I need to come back to you with that. But it's also a very large quarter.

Rick: With Rick.

Speaker Change: It's roughly a billion dollars I need to get, it might be a little plus or minus, I'll need to come back to you with that, but it's also a very large quarter.

Speaker Change: Thank you very much.

Russell Elliott Teasdale Gunther: Our next question comes from Russell Gunther with Stevens. Please go ahead.

Speaker Change: Our next question comes from Russell Gunther with Stevens. Please go ahead.

Jefferson Lee Harralson: Hey, good morning, guys. Following up on the margin discussion, you guys also saw a nice lift in the security fields. Could you just remind us about what that cash flow looks like, and what it will do over the next couple quarters and where you'd expect those yields to trend?

Russell Elliott Teasdale Gunther: Hey, good morning guys. Following up on the margin discussion, you guys also saw a nice lift in the securities yields. Could you just remind us about what that cash flow looks like coming due over the next couple quarters and where you'd expect those yields to trend?

Jefferson Lee Harralson: Yep, so we have about $40 million of cash flow principal coming in per month there. The average that we're putting that on is 590. This quarter you saw a bigger jump than you usually would because we had a lot of cash coming into the quarter, a little less on demand, so we're putting that cash to work in a stronger, bigger fashion than I think we will in the second half of the year. But expect, again, $120 million a quarter, reinvesting at roughly $590.

Speaker Change: Yep, so we have about $40 million of cash flow principal coming in.

Speaker Change: per month there. The average that we're putting that on is 590.

Speaker Change: This quarter you saw a bigger jump than you usually would because we had a lot of cash coming into the quarter, a little less loan demand, so we're putting that cash to work in a stronger, bigger fashion than I think we will in the second half of the year.

Speaker Change: Expect, again, $120 million a quarter, reinvesting at roughly $590 million.

Jefferson Lee Harralson: Got it. Okay. Thanks, Jefferson. And then just to clarify the expectations for the six to seven basis point pickup and loan yield, that assumes a similar level of Navitas loan growth going forward. Is that what's kind of contemplated in that guide?

Speaker Change: Got it. Okay. Thanks, Jefferson. And then just to clarify the expectations for the six to seven basis point pickup and loan yield.

Speaker Change: That assumes a similar level of Novitus loan growth going forward. Is that what's kind of contemplated in that guide? That's correct. That's correct. Okay. Excellent. Thank you. And then with the comments made,

Jefferson Lee Harralson: That's correct. That's correct. Okay.

Unknown Executive: Excellent. Thank you. And then with the comments made about the conservative approach to credit, the more cautious stance, and then moving some problems out, could you just provide a little more color about kind of where within the loan book you've got that increased incremental conservatism?

Speaker Change: around the conservative approach to credit, the more cautious stance, and then moving some problems out. Could you just provide a little more color about kind of where within the loan book you've got that increased incremental conservatism?

Robert A. Edwards: So this is Rob. I'll take that, I guess.

Speaker Change: So this is Rob. I'll take that, I guess.

Robert A. Edwards: The really what has happened and I on a couple of points is in the in the commercial real estate space We've seen two things one is we've reduced our

Robert A. Edwards: Really what has happened, and on a couple of points, is in the commercial real estate space, we've seen two things. One is that we've reduced our appetite for speculative-type lending. And so I think in the past, maybe there might have been some warehouse loans that you might have done speculatively, and going forward, we just said we're not in that market. In addition to that, not only us but also the sponsors in the multifamily space have looked at some of the building going on, and so we've increased our vacancy assumptions in the underwriting process.

Speaker Change: Appetite for speculative type lending and so I think in the past maybe there might have been some warehouse loans that you might have done speculative and going forward we just said that's we're not in that market.

Speaker Change: In addition to that, not only us, but also the sponsors in the multifamily space have

Speaker Change: You know looked at some of the building going on and so we've increased our vacancy assumptions in

Speaker Change: The underwriting process and of course the higher rates are impacting the underwriting process and all of that requires more cash equity and so

Robert A. Edwards: And of course, the higher rates are impacting the underwriting process, and all of that requires more cash equity. And so really, it's in the commercial real estate investment space that we have just tightened up around the underwriting aspects, interest rates, vacancies, speculative nature, some of those aspects.

Speaker Change: Really, it's in the commercial real estate investment space that we have just tightened up around the underwriting aspects, interest rates, vacancies, speculative nature, some of those aspects.

Robert A. Edwards: Okay, great. Thank you for that. And then last one for me, guys, just an update in terms of your sort of near-term net charge-off expectations, both within Nobitas and then the Core Bank. Thank you. Yeah, so this is.

Speaker Change: Okay, great. Thank you for that. And then last one for me, guys, just an update in terms of your sort of near-term net charge-off expectations, both within Novitas and then the Core Bank. Thank you.

Robert A. Edwards: Yeah, so this is Rob. So I'll start with Navitas and then move to the overall bank. On the Navitas side, we do expect charge-offs to continue to come down. We've seen, you know, over-the-road trucking was kind of the big story, certainly in the fourth quarter, and that has come down, came down in the first quarter, and came down again in the second quarter to $1.7 million of their $5.5 million of net charge-offs. So I expect it to come down a little bit in the third quarter and more in the fourth quarter, leveling out in the 1% annualized range. So that's Navitas.

Speaker Change: Yeah, so this is Rob, so I'll start with Navitas and then move to the overall bank. On the Navitas side, we do expect...

Speaker Change: charge-offs to continue to come down.

Speaker Change: We've seen, you know, over-the-road trucking was kind of the big story certainly in the fourth quarter and that has come down, came down in the first quarter, came down again in the second quarter to $1.7 million of their $5.5 million of net charge-offs.

Speaker Change: I expect it to come down a little bit in the third quarter and more in the fourth quarter.

Speaker Change: leveling out in the 1% annualized range. So that's that's Navitas on the bank side.

Robert A. Edwards: On the bank side, you know, so it's been right around $6 million in that 15 basis point range, and I would expect it to remain relatively stable going forward.

Speaker Change: You know, so it's been right around $6 million and in that 15 basis point range, and I would expect it to, you know, remain relatively stable going forward.

Unknown Executive: All right. Great.

Speaker Change: All right. Great. Thank you guys for taking my questions.

Christopher William Marinac: The next question comes from Christopher Marinac with Jannie Montgomery Scott. Please go ahead.

Christopher William Marinac: The next question comes from Christopher Marinac with Jannie Montgomery Scott. Please go ahead.

Unknown Executive: Thanks, good morning. I want to continue on the credit line of thinking for Rob.

Christopher William Marinac: Thanks. Good morning. I want to continue on the credit line of thinking for Rob. Could you just talk about the sort of inflows and outflows on the both special mention and substandard? Do you see paths for upgrades or their future downgrade? Just kind of curious on the movement this past quarter.

Robert A. Edwards: Could you just talk about the sort of inflows and outflows on both special mention and substandard? Do you see paths for upgrades or their future downgrade? Just kind of curious about the movement this past quarter.

Robert A. Edwards: Yeah, so we've seen a fair amount of movement. We see payoffs. We see upgrades. I'll give you two examples, I think.

Speaker Change: Yeah, so we've seen a fair amount of movement.

Speaker Change: We see payoffs. We see upgrades.

Robert A. Edwards: One was a senior care credit that we had that we got paid off on during the quarter. That was a special mention credit. And we're seeing a fair amount of movement in that space, at least an interest coming back in the senior care space.

Speaker Change: I'll give you two examples, I guess. One was a senior care credit that we had that

Speaker Change: We got paid off on during the quarter. That was a special mention credit.

Speaker Change: And we're seeing, you know, a fair amount of movement in that space, at least an interest coming back in the senior care space.

Robert A. Edwards: And then one of the credits we had, which we upgraded, was a C&I credit that I think got caught with some contracts that didn't have the appropriate adjustments in them. And, of course, labor costs went up. And that was a special mention credit, and we were able to upgrade that credit. They figured it out and got their contracts reworked, and the company back performing very well. And so you just see a variety of those types of either payoffs or upgrades. There's quite a bit of movement and really opportunity in the space.

Speaker Change: And then one of the credits we had, we upgraded.

Speaker Change: was a C&I credit that I think got caught with some contracts that were didn't have the appropriate adjustments in them and of course labor costs went up and that was a special mention credit and we were able to

Speaker Change: Upgrade that credit they figured it out and some got their contracts reworked and

Speaker Change: Company back performing very well. And so you just see a variety of those types of either payoffs or upgrades. There's quite a bit of movement and really opportunity in the space.

Robert A. Edwards: Great, Rob. That's helpful. And just to follow up, Rob. Thanks for the disclosure in the slides on both office and multifamily. The level of criticized loans on both of those already reflect your stress testing for debt service coverage and some of those machinations over the past six months. I'm asking because it would seem to me that the risk of those changing a lot is probably pretty low.

Speaker Change: Great, Rob. That's helpful. And just to follow up, thanks for the disclosure in the slides on both office and multifamily. The level of...

Speaker Change: Criticize loans on both of those. Those already reflect your stress testing for debt service coverage and some of those machinations the past six months. I'm asking because it would seem to me that the risk of those changing a lot is probably pretty low at this point.

Robert A. Edwards: Yeah, so it does. We, I think I mentioned last quarter that we do go through a stress test for interest rate changes on the credits, CRE credits over a million dollars maturing in the next 12 months, and we do regrade those credits based on how the Debt Service Works Out at the New Interest Rate. We did have several downgrades last quarter as a result of that, and some of those credits we do place on Management Watch, so they might not be in special mention or substandard.

Speaker Change: Yes, so it does. I think I mentioned last quarter that we do go through a stress test for interest rate change on the credits, CRE credits, over a million dollars maturing in the next 12 months. And we do regrade those credits based on...

Speaker Change: How the debt service works out at the new interest rate. We did have several downgrades last quarter as a result of that.

Speaker Change: Some of those credits we do place in management watch, so they might not be in special mention or substandard if there's some time and opportunity for them to rework some of their leases.

Robert A. Edwards: If there's some time, an opportunity for them to rework some of their leases, then we would give them the opportunity to do that before we downgrade them. There could be some more downgrades, but I think, like you said earlier, we're just seeing a lot of opportunity to move credits in and out of special mention through a variety of avenues.

Speaker Change: We would give them the opportunity to do that before we downgraded them. So there could be some more downgrades, but I think like you said earlier, we're just seeing a lot of opportunity to move credits in and out of special mention through a variety of avenues.

Unknown Executive: Great. Thanks for all the background information today. I appreciate it.

Speaker Change: Great. Thanks for all the background today. I appreciate it.

David Jason Bishop: Our next question comes from David Bishop with the Hupty Group. Please go ahead.

Speaker Change: Our next question comes from David Bishop with HubD Group. Please go ahead.

Robert A. Edwards: Yeah, good morning. Thinking about that topic, the credit topic, I think you alluded to the fact that one of the senior care loans criticized paid off this quarter. There's a pretty big waterfall over the next, I guess, six months, and a lot of, you know, substandard or special mention. What's the thinking there? Do you think they'll continue to resolve their problems? I'm just curious how you're going to manage that waterfall of maturity.

David Jason Bishop: Yeah, good morning. Thinking about that topic, the credit topic, I think you alluded to the fact that one of the senior care criticized loans paid off this quarter. There's a pretty big waterfall over the next, I guess, six months.

David Jason Bishop: and a lot of, you know, substandard or special mention. What's the thinking there? Do you think they'll continue to resolve? I'm just curious how you're going to manage that waterfall of maturities. Thanks.

Steven Stone: Yeah, so we do continue to look for payoffs and upgrades of credits. We have, you know, there's probably, I think, 18 credits overall that we're watching for those credits or in Nonacool, and we have resolution strategies on all four of those credits that seem reasonable and would likely bring an exit. We are being patient in the portfolio.

Robert A. Edwards: Yeah, so we do continue to look for payoffs and upgrades of credits. We have, you know, there's probably, I think, 18 credits overall that we're watching. Four of those credits are in non-accrual, and we have resolution strategies on all four of those credits that seem reasonable and would likely bring an exit.

Speaker Change: Yeah, so, um...

Speaker Change: We do continue to look for payoffs and upgrades of credits.

Speaker Change: We have, you know, there's probably, I think, 18 credits overall that we're watching. Four of those credits are in non-accrual.

Speaker Change: And we have resolution strategies on all four of those credits that seem reasonable.

Robert A. Edwards: We are being patient in the portfolio. It feels like, you know, my belief is that the long-term demands and population demographics that existed that created all of the construction in this space still exist. And there is still demand. It took a big pause during COVID, but we're still seeing properties and people that are in need of this type of service. And I think the demographics support it. So we are being patient, but we are encouraging payoffs and additional resolution strategies.

Speaker Change: We are being patient in the portfolio. It feels like, you know, my belief is that the long-term demands, population demographics that existed, that created all of the construction in this space still exist.

Steven Stone: It feels like, you know, my belief is that the long term demands population demographics that existed that created the, all of the construction in this space still exists, and there still is demand that took a big pause during COVID, but we're still seeing properties and people that, you know, are in need of this type of service, and I think the demographics supported. So, we are being patient, but we are encouraging payoffs and additional resolution strategies.

Speaker Change: And there still is demand. It took a big pause during COVID, but, but, um...

Speaker Change: We're still seeing properties and people that are in need of this type of service, and I think the demographics support it. So we are being patient, but we are encouraging payoffs and additional resolution strategies.

Robert A. Edwards: Got it. And then one final question, circling back to the commercial real estate appreciation slide that gives the concentration. Just curious, is there an appetite to grow that close to the, you know, the $250 range? There's obviously a $205. There's some room to move up. Just curious, maybe a comfort level, how high to bring that ratio. Yeah, we're, we're, we are comfortable.

Steven Stone: And then, one final question, circling back to the, the Commerce Real Estate, appreciates the supply that gives the concentration. The curious, is there an appetite to grow that closer to the, you know, the 250 range that I, you know, there's obviously a 250 or five, there's some room to move up, just curious. Maybe a comfortable, how to bring that ratio. Thanks. Yeah, we're, we are comfortable. There's a variety of products in the commercial real estate business; you know, we've listed out some, so we would be more comfortable doing some more warehouse that has long-term leases associated with it.

Speaker Change: Got it. And then one final question circling back to the commercial real estate. Appreciate the slide that gives the concentration. Just curious, is there an appetite to grow that close to the, you know, the 250 range? You know, there's obviously a 205, there's some room to move up. Just curious, maybe a comfort level, how high to bring that ratio. Thanks.

Robert A. Edwards: Yeah, we're, we are comfortable. There are a variety of products in the commercial real estate business. You know, we've listed out some, so we would be more comfortable doing some more warehouses that have long-term leases associated with them. We're being selective, particularly around markets and underwriting on the multifamily space. The retail segment appears to be strong. We continue to look at some grocery-anchored tenant properties where the, you know, the anchor basically handles the debt service. And so we think there are some opportunities, but we have to be strategic about the specific property type that we approach.

Speaker Change: Yeah, we are comfortable. There's a variety of products in the commercial real estate business. We've listed out some.

Speaker Change: More comfortable doing some more warehouse that has long-term leases associated with it. We're being selective, particularly around markets and underwriting on the multifamily space. The retail segment appears to be strong.

Steven Stone: We're being selective, particularly around markets and underwriting on the multi-family space. The retail segment appears to be strong. We continue to look at some grocery-anchored tenant properties, where the, you know, the anchor, basically handles the debt service. And so, we think there's some opportunities, but being strategic about the specific property type that we approach.

Speaker Change: Continue to look at some grocery anchored tenant properties where the anchor basically handles the debt service. And so we think there's some opportunities, but being strategic about the specific property type that we approach.

Steven Stone: Appreciate the color.

Speaker Change: Great, appreciate the color.

Unknown Executive: This concludes our question-and-answer session.

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

Lynn Harding: I would like to turn the conference back over to Lynn Harding for any closing remarks. Well, great. Well, first, I appreciate your time and attention, and we are excited to take your questions.

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

Herbert Lynn Harton: Well, great. First, I appreciate your time and attention, and we are excited to answer your questions. With anything that comes up later, please feel free to reach out, and we will talk to you soon. Thank you.

Lynn Hardin: Well, great. Well, first, I appreciate your time and attention, and we are excited to take your questions. With anything that comes up later, please feel free to reach out, and we will talk to you soon. Thank you.

Lynn Harding: Anything that comes up later, please feel free to reach out, and we will talk to you soon. Thank you.

Unknown Executive: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Unknown Executive: The conference has now concluded. Thank you for attending today's presentation.

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

Unknown Executive: You may now disconnect.