Q2 2025 United Community Banks Inc Earnings Call
Jefferson Haralson: Financial Officer Jefferson Haralson, President and Chief Banking Officer Rich Bradshaw, and Chief Risk Officer Rob Edwards.
Operator: 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.
Good morning and welcome to United Community Banks. Second quarter 2025 earnings. Call hosting our call today are chairman and chief executive officer. Lynn Harton. Chief Financial Officer, Jefferson Harrelson, 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.
Operator: Copies of the first 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.
Both are included on the website at ucbi.com.
Operator: 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 risks and uncertainties described on pages 5 and 6 of the company's 2024 Form 10-K, as well as other information provided by the company in its filings with the SEC and included on its website.
Copies of the first 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
Lynn Harton: At this time, I'll turn the call over to Lynn Hartman. Good morning and thank you all for joining our call today. We continue to enjoy solid growth in earnings. Operating earnings per share for the quarter was 66 cents, an increase of 14% year over year. One cause of that growth was an expansion of our net interest margin to 350 basis points, an improvement of 14 basis points over last quarter. Jefferson will give more details, but the quarter saw continued stabilization of our non-interest-bearing balances, as well as success in lowering interest-bearing deposit rates. Seasonal outflows of public funds were within our expected ranges, and our customer deposits excluding merger activity grew 1.3% annualized.
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 risks and uncertainties to described on pages 5 and 6 of the company's 2024 form 10K, as well as other information provided by the company and its filings with the SEC and included on its web.
Website. At this time, I'll turn the call over to Lynn Harton.
Lynn Harton: Good morning, and thank you all for joining our call today.
Lynn Harton: We continue to enjoy solid growth and earnings operating earnings per share for the quarter was 66 cents.
Lynn Harton: An increase of 14% year-over-year.
Lynn Harton: Growth was an expansion of our net interest margin to 350 basis points.
Lynn Harton: An improvement of 14 basis points over last quarter.
Jefferson will give more details. But the quarter saw continued stabilization of our non-interest, bearing balances, as well as success in lowering interest. Bearing deposit rates.
Lynn Harton: Loan growth was 4.2% annualized and pipelines remain strong as we head into the third quarter. Credit continues to perform well. Net chargeoffs were 18 basis points for the quarter, including Nevitas. Ex novitas, net charge offs were eight basis points annualized. Both non-accruals and past dues, already at low levels, improved during the quarter.
Lynn Harton: Seasonal. Outflows of public funds, where within our expected ranges and our customer deposits. Excluding merger activity. Grew 1.3%, annualized.
Lynn Harton: Loan growth was 4.2%, annualized and pipelines, remain strong. As we head into the third quarter.
Lynn Harton: Credit continues to perform well.
Lynn Harton: Net charge offs were 18 basis points for the quarter including Navitas.
Lynn Harton: ex novitas, net charge offs were 8 basis points annualized
Lynn Harton: Both non across and past, dues already at low levels, improved during the quarter.
Lynn Harton: Expense growth was well controlled and helped us reach an efficiency ratio of 54.8 percent, an improvement of 222 basis points compared to last year.
Lynn Harton: Expense growth was well controlled and helped us reach an efficiency ratio of 54.8% and Improvement of 222 basis points compared to last year.
Lynn Harton: I'd like to congratulate and thank our teams throughout the bank for these great results. I'm also grateful for all the work that our existing teams and our new teammates from American National Bank did this quarter to close the acquisition and convert systems and branding. American National is a 40-year-old institution in Fort Lauderdale that fits perfectly with our South Florida footprint. I'm very excited to welcome their talented and passionate team to United.
Lynn Harton: I'd like to congratulate and thank our teams throughout the bank for these great results.
Lynn Harton: I'm also grateful for all the work that our existing teams and our new teammates, from American National Bank. Did this quarter to close the acquisition and convert systems and branding.
Lynn Harton: American National is a 40-year-old institution in Fort Lauderdale that fits perfectly with our South Florida footprint.
Lynn Harton: I'm very excited to welcome their talented, and passionate team to United.
Jefferson Haralson: Jefferson, why don't you cover the quarter in more detail now? Thank you Lynn and good morning to everyone. I'll start on page five. We were very pleased with our deposit performance this quarter. Our $205 million increase in deposits had the benefit of the American National Deal that closed on May 1st. In the second quarter, we also saw our usual public funds deposits outflows of $233 million. excluding the deal, and the public fund seasonality, our deposits grew by $64 million or by 1.2% annualized. We were also able to push down the cost of our deposits in the quarter to 2.01% to achieve a 34% total deposit beta so far.
Jefferson Harrelson: Jefferson. Why don't you cover the quarter in more detail now?
Speaker Change: Thank you, Glenn. And good morning to everyone. I'll start on page 5. We were very pleased with our deposit performance, this quarter,
Our 205 million increase in deposits had the benefit of the American national deal that closed on May 1st.
Speaker Change: In the second quarter, we also saw our usual public funds deposits outflows of 233 million.
Speaker Change: Excluding the deal.
Speaker Change: And the public fund seasonality are deposited through by 64 million or by 1.2% annualized.
Speaker Change: We were also able to push down the cost of our deposits in the quarter to 2.01%.
Jefferson Haralson: We continue to believe that we are on pace for a high 30% deposit beta range through this cycle. We also continue to have some opportunity to reprice our CD book lower. In the third quarter, we have about $1.4 billion of CDs, or 38% of our CD book, maturing at 3.72%, that should be able to move down by 10 to 20 basis points. On page 6, we turn to the Loan Portfolio, where growth continued at a 4.2% annualized pace, excluding American National. Turning to page 7, where we highlight some of the strengths of our balance sheet, we have no wholesale borrowings and very limited brokered deposits.
Speaker Change: To achieve a 34% total deposit beta so far.
Speaker Change: We continue to believe that we are on Pace for a high 30% deposit beta range through this cycle.
We also continue to have some opportunity to reprice our CV book lower.
Speaker Change: The third quarter, we have about 1.4 billion dollars of CDs or 38% of our CD book.
Maturing at 3.72%.
Speaker Change: That should be able to move down by 10 to 20 basis points.
Speaker Change: On Page 6.
Speaker Change: Return to the loan portfolio.
Speaker Change: Where a growth continued at a 4.2% annualized pace excluding American National.
Jefferson Haralson: Using some of our balance sheet flexibility, we redeemed $100 million in senior notes in June, where the cost was about to adjust to the 9% range from its existing 5% rate. Our loan-to-deposit ratio remained low, but increased slightly to 79% with the acquisition and solid loan credit. In addition, our CET1 ratio remained at 13.3% and remains a source of strength for the bank.
Speaker Change: We have no wholesale borrowings and very limited brokered deposits.
Using some of our balance sheet flexibility, we redeemed 100 million in senior notes in June, where the cost was about, to adjust to the 9th from its existing 5% rate.
Speaker Change: A loan to deposit ratio remain low, but increased slightly to 79% with the acquisition and solid loan growth.
Speaker Change: In addition, our cet1 ratio remained at 13.3% and remains a source of strength for the bank.
Jefferson Haralson: On page 8, we look at capital in more detail. Our TCE ratio was up 27 basis points, and our regulatory capital ratios were stable at high levels. Our TCE and all of our capital ratios remain above peers, which we believe will allow us to continue to be opportunistic.
Speaker Change: On page 8, we look at Capital and more detail.
Speaker Change: Our tce ratio was up 27 basis points and our regulatory Capital ratios were stable at high levels.
Speaker Change: Our tce and all of our Capital ratios remain above peers.
Speaker Change: Which we believe will allow us to continue to be opportunistic.
Jefferson Haralson: We were able to be opportunistic this quarter, and we purchased 507,000 shares, or about $14 million of UCB stock. We have been fairly active in managing our capital. Since the beginning of 2024, we have now paid down $100 million in senior debt. $68 million in Tier 2 capital, and now have repurchased $14 million of common shares.
We were able to be opportunistic, this quarter and repurchase 507,000 shares or about 14 million dollars of UCB stock.
Speaker Change: We had been fairly active in managing our Capital since the beginning of 2024. We have now paid down 100 million in senior debt.
Speaker Change: 68 million in tier 2 capital and now have we purchased 14 million of common shares
Jefferson Haralson: Moving on to spread income on page 9, we grew spread income at a 21% annualized pace excluding American National compared to last quarter. Our net interest margin increased 14 basis points to 3.50%, mainly driven by lower cost of funds and a mixed change towards a loan.
Speaker Change: Moving on to spread income on page 9.
Speaker Change: We grew spread income at a 21%. Annualized Pace, excluding American National compared to last quarter.
Speaker Change: Our net interest, margin increased 14 basis points to 3.500%, mainly driven by lower cost of funds and a mixed change towards loans.
Jefferson Haralson: Moving to page 10, on an operating basis, non-interest income was down $1 million from last quarter. This was mostly driven by a negative swing in the MSR mark. which was at a $300,000 gain in Q1 and a $400,000 loss in Q2. In addition, we had $700,000 in negative fees due to a write-down of our remaining deferred costs that came when we redeemed the senior debt I mentioned earlier. excluding the MSR swing and the cost to extinguish the senior debt, the income was slightly higher than Q1. We resumed selling Navitas loans in the quarter, which drove the increase in loan sale gains as compared to last quarter.
Speaker Change: Moving to page 10.
On an operating basis. Non-interest income was down 1 million from last quarter.
Speaker Change: This was mostly driven by a negative, swing in the MSR. Mark
Mark: Which was at a $300,000 gain. Q1 at a 400000 loss in Q2.
Mark: In addition, we had 700,000 dollars in negative fees due to a write down of our remaining deferred costs. That came when we redeemed, the senior debt, I mentioned earlier.
Mark: excluding the
Mark: SR swing.
Mark: And the cost to extinguish.
Mark: Senior debt.
Mark: The income was slightly.
Jefferson Haralson: Operating expenses on page 11 were only up $2.1 million in the quarter, excluding American National. This $2.1 million increase was primarily driven by $1.8 million in merit increases. The expense base was relatively flat, excluding American National and the merit increase.
Mark: We resumed selling the Vita, phones in the quarter, which drove the increase in loan sale gains as compared to last quarter.
Mark: operating expenses on page 11, we're only up 2.1 million in the quarter excluding American National
Mark: this 2.1 million increase was primarily driven by 1.8 million in Merit increases.
Mark: The expense base was relatively flat. Excluding American National and the Merit increase.
Jefferson Haralson: Moving to credit quality on page 12, net charge-offs were 18 basis points in the quarter, improved compared to last quarter and last year. We also saw nice improvements in NPAs and past dues as credit quality remained strong.
Mark: Moving to credit quality on page 12.
Mark: Net charge offs were 18 basis points in the quarter.
Mark: Improved compared to last quarter and last year.
Mark: We also saw nice improvements in npas and past dues as credit quality remains strong.
Jefferson Haralson: I will finish on page 14 with the allowance for credit loss. Our loan loss provision was $11.8 million in the quarter and more than covered for $8.2 million in net charge-offs. The $11.8 million provision also included a $2.5 million provision or double dip to set aside a reserve for the American National Non-PCD Book. This double-dip was more than offset by a $2.8 million release of our hurricane-related special reserves. Specifically, we reduced our Hurricane Helene reserve by $2.8 million, and it now stands at $4.4 million, as we are feeling more comfortable with the potential loss content.
Mark: I will finish on page 14 with the allowance for credit losses.
Mark: Our loan loss, provision was 11.8 million in the quarter and more than covered are 8.2 million in net charge offs.
Mark: The 11.8 million provision, also included a 2.5 million provision, or double dip to set aside a reserved for the American national non-pc book.
Mark: This double dip was more than offset by a 2.8 million release of our hurricane related Special Reserve.
Jefferson Haralson: Net-net, our allowance coverage remained flat in the quarter at 1.21%.
Mark: Specifically, we reduced our hurricane Helen reserved by 2.8 million and it now stands at 4.4 million. As we are feeling more comfortable with the potential loss content.
Lynn Harton: With that, I'll pass it back to Len. Thank you, Jefferson. While we acknowledge that there are uncertainties in the environment, particularly relative to tariff effects and the direction of the yield curve, we feel very optimistic about our outlook for the rest of the year.
Mark: Net, net allowance coverage remained flat in the quarter at 1.21%.
With that, I'll pass it back to Lynn.
Lynn Harton: Thank you, Jefferson.
Operator: With that, I'd like to open the floor for questions. Thank you.
Lynn Harton: While we acknowledge that there are uncertainties in the environment, particularly relative to tariff effects and the direction of the yield curve, we feel very optimistic about our outlook for the rest of the year.
Lynn Harton: With that. I'd like to open the floor for questions.
Operator: We will now begin the question and answer session.
Operator: To ask a question, you may press star, then one on your telephone keypad.
Operator: If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star, then two.
Operator: At this time, we will pause momentarily to assemble our.
Speaker Change: Thank you. 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 speaker-phone please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it. Please press star then 2
Speaker Change: at this time, we will pause momentarily to assemble our
Michael Rose: And today's first question comes from Michael Rose with Raymond James. Please proceed. Hey, good morning everyone. Thanks for taking my questions.
Speaker Change: Games, please proceed.
Michael Rose: Just wanted to delve into the loan growth, 4.2% annualized this quarter. Was there any sort of paydowns?
Michael Rose: And then just more broadly, can you talk about some of your hiring initiatives? I know M&A is kind of off the table right now. We'd love some updates there, just given the resurgence we've seen in some activity here recently. But I know you'd previously talked about not a ton of acquisition candidates at this point that would fit your thresholds and what you're looking for.
Michael Rose: But just on the loan growth front, just some of the hiring efforts and then if there were any impacts of paydowns, X the A and B deal this quarter. Thanks.
Speaker Change: Hey, good morning everyone. Thanks for uh taking my questions. Um, just wanted to delve into the, the loan growth, um, 4.2% annualized. This this quarter was, was there any sort of pay downs and then just more? Broadly, can you talk about some of your, uh, your hiring initiatives? I know m&a is is kind of off the table right now. Um, would would love some updates there? Just given the Resurgence we've seen in, in some activity here recently. But, um, I know you'd previously talked about not a ton of, uh, acquisition candidates at this point, that would fit your, uh, you know, your thresholds and what you're looking for. But just on the loan growth front, um, just just some of the hiring efforts and then if there were any, you know, impacts of pay Downs at the A and B deal with this quarter. Thanks
Rich Bradshaw: Good morning, Michael. This is Rich. Yes, there were some paydowns. We feel good about the growth in Q2. We expect Q3 to be more similar to Q1, which is around the 6% mark. Q2 did have some slippage in closing, so that's helping the pipeline going into Q3, so we feel really good about the activity.
Rich Bradshaw: In terms of recruiting, we continue to focus on top talent and have conversations going on throughout the footprint, so we expect that we will be adding additional lenders during the year.
Rich Bradshaw: I do want to announce that David Nass, our Alabama, Florida state president, has announced his retirement. We thank him for all his leadership pre- and post-acquisition on Progress Bank, which was about two and a half years ago.
Speaker Change: Good morning, Michael. This is Rich. Uh, yes. There were some, uh, pay Downs that we feel good about the growth in Q2, we expect Q3 to be more similar to q1, which is around the 6%, Mark. Um, Q2 did have some uh, uh, slippage in closing, so that's helping the pipeline going into Q3. So we feel really good about the activity in terms of recruiting. We continue to focus on top talent and have conversations going on throughout the footprint. So we expect that we will be adding additional lenders. Uh, during the year. I do want to, uh, announced that David nass, our Alabama Florida State president uh, has announced his retirement. We thank him for all his leadership. Pre- and prose acquisition on Progress bank.
Rich Bradshaw: We have hired Jason Phillippe. Jason joins us from 25 years of C&I experience, both as a lender and a leader in the Huntsville and Alabama markets, so we're very excited about that. And since we have hired him, we have brought on two additional CRMs in the northern Alabama market, so we feel good about the trajectory there and feel really good about the second half of the year.
Speaker Change: Which was about 2 and a half years ago, we have hired Jason Philippe, uh, Jason joins us, uh, um, from 25 years of cni experience, both as a lender and a leader in the Huntsville and Alabama markets. So, we're very excited about that and since we have hired him, uh, we have uh, brought on 2 additional CRM in the northern Alabama market. So we feel good about the trajectory there and feel really good about the second half of the year.
Rich Bradshaw: Michael, on the M&A side, our strategy remains the same. We continue to look for small, high-performing institutions that would be additive to our footprint and continue to have conversations. Certainly, I think the outlook is better now. If you look three, four months ago, where prices were in the industry, it just wasn't attractive for those banks to have conversations with anyone.
Rich Bradshaw: It's still, frankly, kind of difficult to make the numbers work, but I'm optimistic that as the rest of the industry, and particularly us, continue to perform well, get the stock prices where they ought to be, and then there'll be some more opportunities for us. Perfect.
Speaker Change: The uh Michael on the m&a side, you know, our our strategy Remains the Same. We continue to look for you know small high performing institutions, that would be additive to our footprint and continue to have conversations, you know, certainly I think the Outlook is better now. If you look, you know, at 3, 4 months ago, where prices were in the industry, it just wasn't attractive for those Banks to to have conversations with anyone, is still frankly kind of difficult to make the numbers work, but I'm optimistic that as the rest of the industry and particularly us continue to perform. Well, I'll get the stock prices, where they ought to be. And then they'll be some more opportunities for us.
Michael Rose: I appreciate the color and maybe one for Jefferson. It looks like the core margin was up about 12 basis points. Q on Q, I think is a little bit better than the 5 to 10 basis points you talked about last quarter. Just heard Rich talk about a little bit better loan growth in the third quarter. I think you mentioned, you know, beta is kind of in the high 30 percent range. If I caught that, I think that's a little bit higher than what you'd expected previously. So as we put all that together, it seems like, you know, there should be continued, you know, core margin expansion as we think about the next quarter or two.
Perfect. I appreciate the uh the color and maybe 1 for for Jefferson it looks like the core margin was was up about 12 basis points uh Q on Q. I think that's a little bit better than the 5 to 10 basis points. You talked about last quarter, just heard Rich talk about a little bit better. Loan growth in the third quarter. Um, I think you mentioned, you know, beta is kind of in the high 30% range. If I caught
Jefferson Haralson: Can you just walk us through some of the puts and takes, Jefferson?
Jefferson Haralson: Thanks. Yeah, thanks.
Jefferson Haralson: Thanks for the question, Michael. So we do think there is an opportunity for some more margin expansion for us in the third quarter, specifically targeting about five basis points of margin expansion. A big piece of it and the most important piece of it for us to execute on would be the cost of deposits. We were just under 2 percent for an average in the month of June. That high 30 percent range deposit data would take us relatively close to 195. We think we can make some progress towards that in the third quarter. You're also going to see a continuation of one of the drivers of this quarter, which would be a mixed change towards loans.
Speaker Change: I think that's a little bit higher than what you'd expected previously. So as we put all that together, it seems like, you know, there should be continued, you know, core margin expansion as we think about the next quarter or 2, um, can you just walk us through some of the puts and takes Jefferson. Thanks. Yeah, thanks. Thanks for the question, Michael. So we do think there is an opportunity for some more margin expansion for us. Uh, in the third quarter specifically um targeting about 5 basis points of margin expansion. Big piece of it in the most uh important piece of it for us to execute on would be the cost of deposits.
Speaker Change: Uh, we were just under 2% in the, for an average in the month of June.
Speaker Change: Uh, that high 30% range, deposit data would take us relatively close to, uh, 195. We think we can make some progress towards that.
Jefferson Haralson: We're not buying a lot of securities right now. You're going to see this loan to deposit ratio and this kind of loan to average earning asset ratio move higher. And so that should help as well in addition to the strong loan growth that we're expecting that Rich talked about. So even if we get a rate cut in September, we're a little bit asset sensitive. I do think we'll have about five basis points of margin expansion.
Speaker Change: And the third quarter, you're also going to see a continuation of, of 1 of the drivers of this quarter, which would be mixed change towards loans.
Speaker Change: Uh, we're not buying a lot of Securities right now. You're going to see this loans that deposit ratio and this kind of loan to average earning asset ratio.
Speaker Change: Move higher. And so that should help as well in addition to, uh, the strong loan growth that we're expecting that Rich talked about. So,
So even if we get a rate cut in September, we're a little bit asset sensitive.
Speaker Change: I do think we'll have about 5 basis points of margin expansion.
Jefferson Haralson: All right, and just a reminder, Jefferson, is there any other debt maturities we should be considering in coming quarters? No significant ones that I'm thinking about. Okay, great.
Speaker Change: All right, and just remind us Jefferson. Is there any other debt maturities? Um, we should be considering in in coming quarters?
Jefferson Harrelson: No significant ones that I'm thinking about.
Michael Rose: I'll step back.
Jefferson Harrelson: Okay, great. I'll step back. Thanks for taking my questions.
Catherine Mealor: Our next question comes from Catherine Mealor with KBW, please proceed. Thanks. Good morning. Morning, Catherine. We're active in the buyback this quarter, just curious your openness to continue even as the stock has kind of improved from levels where you were buying back. Yeah, that's a great question. At this price range, the earn back is longer than what we are targeting in that seven to eight year range. So we're not buying back shares currently, but we still have the authorization. We have $86 million left, and at lower prices, we would be opportunistic and step in. But at this point, we are not active in the buyback.
Speaker Change: Our next question comes from Katherine Mueller with KBW, please proceed?
Katherine Mueller: And morning.
Katherine Mueller: Can you even if the stock has kind of pulled as improved from levels where you were buying back?
Katherine Mueller: Great question. We
Katherine Mueller: Uh longer than what we are targeting and that 7 to 8 year range. So we're not buying back shares currently but we still have the authorization, we have 86 million left and that lower prices. We would uh be opportunistic and step in.
Katherine Mueller: But uh at this point we are not active in the buyback.
Catherine Mealor: And then I'll look on kind of Navitas growth and how you weigh kind of keeping that on balance sheet versus selling in the secondary market.
Rich Bradshaw: I'll talk about the growth part and then you can talk about Balanchine-Jefferson, but they had a great quarter and we expect a similar Q3 out of Nevitas. Okay, great, thank you.
Katherine Mueller: And then, um, I'll look on kind of nitus growth and and how you weigh kind of keeping that on balance sheet versus selling in the secondary Market.
I'll talk about the, uh, growth part. And then, uh, you can talk about the balance sheet Jefferson but, uh, expect for they had a great quarter and we expect a similar Q3 at in nitus.
Speaker Change: Yes. So we're seeing some really strong activity out of the vetus. Uh, we did start selling loans again. Uh, this quarter, 14 million, we're right at 9.4% of the Vito's homes, the total loans. Uh we had talked about a limit of 10%, so we're getting relatively close to this 10% limit. We like the asset class but we also like diversification. So I think you should expect us to keep the sale of at this level or higher uh for the rest of the year.
Katherine Mueller: Okay, great. Thank you.
Russell Gunther: And the next question comes from Russell Gunther with Stevens. Please proceed. Hey, good morning, guys. I wanted to, morning, Lynn and Jefferson, I wanted to follow up on the loan growth conversation quickly. Just if we can put a finer point on sort of where commercial pipelines stand today versus linked quarter and bigger picture, any sentiment shift you're getting from your commercial model?
Speaker Change: And the next question comes from Russell Gunther with Stevens, please proceed.
Speaker Change: Hey, good morning guys, I wanted to good morning Lynn and Jefferson. I wanted to follow up on the loan growth conversation quickly. Um, just if we could put a finer point on sort of where commercial pipeline stand today, versus linked quarter and bigger picture any sentiment shift, uh, you're getting from your commercial borrower.
Rich Bradshaw: Russell, hi, this is Rich. I'd say, as I mentioned earlier, that the pipeline is bigger than last quarter. It's similar to Q1, maybe even perhaps a little bit better. So I'd say our customers feel optimistic, and we feel optimistic with them. And again, we're going to continue those hiring discussions throughout the footprint, and we feel good about those as well. So when you put all that together, we're pretty optimistic.
Rich Bradshaw: Yeah, I would agree. They had several meetings with clients over the last weeks and months. And while they were originally, everybody was worried about tariffs, everybody's gotten more comfortable with that and comfortable with the negotiating strategy that appears to be developing. So that has fallen off. And frankly, they're all very excited about things like bonus depreciation, extension of current tax rates, etc. in the bill that was just passed. So I would say the mood is pretty positive with all the clients I'm talking about.
Speaker Change: Uh, Russell, hi. This is Rich. I'd say, is a mentioned earlier that the pipeline is bigger than last quarter. It's uh, similar to q1, maybe even perhaps a little bit better. So I'd say our customers feel optimistic. And, um, we feel optimistic with them. And again, we're going to continue those hiring discussions throughout the footprint and we feel good about those as well. So, when you put all that together, we're pretty optimistic. Yeah. I, I would agree. The, uh, had several maintenance with clients over the last, uh,
weeks and months. And you know, while they were originally, uh, everybody was worried about tariffs, everybody's gotten more comfortable with that and comfortable with the negotiating strategy, that appears to be developing so that has fallen off. And, and, uh, frankly they're all very excited, uh, about things like bonus depreciation, the extension of current tax rates Etc. In the, in the bill,
Speaker Change: It was just passed. So I would say the mood is, is pretty positive. Um, were they all the clients were I'm talking to?
Rich Bradshaw: Great. And then maybe just, you touched on it broadly, but in terms of where the recruitment pipeline stands, and then within your footprint, are there any markets in particular you'd like to get a little dense?
Speaker Change: Great, and then, uh, maybe just you touched on it. Broadly. But, uh, in terms of where the recruitment pipeline stands and then within your footprint, are there any markets in particular you'd like to get a little denser?
Rich Bradshaw: I'm the... Hiring pipeline, I would say, looks good. It differs a little bit by markets and states and what our needs are. And we're continually analyzing where our next needs are and where the talent is. So it's got to, those two things got to come together for it to work. And we're continually doing that and putting through, continuing analysis of that. So again, we feel good about where we're at. Staying within the footprint is a priority for us.
Speaker Change: Um, the
Speaker Change: Hiring pipeline. Uh, I I would say, looks good. It differs a little bit by markets and States and what our needs are. And, uh, we're continually, uh, analyzing where our next, uh, needs are and where and where the talent is. So, it's got those 2 things, got to come together for it to work and we're continually doing that and, uh, putting through, uh, continuing analysis of that. So again, we feel good about where we're at. Uh, the staying within the footprint is a priority for us.
Rich Bradshaw: Very helpful, thank you. And then just switching gears for me on the capital discussion, obviously well above peers, we touched on buyback appetite, M&A appetite, but where does your appetite stand for securities restructuring? In particular, we saw an HTM trade this week. Is that kind of on your guys' radar in terms of use of excess cap? So, I would say, and then hop in here, but we have significant excess capital. We do have an HTM book that is under-earning, that is coming back to us over time as we have a little, creates a little tailwind to the margin, but it also generates a current ROA that's lower than we know that is possible.
Speaker Change: Uh, very helpful. Thank you. And then just Switching gears from me on the capitol discussion. Um, obviously well above peers we touched on, uh, buyback appetite m&a appetite. But where does, uh, your appetite stand for Securities restructuring, and in particular, we saw an HTML trade this this week, um, is that kind of on your guys radar in terms of use of excess capital
Rich Bradshaw: So, it's something that we, that we look at.
Rich Bradshaw: We did see the transaction, but we're, we like running with these high capital ratios. We haven't made a decision on this, but it is something that we look at from time to time.
Rich Bradshaw: Yeah, I would just say, you know, our priorities continue to be organic growth, M&A, dividends, buybacks, but, you know, we do look at all options and we are aware that, you know, particularly with the environment, I think getting more stable, we've got more capital than we need to have and so we're evaluating all those options.
So I would say and then hop in here but we have you know, significant excess Capital. We do have an HTM book that is under earning uh, that is coming back to us over time as we have a creates a little Tailwind to the margin, but it also uh generates a current Roa that's lower than we know that is possible. So it's something that we that we look at we did see the transaction uh but we're we we like running with these high Capital ratios. We haven't made a decision on this, but it is something that we look at from time to time.
Speaker Change: Yeah, I would just say, you know, our priorities continue to be uh organic growth m&a.
Speaker Change: And Bob axe but you know we we do look at all all options and we are aware that uh you know, particularly with the environment. I think getting more stable, we've got more Capital than we need to have. And so we're we're evaluating all those options
Rich Bradshaw: Understood. Okay guys, great.
Rich Bradshaw: That's it for me. Thanks for taking my questions.
Speaker Change: Understood. Okay, guys. Great, that's it. For me, thanks for taking my questions.
Christopher Marinac: The next question comes from Christopher Marinac with Jenny Montgomery Scott. Please proceed. Hey, thanks. Good morning. Jefferson, just want to circle back on Novitus from a standpoint of kind of the gain on sale there. Is there a scenario that margin would get better or worse as interest rates play out? Yes, so great question, Chris. Thank you. So the margin is mostly dependent upon the Treasury yield in that three, four-year range. So generally, if rates go up, you see that margin tighten a little bit, and if rates go down, you'll see it widen out. We have had some time, since rates have risen, to increase rates at Navitas, and we're seeing that translate into higher gain-on-sale margins.
Speaker Change: The next question comes from Christopher marinac with Jenny Montgomery Scott please proceed.
Christopher Marinac: Hey thanks. Good morning. Uh, Jefferson this 1 to Circle back on the vitus from the standpoint of kind of the gain on sale. There is there a scenario of that margin would get better or worse as interest rates? Um, play out
Jefferson Haralson: But from here, you will see that same thing play out. If you get a little higher... It really depends on that treasury yield, but lower treasuries would definitely translate into higher yields for, higher gain on sale for Navitas loans.
Christopher Marinac: Yes. So great question, Chris. Thank you. So the margin is mostly dependent upon the treasury yield and that 34 year range. So if uh generally, if rates go up, you see that? That margin tighten a little bit and if rates go down, you'll see it, uh, WYD now and we've had, we have had some time since rates have risen to increase rates at Nas, and we're seeing that translate into higher gain on sale margins.
Christopher Marinac: but from here, you will see that same thing, play out if you get a little higher,
Christopher Marinac: It really depends on that uh treasury yield but lower treasuries would definitely translate into uh higher yields for a higher gain on sale for debit loans.
Christopher Marinac: Got it. Great.
Robert Edwards: And follow up question just for Rob. I'm just curious about how you look at the CECL modeling and how things may shape up in the future. Is there any, you know, possibility for the model to give you some relief incrementally? So a lot of things go into that, but it is possible that the model gives relief and that the required allowance comes down. That is certainly a possibility, but loan growth plays a role in that, obviously, as well as economic predictions and forecasts and some of the indexes that are part of that modeling also play a role.
Speaker Change: Got it. Great. And, uh, follow-up question. Just for Rob, I'm just curious about how you look at the Cecil modeling and how things may shape up in the future. Is there any, you know, possibility for the model to to give you some relief incrementally.
Christopher Marinac: so,
Christopher Marinac: a lot of things.
Into that. But, uh,
Christopher Marinac: And that the, uh, that the required allowance comes down that is certainly a possibility. But loan growth plays a role in that, uh, obviously, as well as, um, economic predictions and forecasts and some of the indexes that are part of that modeling also play a role
Robert Edwards: Got it.
Robert Edwards: And Rob, just a quick one on just sort of put some takes on the criticized moves this quarter. I know neither were substantial. Just curious kind of what you're seeing in the pipeline there. The pipeline for, you're saying, special mention and classified assets? Is that the question? Correct. Yes, correct. So things feel stable. You know, we continue to run stress test exercises around changing interest rates. And certainly as it relates to the Cree book, we continue to run stress tests and get results from that and close to our customers. But I don't see anything on the horizon that would be different than where we've been recently.
Speaker Change: Got it. And and Rob, just a quick 1 on uh, just sort of to put some takes on the, the criticized, uh, moves this quarter. I know neither were substantial, just curious kind of what you're seeing and and the pipeline there.
Speaker Change: The pipeline for uh, you're saying special mention and uh, classified assets, is that what is that the question? Correct? Yes correct. Yeah. So, uh, things feel stable, you know, we continue to run uh, stress test exercises, uh, around changing interest rates and uh, certainly
As it relates to the Kree book, we continue to run stress tests and um, get results from that and close to our customers, but I don't, uh, I don't see anything on the horizon. That would be different than
Uh, where we've been recently?
Robert Edwards: Sounds good, Rob.
Robert Edwards: Thank you, and thank you, Jefferson. Appreciate it.
Speaker Change: Sounds good. Rob. Thank you. And thank you Jefferson. Appreciate it. Thanks Chris.
Stephen Scouten: And the next question is from Stephen Scouten with Piper Sandley, please proceed. Hey guys, good morning. I just wanted to follow back around on kind of some of the thoughts around hiring. You know, you put that slide, slide 19, I think it is, where you show kind of your deposit market share and some of the fastest growing MSAs in the Southeast. So is it fair to think about the the cities that are higher ranked on that list and maybe where you guys have a lower deposit share currently as being areas of greater focus for you guys, or is it more about, hey, continuing to get density where we already are to leverage the franchise you have in those markets?
Speaker Change: And the next question is from Stephen Skelton with Piper Sandler. Please proceed.
Rich Bradshaw: I would say the answer is yes and yes, because we're looking – there are markets that we don't have as many commercial lenders in that we see that we have further opportunity to grow. And then we're really looking at the major metro markets in the area that we're not in that have the greatest opportunity for us for growth. And also, but part of that has to be the talent has to be there. And so to be clear, we're really hiring – we're really wanting to hire top talent. And so that's really the focus. That's helpful.
Hey guys, good morning. Um I just wanted to follow back around on kind of some of the thoughts around hiring, you know. You put that slide by 19. I think it is where you show kind of your deposit market share. And some of the fastest, growing msas in the Southeast. So, isn't it fair to think about the, the, the name, the those cities that are higher ranked on that list and maybe where you guys have a lower deposit, share currently, as being areas of Greater Focus for you guys, or is it more about? Hey, continuing to get density, where we are already are um, to, to leverage the franchise you have in those markets.
Speaker Change: I would say the answer is, yes. And yes, um, because we're looking at our markets that we don't have as many commercial lenders in that we see that we have further opportunity to grow. And then we're really looking at the major Metro markets in the area that we're not in that have the greatest opportunity for us for growth and also, but part of that has to be the talent has to be there. And so to be clear, we're we're really hiring really wanting to hire top talent and so that's really
Speaker Change: The focus.
Rich Bradshaw: I appreciate that, Rich.
Rich Bradshaw: And then maybe just kind of follow-up to that would be, you know, there's a lot more M&A chatter in and around the markets, and to the degree dislocation provides maybe a greater opportunity set than perceived, how aggressive would you guys think about the, in terms of the balance of near-term expense build and recruiting that high-end talent? Yeah, well, I think I think we would have room to be very assertive if if, you know, who knows what happens? There's always disruption. And to Rich's point, we really want to just take advantage of what's there in the market relationships we have with lenders.
Speaker Change: That's helpful, I appreciate that rich. Um, and then maybe just kind of follow up to that would be, you know, there's a lot more m&a chatter in and around the markets and to the degree, dislocation provides maybe a greater opportunity set than than perceived, how aggressive would you guys think about being in terms of the balance of near-term expense build, and and require, uh, recruiting that? That, that high-end Talent.
Speaker Change: Yeah, well, I think, um, I think we would have room to be, uh, very assertive. If if you know who, who knows what happens? There's always, um, disruption,
Rich Bradshaw: So we don't ever target any specific bank. We really go to our bankers in the bank to look at the relationships they have. And if those people get unhappy for whatever reason, then that's the opportunity to bring them over. But we're constantly running numbers. And Rich has got a free hand to spend as much as he wants to bring in the right kind of kind of talent.
We really want to um just take advantage of what's there in the market. Uh, relationships. We have with lenders, so we don't ever Target any specific bank. We really go to our Bankers, in the market, the relationships, they have, and if those people get unhappy for whatever reason, then that's the opportunity to bring them over. But, uh, we're we're constantly running numbers. And, uh, Rich has got a free hand to spend as much as he wants to bring it in the right. Kind of kind of
Rich Bradshaw: Perfect. Very helpful. And thank you guys so much. Appreciate it. Thanks, Peter.
Speaker Change: Perfect very helpful and thank you guys so much. Appreciate it. Thanks Stephen.
Lynn Harton: And this concludes today's question and answer session. At this time, I would like to turn the conference back over to Lynn Harton for any closing remarks. Well, great. Once again, thank you all for joining. It was great speaking with you once again. Look forward to seeing you soon, hopefully at a conference. In the meantime, if you have any follow-up questions, don't hesitate to reach out. And I hope you have a great day. Thank you.
And this concludes today's question and answer session at this time, I would like to turn the conference back over to Lynn Harton for any closing remarks.
Lynn Harton: Well, great. Once again, thank you all for joining. Uh it's great speaking with you. Once again, look forward to seeing you soon. Hopefully at a conference. Uh, in the meantime, if you have any follow-up questions, don't hesitate to reach out and I hope you have a great day. Thank you.
Operator: The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.
The conference is now concluded. Thank you for attending today's presentation and you may now disconnect