United Community Banks Inc Q2 FY2022 Earnings Call

Good morning, everyone. And welcome to United Community Bank's Second Quarter 2022 Earnings Call. Hosting our call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; President and Chief Banking Officer, Rich Bradshaw; and Chief Risk Officer, Rob Edwards. United's presentation today includes references to operating earnings, pretax, pre-credit earnings and other non-GAAP financial information. For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure in the Financial Highlights section of the earnings release as well as at the end of the investor presentation. Both are included on the website at ucbi.com. Copies of the second quarter's earnings release and investor presentation were filed last night on Form 8-K with the SEC, and a replay of this call will be available in the Investor Relations section of the company's website at ucbi.com. Please be aware that during this call, forward-looking statements may be made by representatives of United. Any forward-looking statements should be considered in light of risks and uncertainties described on pages 5 and 6 of the company's 2021 Form 10-K, as well as other information provided by the company in its filings with the SEC and included on its website. At this time, I will turn the call over to Lynn Harton.

Good morning and thank you for joining our call today. Despite concerns over inflation, Fed tightening, and the direction of the economy, we had a solid quarter that demonstrates some of the strengths of the company and our strategy. First, our net interest revenue grew at an annualized rate of 37%, driven primarily by a 22 basis point expansion in our margin. This expansion highlights the strength of our deposit base created by our service performance. We've included some historical deposit beta information in our deck this quarter to give you additional insight into this core advantage. Due largely to our net interest revenue growth, our operating return on assets improved to 1.17%. Our return on tangible common increased to 14.2%. And our pretax, pre-provision income increased by $8 million, a 39% annualized growth rate. Secondly, our credit performance continues to be outstanding, with net recoveries and improvements in both nonperforming assets and special mention credits. Our goal has always been to focus on balanced credit performance through the cycle. And we believe we're prepared if the economy does slip into recession. While we're not seeing significant signs of consumer or business stress, we know that increasing interest rates always flush out excessive leverage from the economy. We believe the majority of that is outside the banking system. But we are watching for any signs of weakness in the markets we serve. Our loan growth was in our target range, but distributed a bit differently than normal. Our C&I loans were essentially flat, and our commercial real estate was down slightly. Equipment finance grew nicely, but at a slightly slower pace than in the past. A large part of our growth was driven by residential mortgage, where increasing fixed rates cause more of our customers to choose adjustable rates, which we have always held on balance sheet. These are all end-market, United-originated, relationship-focused loans, which we're glad to hold, given that we seem to be moving into more of a late-cycle economic environment. I'm pleased with our growth mix this quarter. Finally, I continue to be very excited about our newest partner Progress Bank. We're well into integration planning, and it is clear that we are a great cultural fit together and share a very similar approach to the market. David, I'm looking forward to having you and the rest of your team officially become part of United. And now Jefferson, how about going over more of the details for the quarter?

Thank you, Lynn. And good morning to everyone. I'm going to start my comments on page 8. And look at our markets a little bit; we have one of the best footprints in banking. We're excited about the pending Progress merger in some of the fastest-growing markets in the southeast, namely Huntsville, Birmingham, and the Florida Panhandle, as well as Tuscaloosa, and that our markets are growing in population at 150% of the national average. On page 9, we are proud of our core deposit franchise, and we think it will serve us well as rates move higher. Deposits shrunk by 0.8% or $183 million in the quarter, which we believe is a natural evolution of higher rates and fund deposits moving to their more natural home. Our deposits were still up $1.4 billion year-over-year, excluding the deals. The combination of loan growth and our slight deposit shrinkage drove our loan-to-deposit ratio up to 70% from 68% last quarter. Our cost of deposits was up just two basis points in the quarter and helped drive our margin expansion that I will talk about on a later page. On page 10, we discuss our diversified loan portfolio and growth drivers for the quarter. Excluding PPP loan shrinkage, we grew loans at a 7% annualized pace. The growth was driven this quarter by residential mortgage, as Lynn mentioned, with a mix change towards floating-rate loans in our mortgage business this quarter. At the bottom of the page, we highlight that we have intentionally kept our portfolio very granular, with low lending limits and very diversified at C&I heavy and light on CRE, all of which we believe translates into less risk over time. We had record loan originations this quarter at $1.5 billion, and we ended up having high paydowns as well. We are optimistic about loan growth for the rest of the year. I will skip ahead to page 12 and talk about our capital. Our ratio stayed relatively flat with strong profitability and strong loan growth. We did see a slight decline in our TCE ratio as the strong profitability was offset by $91 million of higher AOCI related to our AFS securities as rates rose in a quarter, of course. Moving to page 13, we discuss our net interest margin, where we had 22 basis points of margin expansion in the quarter; 18 basis points of which came from the impact of higher rates and five came from positive exchange in the form of lower cash on the balance sheet and the higher loan-to-deposit ratio that I mentioned earlier. Moving to page 14, while this rising rate cycle is certainly different from the last one, we did include a page this quarter on our experience last cycle. We had a 24% deposit beta from the fourth quarter of 2015 to the second quarter of 2019, which we believe stands up well against peers. While we want and will take care of our customers this cycle, we are optimistic that we will once again fare well compared to peers on this metric. Page 15 discusses fee income, which was down from last quarter. Our mortgage business was a driver of that decrease, with rates rising and the refi business falling off. We had three main drivers in the quarter that drove the decrease: First, we had a smaller MSR gain in Q2 compared to Q1. We had a $2.1 million MSR gain in Q2 compared to a $6.4 million gain last quarter, which is a $4.3 million difference. Also, despite being a seasonally stronger quarter, we did have a 21% decline in rate locks in Q2. This decline in lock volume also combined with a mix change towards floating-rate loans, which means more loans were going into the balance sheet and fewer loans were being sold. Some more of the economics of the lock volume in Q2, we will realize over time. Moving on to some of the other fee income categories, we also had $3.1 million in gains from SBA loan sales, and just under $700,000 in Navitas loan sale gains in the quarter. With good loan demand, rates rising at the NIM expanding and a bit more uncertain pricing market, we plan to be a little more selective on selling loans this quarter. I would expect this line item to be closer to $2 million in the third quarter. Moving on to page 16, operating expenses were up $3.3 million in the quarter; the lion's share of the increase was driven by a $2.2 million merit increase, and the quarter also included some core growth and some Reliant cost savings. On a year-over-year basis, our expense increase was mostly driven by the acquisitions. If we adjust for the acquisitions and the cost savings that we would get, and have gotten, we estimate that our core expenses were up $3.5 million to $4 million over last year as we achieve the cost savings from both Aquesta and Reliant. Also, if you look at it another way, if you take our operating efficiency ratio, and then take it to another level, and also exclude PPP fees and MSR marks, which I know a lot of analysts already do, you can really see the benefit of our deals on the efficiency ratio and profitability over the last year. This adjusted efficiency ratio, if you will, moved from nearly 58% in the year-ago quarter to just under 54% this quarter, which is an improvement that we are proud of. Moving to credit on page 17, we had strong credit results this quarter with three basis points of net recoveries and improved problem loans. On page 18, we give you some details on special mention, substandard accruing loans and nonperforming assets. All three categories were flat to slightly improve, and we feel good about where we are on credit. On page 19, despite generally improving credit trends and the fact that we had $1 million in net recoveries, we still did build our reserve for the second time in two quarters. Part of that reserve increase is due to our solid loan growth. But our CECL model also had a slightly worse economic outlook, which necessitated another $3 million in second quarter provision. The chart at the bottom shows our reserve in dollars and percentage since CECL inception that shows a COVID-related build-up and release. And now I'll pass it back to Lynn.

Thank you, Jefferson. And also thank you to the United teammates that continue to deliver outstanding performance. I'm currently preparing for my annual planning retreat, and it always excites me to reflect as I do that on what a great organization you all have built and the opportunities that you have afforded us for future growth. So congratulations, and thank you. And finally, I'd like to make a tribute to DeVan Ard, the founder and CEO of Reliant Bank, who passed away earlier this month. I came to know DeVan about a year and a half ago. He always did what he said he would. He was direct, forthright, and truthful. He built a great team and a quality company. In short, DeVan was everything a good man and a great leader strives to be. I and many others miss you. Rest in peace, DeVan. And now I'd like to open the floor for questions.

Our first question today comes from Brad Milsaps of Piper Sandler.

Hey, good morning. Maybe, Lynn, just wanted to start with loan growth. Certainly, you guys hit your guidance. Seems like a lot of banks this quarter are really blowing away loan growth. So I wanted to kind of jump into that a little bit more. You mentioned paydowns; I'm just curious how large those were maybe relative to what they typically are. And then secondly, as part of it, you sort of got the number of loans you needed; you are conservative during this part of the cycle. How much of that played into kind of the numbers that you ultimately posted this quarter? And then maybe finally, was there any other run-offs at Reliant that might have impacted that? I saw the Tennessee book was down a bit, but I'm just kind of curious if you can provide a little more color on some of the crosscurrents with loan growth this quarter.

Perfect. Great question, Brad. Let Rich start with that, and then Rob, I'll join in as well.

Good morning, Brad. We discussed the payoffs; were there any notable items? Yes, we had four senior care deals pay off totaling about $60 million. Additionally, there was a significant wealth management commercial client that had a $40 million payoff late in the quarter. Overall, this was larger than what we typically see; it was our best production and payoff quarter ever. Looking ahead, I spent considerable time with the state presidents across different regions, evaluating their markets and the potential recession. We're really not seeing any negative impacts, which makes me optimistic about growth. I anticipate our mix will change slightly next quarter, remaining around the 7% mark but leaning more towards commercial and a bit less towards mortgage. Regarding Reliant, we usually observe a decrease at the start of an acquisition, and we recently completed the conversion. We're also navigating a leadership transition, but I have no concerns at all; I'm confident about the team and the market. The leadership team, John Wilson and Mark Ryman, the commercial executive, feel very positive about their pipelines and personnel. This is how I view the situation. I believe we are still in the best markets in the country.

Yes, Rob, do you have anything to add?

Brad, I would just say in terms of your second question about how much conservatism regarding the cycle plays into it? I would say we are continuing to be who we are. So our appetite hasn't changed, but if there's anything that's changed, it has been very moderate. However, we are more cautious around speculation than we have been before just because of where we believe we are in the cycle.

Well, I'll just say we have seen the market has been a little more aggressive on the margin, and we have not been; so to me, we have not tightened as much as we have seen the market in general be a little more aggressive than we've seen in the past.

Great, thank you. And as my follow-up, maybe to Jefferson, I was curious if you might have the net interest margin for the month of June. And then you've mentioned in the past about each 25 basis point increase being worth kind of four basis points, probably a little more in the beginning, maybe a little less in the end. Just kind of curious if you are thinking around those numbers had changed at all.

Yes, so our June margin, I'll give you the numbers, is 3.25%. There are risks in annualizing a single month; I will say. But if you think about the margin going forward and think about that five basis points per 25, and some of the margin increase we expect to see just from the rates that have already happened as well, I think that next quarter, our margin will be up 20 to 25 basis points. If you get a 75 basis point rate hike in July, in the next couple of weeks, like we think.

Our next question today comes from Jennifer Demba of Truist.

Thanks. Good morning. I'm just curious; you said you had a 24% deposit beta during the last rate hike cycle. What are you guys assuming for this one?

It's a great question. We're currently assuming a similar deposit beta this cycle versus the last one in our forecast. As you see in our forecast, or is that on the one page, the new page on our deck. It starts off really low. The first 100 basis points was eight basis points last time. This quarter, we were just three and it starts moving up relatively quickly, and then would go beyond that 24% for total rate hikes. A lot of it depends on how long this rate cycle goes. But for now, we are using 24% in our modeling.

Okay, great. Can you talk about whether you are noticing any more aggressive lending behavior in recent months? Can you provide a bit more detail on that?

Hey, Jennifer, it's Rob. I would just say I think other people are more comfortable with speculative scenarios than we have been traditionally and than we currently are. So there's a number of different products you have in lending. One example would be warehouses. There's a lot of people doing spec warehouses. And those worked out really well for the last 18 months. But the environment is likely to change. The announcement of Amazon that they're kind of stepping out of the warehouse business was a little bit of reason to be cautious.

Our next question is from Michael Rose of Raymond James.

Good morning, everyone. Thank you for taking my questions. I'm not sure if I missed this at the start since I was on another call. Could you please discuss the mortgage dynamics? Excluding MSR in both quarters, it seems like there's been a significant decline. I'm aware of the timing of losses and related factors. Could you explain some of the dynamics? Additionally, there are inventory constraints in some of your markets, yet rates have slightly decreased, and you still experience positive in-migration. I'm trying to better understand what occurred this quarter and what the expectations are for the next few quarters. Thank you.

It's a great question, Mike. I'll start with what happened this quarter and I'll pass it to Rich for next quarter and how we're thinking about or anything he might want to add. So yes, we were down a lot in mortgage revenue this quarter. If you look at the rate lock volume, it was down just over 20%. And with the mix change towards floating-rate loans, if you look at the lock volume of our held-to-maturity loans, that was down 44%. So the piece that we're generating again on sale was down 44%, quarter-to-quarter. Now we'll have significantly more floating-rate loans going onto the balance sheet, and we'll get that economics over time. But from a sheer, this quarter mortgage fee income number, that held-to-maturity rate lock volume is a main driver. Now I'll pass it over to Rich to talk about the business and the forecast.

Sure. In terms of expectations for Q3, we're expecting volume to be down another 15% from this quarter, and probably on the fee side, somewhere around the 20% mark lower as well.

Okay, that's helpful. And then maybe just circling back to the loan growth commentary. Obviously, very good production this quarter, a lot of moving pieces with Aquesta and Reliant, and not sure what the runoff looks like there. But it would make sense that the beta payoffs, particularly in the crease phase, should slow as rates have risen. Not trying to pin you down for an exact outlook for the back half of the year. But this quarter’s core loan growth of 6% to 7% is that what we should at least contemplate as we move into the back half of the year, just given some of the puts and takes?

Yes, this is Rich. As I mentioned earlier, I think that number is a good way to think about it. I think I said that mix will change a little bit, with mortgage down a little bit more and a little bit more up on commercial.

What they inherit, a lot of loan growth we got this quarter was late in the quarter. So our average loan growth was lower than our end of period loan growth. From an average loan growth standpoint for next quarter, we're starting off at a nice spot, given the strong end-of-quarter volume that we had.

Perfect. And maybe just one final one for me, just as we think about expenses especially salaries were down a little bit Q-on-Q, obviously understand that the drivers there. But can you just give us an update on the hiring plans? And what's going on with some of the dislocation from some of the more recent acquisitions that best presented some opportunities for not only revenue higher, but also on the client side? Thanks.

Sure, this is Rich. Including discussions are obviously going on throughout the footprint. We're currently talking in Nashville about a middle-market position because we see that market as such a great opportunity. There might also be an opportunity for a CRE person there. We may have found that person. We're also looking for middle-market in Florida as well. I will tell you that we're looking at a lift out right now that looks fairly promising. Additionally, we just brought on Corey Boyd as Head of Syndications and Corporate Banking for us. We think we're of that size now; we can start taking on some of those larger strategic relationships. He brings 21 years of experience from Truist and BB&T. Lastly, we just brought on a leader in the franchise space, particularly for the larger multi-store owners. This will team well with what we do in Navitas and SBA, and so we're very excited about that.

Okay, great. So it sounds like you continue to be a little bit more surgical with your hiring as opposed to just bringing out a bunch of people at relatively higher costs to get more around on cycle. Appreciate it, guys. Thank you so much.

Our next question comes from Kevin Fitzsimmons of D. A. Davidson.

Hey, good morning, everyone. Just we've seen from a lot of banks so far this shift of deposit balances declining and then in turn the excess liquidity shrinking on the balance sheet. I'm just curious if you could give us what that change means. I know it; you've referred to improving deposit mix going forward. Some of this is really just leaving the bank and leaving the system, but what that means for future outlook for purchasing securities. Does it make the deposit beta accelerate more than you might have said last quarter? At the end of the day, are you still confident that versus the prior few years, we've been driving NII growth via the balance sheet while the margin was being compressed? Are we shifting now and reversing where it's being driven by the percentage margin? Are you still confident that we'll be able to drive NII growth, even if average earning asset growth is a little lower than it's been?

So it's a great question. It's something that I think about a lot, and our outlook for our NII growth is very strong. But I'll tell you some of the intricacies and some things I'm thinking about. Right, our deposit outflows were one of the least I've seen of other banks, but it's something that you worry about when you had over a billion dollars, $1.4 billion of inflow over the last year. We are aware that you might get some deposit outflow for the rest of the year. We have been growing our securities book very rapidly, and we are at $7 billion right now. I think you're going to see that stay at $7 billion for some time. One reason is to hold cash for potential deposit outflows. The other reason is, we are in such a volatile rate environment, and rates may go up another 200 basis points, and I like the size of our securities portfolio. So the deposit outflow, the potential for it has likely led to keeping the securities portfolio relatively flat here. Now on deposit betas, we just had a meeting yesterday, and we looked at competitor deposit pricing. It hasn't really changed a lot and may change in late July when we get 75 basis points or 100 up. One thing I mentioned to the committee, and one thing Rich and I have been discussing is if you're seeing this kind of loan growth from some of our competition, and you've seen some significant deposit outflow from our competition, we may well see higher rates from them. We haven't seen that yet. We're still planning for the 24% deposit beta. However, it is something that we're considering when we're doing our deposit committee. So could it have an impact? Yes. But the big picture is this rate change and having us be around a 50:50 balance regarding unfolded rates, having one of the most core deposit bases as we believe in the country, that's going to translate to very significant margin expansion. I'd mentioned that 20 to 25 basis points that I think we'll get next quarter.

Great, thanks, Jefferson. Just one follow on, Lynn, and by the way, Lynn, I just wanted to mention thank you for those comments on DeVan. I was fortunate enough to get to know him and covered stock, so I really appreciated that. One question regarding M&A. Just if you guys still feel good about Progress closing in fourth quarter, if that still seems on schedule, and longer term on M&A, I would assume you guys want to get that closed and integrated. So probably not top of mind in the near term, but longer term, given the shifting environment, does M&A become a little more focused on gathering deposits like it has traditionally, but maybe not so much in the prior years for the industry? Just curious your thoughts on that. Thank you.

Yes, sure. And thank you for the comments on DeVan. Right now on Progress, we are very cognizant of the changing regulatory leadership and the uncertainty about timing of deal closures. We are progressing as we normally would; we still have no reason to believe we wouldn't be able to close on our fourth quarter schedule. However, with that said, it's a different environment than we have been operating in. We have contingency plans in case it does extend out. So we'll wait and see on that. In terms of M&A in general, yes, I think in the near term, with prices down in the industry, there's just not a lot of activity going on. I wouldn't expect to see much announced; you can always be surprised. The conversations that we're having are just long-term relationship building conversations with the same kind of banks that we've focused on, i.e. $750 million to $3 billion banks in growth markets in the southeast. There's not a lot of those left. We're continuing to work on building relationships with those, and we think if you look out another nine months or so, maybe at that point, is when the market opens back up, but we'll see. So I think we'll be in a quiet period for a while, both as an industry and certainly for us, and I think for us, that is helpful actually to get Progress and Reliant fully integrated.

Our next caller is David Bishop of Hovde Group.

Yes, good morning, gentlemen. Thanks for taking my question. Jefferson, maybe a question for you. You mentioned in the preamble, the containment of operating expenses, maybe on a core basis, and that 3% to 4% rate I think year-over-year on a core basis should that be the expectations sort of near term and maybe into 2023? Excluding some of the impacts of the Progress deal? Just how are you thinking about inflation impacting the rate of expense growth?

It’s a great question. Expenses for this quarter came in a little higher than I was expecting. If you go back and look through, there are seasonal types of things in there, some invoice timing issues, and some project timing things. I think we will continue to grow expenses, but it will be at a much slower pace than what we grew them this quarter. I think it'll be less than half of the growth of this quarter. So we grew $3.3 million last quarter; I think it'll be half or less of that in Q3. We're expecting some pretty significant improvements in the efficiency ratio in the back half of the year. I'm looking at, it's early, but July's early expense reports have been looking good, so I feel more confident in this forecast with what I'm seeing in July. I think that kind of 4% target is a reasonable target going forward.

I appreciate that. And then maybe a high-level question for Lynn. It doesn't sound like you're seeing much credit stress there, the 7% rate of growth. As you talk to market presidents out there, and obviously, you are in some strong population infrastructure markets. Does that feel like the appropriate rate of growth or a good rate of growth for the overall macroeconomic backdrop? Just curious what you're seeing and maybe that backdrop that gives you comfort at that level? Thanks.

Yes, so I'll start and Rich can jump in. I certainly feel comfortable with that 7% range, particularly when you look at the additions that we've made to the sales staff, etc. We've been very focused on concentration management, those sorts of things. If you look at our markets, I think that's a very comfortable growth rate somewhere in that 6% to 9% kind of range, I'd be very comfortable with right now. I don’t know, Rich, if you'd have anything to add?

I would agree. As the sales guy, I like the disciplined approach, especially as we're still talking about uncertainties that we don't know in the near future. It certainly feels like we're doing the right things in the right back, blocking, and tackling, and I think it's the right approach.

Our next question comes from Catherine Mealor of KBW.

Thanks. Good morning. Follow up for you, Jefferson, on your 20 to 25 basis points NIM outlook for next quarter. What kind of, I guess, balance sheet kind of growth are you assuming in that? Are you assuming more deployment of excess cash? And I think you mentioned that the securities portfolio will remain kind of flat, so I'm assuming that, but I guess it's really just the excess liquidity. How are you thinking about the point of excess liquidity and how much that contributing to the higher NIM guide versus just yield?

Yes, great question. So we have a flat to slightly down balance sheet in Q3 that's going into that margin. So that would be relatively flat securities or very flat securities and then flat to down cash.

Great, okay. And then your commentary about Navitas, coming down, you mentioned a $2 million number. Is that relative to the $3.8 million line that includes SBA, USDA, and Navitas?

Right. Let's just talk about that line item a little bit. It may well be in that $3 million range; it could be even as high as last quarter. But I think $2 million makes the most sense. We have significant margin expansion coming, we have significant spread expansion coming, and I’m sorry, net interest income growth on the way. We feel good about our loan growth outlook. In pricing of these markets, you're seeing volatility moving up and down. I don't want to commit to selling loans no matter what the price is for the second half of the year. That's where we stand. For most of the quarter, the pricing was acceptable, but we don't want to commit no matter the price in Q3.

And so then, is there any change to your origination volume for Navitas? Or is it just that you might hold more on balance sheet and sell less? In that respect, we might see actually higher loan growth because you're just keeping more Navitas on balance sheet.

That's correct. Navitas has grown at a really nice pace. If we were to hold, right now, we're at 8% of total loans on Navitas. As you know, we have the limit, self-imposed limit of 10%. If we keep a little more Navitas on balance sheet, it sets us up well for 2023 and the loan growth in the near term. I think it's a better long-term strategy to hold a bit more of the Navitas loans and the SBA loans.

Okay. Yes, I actually talked to them yesterday and we are really not seeing any unusual expectations. We went from nine basis points of losses in Q1 to 30 basis points of losses in Q2; pre-pandemic, during normalized times, they were running in the 70 to 80 basis point losses. I would expect that to continue to normalize. I would expect something above 50 basis points going forward in losses, but still the early stage delinquencies; they're still very, very low compared to where they were pre-pandemic. So we're not seeing anything unusual at the moment, but just would expect it to return to a more normalized level.

Our next question comes from Christopher Marinac of Janney Montgomery Scott LLC.

Thanks. Good morning, Jefferson and team. I wanted to drill down further on liquidity. I know you gave some great information in an earlier answer. How do you think about using the existing securities book to harvest? Or even use it further as collateral? I know there's a bunch of capacities on both angles. So just curious how you think about that? Would you keep this current size? Or would the environment lead you to change? Or just do something different than you have?

Yes, that's a great question, Chris. I believe deposit growth will be a key driver. Even if our deposit growth remains flat for three years, we have sufficient funding on our balance sheet and cash to support that. Additionally, we can gradually fund it with securities, resulting in a shift in the mix. You can expect minimal balance sheet growth, but a gradual shift towards loans over time. Regarding the $7 billion securities book, I'm completely comfortable utilizing it. Currently, we have the cash to facilitate this, but over time, around $2 billion of that will be used to support loan growth and to bring our loan-to-deposit ratio back up to a more typical level of 80%. I am fine with the capital growth. I don't anticipate significant balance sheet growth over the next 12 to 18 months, followed by a decline in cash. Ultimately, several years down the line, you might see securities funding loans as well.

Right, thanks for that additional color. I appreciate it. And then just too kind of, I guess, a follow-up on the whole beta conversation. If we think about betas on the asset yield side, should Navitas perform similar to the rest of the UCBI portfolio or will it be different just because of the nature of how those loans are originated?

Navitas will have a lower beta, and maybe even a much lower beta than the rest of the book. They're making fixed-rate loans, and when you're passing on rate increases, it takes a longer period of time. If you look at this quarter, that beta was very low, and I would expect it to stay very low. Navitas was very helpful to us and remained helpful to us in an up-rate environment too, but very beneficial in the downturn environment. However, it's not going to be very adjustable in the higher rate environment. That said, if you look at last quarter, we had just under 50% of our loans being floating, with one more rate hike, we are going to be closer to 53% floating or becoming more variable in the whole book as rates move higher. I still think you'll see a good loan beta from us, but it's just not going to come from Navitas.

Got it. And given the change in interest rates here in the last several months, is there any pricing change in the betas at all? Will something be passed along by the end of September?

Yes. They are definitely passing along rate hikes, but it takes longer, and they're a little more uncertain because it's a competitive environment.

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

Great. Thank you again for joining the call and for your questions. We look forward to any follow-up information that you might like to see, and otherwise, we will talk to you soon. Thank you so much.

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