United Community Banks, Inc. (UCB) Q4 2022 Earnings Report, Transcript and Summary

Good morning, and welcome to the United Community Banks Fourth Quarter Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to your hosts. Please go ahead.

Good morning and welcome to United Community Banks Fourth 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 fourth 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. We continue to be pleased with our overall performance, we recorded operating earnings per share of $0.75. While that is flat with last quarter, it's a significant increase over the same period in 2021. Our operating return on assets remain strong at 135 basis points and our pretax pre-provision return on assets reached a new high of 2.07%. Our net interest margin continued to expand, increasing 19 basis points over the third quarter, and loan growth reached 12.2% annualized for the quarter. Business conditions for us remained strong, and our Southeastern economies continue to perform very well. However, we're seeing the impact of Fed rate increases. Clients are actively searching for higher yielding investments. And we saw deposit outflows of $445 million, primarily in DDA. Deposit competition and resulting deposit betas have increased and will continue to increase in the near-term. We're assertively defending our deposit and customer base and believe we will continue to relatively outperform in our funding cost. Credit results remain very strong. However, economic forecasts continue to weaken, resulting in reserve bill during the quarter. While net charge-offs did move up to 17 basis points, these results remained below or better than what we would consider normal. Non-performing assets remain low as to our special mention and substandard accruing loans. Notwithstanding the continued good results, we are cautious and have tightened underwriting standards several times over the past year. Finally, on the operating side, while we did have an uptick in expenses, our net interest income grew substantially, leading to another improvement in our efficiency ratio, reaching a new record low of 47.3% on an operating basis. Strategically, while not included in the quarterly results, we're very excited to have welcomed Progress Bank into United on January 3. Progress has a great franchise and some high growth markets, including hospital in the Florida Panhandle, is a perfect complement to our existing franchise and will improve our growth prospects for years to come. David Nast, the Founder and CEO of Progress has built a great team. And we look forward to his continued leadership as United in those great markets. And now Jefferson will share more details for the quarter.

Thank you, Lynn. And good morning to everyone. I'm going to start my comments on Page 5, where you see the highlights of the quarter that shows our strong returns, many of which Lynn just went over. But I'll focus on the two notable items that we broke out this quarter. The first is that we have a small number of equity investments on our balance sheet. They are not significant in dollars, about $14 million. And usually, we don't need to break out the gains and losses here. But this quarter, our equity investments were up $3.6 million, which is unusual and likely will not repeat. The second item is that we took a $1.8 million tax charge because we have started the process and intend to surrender $34 million of BOLI investments in Q1. We have had this BOLI investments since before 2007 and it is underperforming and actually negative yielding. By surrendering, we received a $34 million back over five years and can reinvest at higher market rates. Let's go to Page 9 and talk about deposits. We believe we have one of the strongest core deposit bases in the Southeast. As I mentioned, we are seeing the impact of rapidly rising rates and our deposit shrunk in the quarter. The price competition for deposit is also increasing. And we are seeing our deposit betas increase. Our cumulative deposit beta moved to 12% for this cycle from 6% cumulative last quarter. And we expect this to increase in future quarters, both due to higher rates in our various account types and due to a mix change towards CDs. On Page 10, we provide some greater detail on our deposit trends. The biggest overarching trend this quarter was a decline in the average account balance of our commercial customers, specifically in DDA accounts. While our number of accounts increased, we're seeing businesses make purchases, make tax payments, make distributions, sometimes move to institutional money markets or treasury bond funds. We're also seeing some movements to CDs in our business accounts as well. On Page 11, we experienced strong loan growth in the quarter with mortgage being the biggest contributor and fairly diversified growth after that. Moving to Page 12, we feel good about where our balance sheet is in terms of liquidity and capital. Our loan to deposit ratio did increase to 77% this quarter from 73% last quarter. We're still below where we have been running historically and like our positioning from a liquidity standpoint. We talk about capital more on Page 13. We are above peers in our TCE ratio, and in our risk-based capital ratios. We're using capital in the first quarter with the Progress acquisition. But we still expect to be above peers pro forma for the acquisition. Moving to Page 14, we discuss our net interest margin. We had 19 basis points of net interest margin expansion in the quarter, 20 basis points of which came from the impact of higher rates. And one basis point came from positive mix change, the impact from positive mix change this one basis point I mentioned is lower than what it has been in the past few quarters. In past quarters and in this quarter, we have had the benefit of a shrinking securities portfolio funding higher yielding loans and we expect this to continue. But now we also have the negative mix change impact, which is moving us away from low cost DDA towards CDs and other higher cost products and also the deposit pricing lag continues to catch up. While the funding environment is competitive, I do believe our Q1 net interest margin is somewhere between down five basis points and up five basis points, including the impact of Progress coming into the numbers. So, it's a bit unclear whether this quarter was the peak in margin or whether it will be in Q1. Moving to Page 15. Fees were up $1.5 million compared to last quarter, with the main driver being the $3.6 million in unrealized equity gains, I've mentioned earlier. Excluding those gains, the income was down in Q4, mainly due to mortgage and the absence of the large MSR gain that occurred last quarter. Another reason for the decrease in fees was our decision to sell less SBA loans. While we had strong originations, we had $47 million of SBA originations, we sold just $17 million because the gain on sale pricing was less favorable than in past periods. So, we kept more loans on the balance sheet and sold less. We expect to sell this backlog in the first quarter, which will be on top of our normal first quarter sales. Just keep in mind that the first quarter is typically our seasonally weakest quarter for SBA originations. Finally, we had a small amount of realized security losses in the quarter, as well as a small MSR write down. Moving to Page 16, our expenses increased in Q4 by $4.9 million. We have listed the main drivers of the increase on the slide. I would also say in addition to this, that as I look at the just less than $2 million increase in the communications and equipment line item, that some of the items in there were above what I would call a normal run rate after a lower than normal Q3. So ongoing costs would be closer to the middle of where the Q3 and Q4 results came in. Of course, Progress will come into the expense numbers in Q1, and we expect to start getting the Lion's share of the $13.5 million in annual cost savings after our second quarter conversion. On Page 17, we talk about credit, our net charge-offs remained low, but moved higher in the quarter to 17 basis points, with the biggest driver being a C&I relationship, along with some normalization at Navitas that we were expecting. NPAs moved slightly higher. And our special mention and substandard accruing categories were fairly stable. But there were some inflows and outflows that Rob can talk about in the Q&A. All in, we feel good about our credit quality, but acknowledge that we are moving into a period where we expect credit to normalize. On Page 18, we talk about the reserve and show that we continue to build our reserve in the fourth quarter, as we also built our reserve throughout 2022. Specifically, we set aside a $19.8 million provision and took the allowance for credit losses to 1.18% of loans from 1.12% last quarter, and from 97 basis points a year ago. The driver of the increase is similar to what it has been all year, which is the weakening of the Moody's Baseline Economic Scenario. All said we feel great about our pre-credit profitability ratios, and the growth of the bank as well as our credit quality and liquidity. But we also acknowledged that we could be moving into a tougher economic environment and we believe we are prepared for 2023 whether it be a soft landing, or something more challenging. With that, I'll pass it back to Lynn.

Thank you, Jefferson. And many thanks to the United team. 2022 has been a great year, thanks to your efforts. Thanks to you, we've expanded into dynamic markets in Tennessee, including Nashville and Clarksville. You earned recognition for being number one in customer service in the Southeast for the eighth time in the past nine years. You gave your time and talent to numerous community organizations across our footprint. You added and updated new systems to allow us to better manage risk and to serve our customers. You continue to develop your teams by recruiting new bankers and leaders through training like Leadership Academy, and by taking action on our All Employee Engagement Survey. Finally, you're recognized as creating a great place to work by American Banker for the sixth year in a row. It's an honor to work alongside of you, and I can't wait to see what 2023 will bring. And now I'd like to open the floor for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Catherine Mealor from KBW. Catherine please go ahead.

Thanks, good morning.

Good morning, Catherine.

Good morning, Catherine.

I'm curious to know what is start on expenses. You mentioned that the run rate to start with is kind of somewhere between the third quarter and the fourth quarter. Can you just kind of help us think through what kind of growth rate we should be thinking about from that level. And it looks like some of the higher FDI expense -- FDIC expenses were in this quarter. But are we going to see more of that next year? And just want to kind of think about what kind of expense growth rates appropriate next year?

That's great, thanks for the question, Catherine. When I mentioned between third and fourth quarter, I was talking specifically about the communications and equipment expense. We had several things come through that line item, it's just kind of unusual, write downs of equipment and such that I don't think will recur. So I wasn't so much talking about total expenses between Q3 and Q4 mostly that single line item. The FDIC specifically was an increase of the assessment and late Q3, so we had our Q4 number and a catch up for and a little bit of a catch up on the assessment, but does not include the biggest increase that is happening for, that is two basis points higher on the assessed net assets. With that, I would expect because we're a little higher than usual this quarter, instead of being a million dollars higher next quarter, maybe it's $800,000 higher next quarter. So the FDIC will be a higher semi-permanent run rate by $800,000 is my best estimate right now. The bigger question you're asking probably is the run rate of expenses, and again off a slightly lower base, than Q4, I think it's a 4%, 4.5% growth rate, given the inflation rates that we're seeing, again the last fee cost savings coming from Progress.

Great, super helpful. And then you gave some good margin guidance kind of a range that we might pick this quarter or next, how much in terms of size of the balance sheet and how you're thinking about loan growth into next year, it feels like your competitors have started to pull back loan growth expectations, just given the economic uncertainty, but just kind of curious how you're thinking about growth this year?

So I'd like to start just with the size of our balance sheet, which I expect to be relatively flat. It was a -- we had a little growth this quarter, which was surprising a little bit, I thought would be flat. And with that, I'll pass over to Rich on our forecast for loan growth.

Sure, good morning, Catherine. We're still thinking about mid-single-digit loan growth for this quarter and really 2023. We probably originally kind of thinking the range of 7% to 8% and probably per last quarter thinking more in the 8% range, but probably lower into the range now into the economic headwinds that we're looking at.

Is that 7%?

Yes, seven-ish, correct, thank you.

Any change in the composition with that, I know Navitas has been relatively larger piece of the of the loan growth over time, if you expect that to pare back and be supplemented in other ways, you're counting on the composition of your loan growth?

Yes, I'll address that. So I think Navitas will continue to be similar. In terms of the loan growth, what we do expect to see a little bit go down is mortgage. We've seen Q1 will be down a little bit. Also, we've continued to tighten some of our underwriting criteria, particularly on the construction to permanent product.

Okay, I will step out of the queue. Thank you so much.

Thanks, Catherine.

And our next question is coming from Brad Milsaps from Piper Sandler. Brad, please go ahead.

Thank you. Good morning.

Good morning to you.

Maybe just to follow-up on Catherine's question. If Rich is right, you guys grow your loan book maybe a billion dollars or so. Jefferson, if I recall is still about $200 million per quarter coming out of the bond portfolio? Is that the right number? And I guess, what would be the plan, to sort of maybe bridge the rest of loan growth, would you kind of lean into the FHLB a little bit more or in your mind, you think it's an environment where you can kind of stop some of the deposit runoff and maybe stabilizes or even grow deposits a bit?

Right, so I'll start with that, Rich can jump in, especially on our deposit thoughts. But yes, maybe it's a little less than $200 million a quarter. But we do plan on funding a lot of our loan growth with a securities shrinkage. I think this quarter, you'll actually see the FHLB come in a little bit. We've done a lot to try to stoke our deposit growth. We've been doing it all year, but given the environment we're also doing a lot of energizing the footprint in the geography as well. We have some higher rates out there to help spur deposit growth. I might pass it to Rich on some of the things that we're doing on the deposit side. I can also step in there too.

Yes, just to give you some specifics. Like we're -- we generally pick a certain time period for a CD in this case happens to be 11 months that are special and 415 range and then we have empowered the field so that's going to be the State Presidents to Presidents and the retail management in terms of a product, the Special index based off Fed funds. So we put that authorities out in the market so they can make those decisions real time. And that's in the mid-3s. And that's been really geared towards our best relationships.

So that's our main lever that we want to pull is the really press on the deposit growth engine that we have some confidence in at the bank. And the -- if it's not there, what do we do to define that, our FHLB is there we want to, we don't want to lien on it too hard, we have a broker CD lever we can pull on, we also could sell some available for sale securities at small losses that create some liquidity if we wanted to. So we're looking at really all things but the main, we're happy where we are because of the securities funding most of the loan growth and we have a lot of options beyond that if the deposit growth isn't there.

Got it. Thank you. And maybe just switching gears to Rob, curious if you could maybe give us a little color, maybe on the movement within the non-performing list and then maybe some of the key drivers, underlying your provision this quarter and obviously, we're in a dynamic environment where the assumptions can change rather quickly. But as best as your crystal ball can tell us, do you think you sort of built the reserve to a level where maybe you feel more comfortable now all else equal, or do you think, as we think about next year, there's more of a bill to come is, maybe you guys close the gap to peers a little bit? No, you hold a little bit more capital, but just any additional color around credit would be helpful.

Yes, glad to. Hey Brad. So just on the NPA side, I would say the drivers for NPA that we saw Navitas was up a couple of million, and our manufactured housing was up a million. And then really, it was the C&I credit that we took a charge on that drove the rest of that. So those were the three elements in the NPA that drove the dollars up. On the provision, the economic forecasts really caught up with the Fed's strategy around increasing rates. And when rates are rising, the investment in equipment and investment in real estate is expected to decline. And so we saw increases in our C&I and equipment finance and commercial construction categories driven by the expected increase in rates. So that was really the driver this time, of course, we had the loan growth is also a driver and the charge-offs play a role as well as they begin to normalize. In terms of expectations, you just have to remember that the way CECL works, it's procyclical. So, you end up building before you get into a recession. If Moody's expectation of the scenario is accurate, then I think absent changes in loan growth and asset mix and charge-offs that, it would feel like, I would expect the scenarios to be stable, but this quarter, they were catching up a little bit. And it's not entirely as you know, it's uncertain economic times. And so, they're trying to predict something as well that's fairly uncertain.

Got it. Thank you. Jefferson, just a housekeeping question. That BOLI surrender charge that you noted in the deck, is that buried in other expense? Or is it -- is that housed elsewhere?

It's in the tax line.

It's in the tax line. Okay, great. Sorry. I missed that. Thank you.

Our next question comes from Michael Rose from Raymond James. Michael, please go ahead.

Hey, good morning. Thanks for taking my questions. Just wanted to circle back into Navitas. Obviously, things are normalizing. Can you just remind us if you've changed kind of the mix of what they've done since you've acquired them both in kind of what you sell and what you keep on balance sheet? And then also kind of what we should expect for kind of a normalized through the cycle level of charge-offs for that business? Thanks.

So, I can maybe start on that. I think that when we bought Navitas, they were a standalone company. They had a higher cost of funds and as they came on to UCBI, over the years, they have moved upstream in terms of credit quality, so all in, they have a stronger credit quality than they had in 2018, where we bought them. Rob, do you want to take the credit piece of it?

Yes, so if you look at Slide 21 in the deck, Michael, we've kind of have included the '19 and 2020 loss rates. So it would be, I could see us getting into the 70 basis points to 80 basis points range as things normalize.

Okay, helpful. And then I wanted to circle back to the kind of expense, some of the commentary there, obviously, understanding, there's a lot of moving parts, but it seems like there's potentially a lot of very variability from kind of a starting point. So would you be able to just kind of because, I think their expense run rate was somewhere around $13.5 million a quarter, I just want to see if you could, if you could verify that. And then kind of what would be kind of a core number without that, that base just to kind of begin to forecast off of. Again, I know, it's hard, because there's a lot of moving pieces and systems conversions coming up in the second quarter, et cetera. But just wanted to see if you could provide a little bit more finer point on the starting point for expenses this quarter? Thanks.

Yes, so I think it's a $1 million to a $1.5 million lower than what our operating number was this quarter. And I think you have the Progress number about right. And so, I think you add those together for Q1, now you have some FICA coming back in Q1. So, you have some -- so you have some seasonal Q1 things that happen. But then you have cost savings of the $13.5 million that we expect to get probably starting some in Q2, it's pretty close to the full realization in Q3, full run rate realization in Q3.

Okay. Thank you for that. And then just finally, just more broadly speaking, obviously, the Progress deal is just closed. There's a lot of dislocation on the market. I know you guys have been pretty active on the acquisition front. But the economic backdrop at least is deteriorating. So that kind of put additional acquisitions for the time being on hold? Or will you just be, continue to be opportunistic like you said in the past? And obviously, I think you've identified some end market opportunities within your footprint, whoever knows -- who knows when they can come, but any reason that you wouldn't continue down the M&A path, just in light of the backdrop? Thanks.

Yes, thanks. This is Lynn. So, I would look at it a little bit like, like lending money, we're going to always lend money, but in different environment where we've got to be more selective. So, I think, we have always liked smaller transactions, always liked transactions in great markets. We've always liked conservative lenders out, but I would say, we'd probably put a little extra look at that, we'd probably look a little extra look at liquidity. And because at the end of the day, the sellers are the one that take -- that determine the timing. So, all that to say is, we would potentially still be in the M&A game, but you would want it to hit all those. Anything we announced, you'd expect it to hit all those triggers in terms of small size, great market, high liquidity, conservative underwriting, it'd be one that you'd want us to do.

Great. Thanks for taking my questions.

And now we have a question from Kevin Fitzsimmons from D.A. Davidson. Please Kevin, go ahead.

Hey good morning, everyone. Most of my questions have been asked and answered. One question about the -- I think when you were talking about the loans and the type of loans that might be dialed back a little, I believe that was mentioned -- residential mortgage was mentioned. Is that and if that's true, is that simply that it's getting to a size contribution to the loan mix where you're less comfortable taking that up? Or is it something changing in the market, just curious?

Good morning, Kevin. This is Rich, and I think we've been very disciplined about concentration risk. And that's really the biggest part of the CEP portfolio that we're doing. Other areas, probably two years ago, we started slowing way down on senior care. The underwriting criteria for Multifamily has certainly become tighter. And also just the mere facts that you're stress testing, interest rates has made that a little bit more of a challenging product. But we continue to look at different aspects with, we're talking about office deals, we haven't seen an office deal in senior credit committee, I can't tell you how long. So those are just some thoughts.

I'll just add in there and Rich did mention it. But some of it is just interest rate risk management, you're putting on a five year, seven year or 10 year paper, and what might be a rising rate environment, and we'd rather just have a little bit less of that coming on.

Okay, that makes sense. And appreciate the range on the margin, it's certainly going to be noisy in first quarter with the deal coming on. But if we're, say getting beyond first quarter, and now we've got this whole Progress in, fully in and now, let's say we're done with Fed hikes, but not yet to a point where the Fed is cutting in that kind of environment, do you think you can hold the margin steady? Would you expect to hold it steady? Or would it be more likely that we see some modest grind down to the margin, given the lack of deposit costs increasing?

I think it's more likely the latter. And that's what we're modeling is a slight grind down. Again, we have some defenses and that you'll be seeing the loan-to-deposit ratio, I think increasing a little bit, you'll see the mix change between securities loans that we've been talking about for a few quarters now. But I think the lag effect of funding and the price competition that we're seeing out there, combined to grind slightly down for the rest of the year.

And Jefferson, just on that point about the loan-to-deposit ratio, so with it up to a slightly above 77%. So it's still very liquid balance sheet relative to pre-pandemic. How would you think about that ratio in terms of, when you're assessing when, and whether to get more aggressive on deposit pricing? How comfortable are you taking or to what level are you comfortable taking that ratio up to?

That's a great question we have. We have been running in the low 80s for very long time, pre-COVID, where we felt comfortable, we feel comfortable moving that higher into the mid-80s, you're going to see some movement at the loan-to-deposit ratio next quarter, Progress coming in, takes you to 79 on its own, so wouldn't see -- I wouldn't be surprised to see a tick a little higher from there. So we like -- again we like where we are, we're comfortable in the mid-80s. But the balance sheet management and how we're thinking about liquidity and deposits, it really starts now. So we're not waiting for it to get to 85%. We're managing and energizing the deposit franchise now to try to protect the loan-to-deposit ratio best as we can now.

Okay, great. Thanks very much.

Our next question is coming from David Bishop from Hovde Group. David, please go ahead.

Yes, good morning.

Yes, good morning, David.

Good morning. Question maybe more for Rob, I know you mentioned. I think it was maybe the senior component in terms of office but just hopped off a call where there was another bank, maybe not your footprint, but maybe the size, we're seeing some deterioration or some concerns around the Office segment, just provide us maybe what your exposure is there, and maybe what you're seeing in terms of the health of your portfolio?

Yes, hey, David, this is Rob. So it's around a $660 million portfolio, criticized and classified in that portfolio at the moment is about 1%, just over 1%. So we're really not seeing a whole lot degradation there. It is a fairly granular portfolio, so not a lot of large dollar projects. Traditionally, we have focused on medical office buildings. Rich's favorite phrase around this is that the office building needs to be able to fall down on the hotel if it falls down. So that's kind of the -- that's kind of been our emphasis, but it's a very granular portfolio and we're not seeing really not seeing a lot of change in its performance.

Got it. And then a follow-up question on the -- from Kevin. Just curious securities book the bond portfolio were on is, but of the quarterly cash flows. Thanks. I'll hop off.

Yes, so roughly $200 million this quarter, maybe a smidge last I can get you the exact number.

Perfect, thanks.

Our next question comes from Jennifer Demba from Truist. Jennifer, please go ahead.

Thank you. Good morning.

Hi, Jennifer.

Curious, you just closed the Progress deal. Curious how you feel the Reliant transaction has gone after a year. I know you had an unexpected leadership change. But was your largest acquisition, I think your most expensive just curious how you think is going so far versus your plan?

So I'll start and then let Rich run with that. I mean, we've been pleased with it. Certainly, the vans passing was a blow to all of us and all the team there. But they've really banded together. We think it's a long-term. Great place to be, we think we've got the great, right people to be there. Rich is heavily recruiting together with John Wilson there. So look, we're very pleased we're there. We're very pleased that this was the franchise that got us there. Yes, we hit a few speed bumps along the way. We don't mind saying that. But long-term is going to be a great spot.

Yes, and I would add that I do feel that John Wilson and Mark Ryman have turned the ship around, it took a little bit, but we're seeing it both. And the other comment I would make is there were certain credits in there that weren't our credit appetite. And we believe that we've kind of worked through almost all of that during this past year and feel really good about 2023 and the opportunity.

Great. Second question is on asset quality, you said loan losses are coming closer to normal levels? What do you think normal levels are for UCBI with the loan portfolio mix it has today?

So that's an interesting question, I would say, I've always sort of targeted through the cycle losses of 30 basis points. For where we are today, in a normal environment, if I go back to 2020, we were at 18 basis points this quarter, we came in at 17 basis points. I felt really good in 2020 with the 18 basis points, but somewhere in that 18 to 30 range seems like a sort of through the cycle, normalized type range.

Thanks so much.

And we have a question now from Christopher Marinac from Janney Montgomery Scott. Please, Christopher, go ahead.

Thanks. Good morning, Jefferson on the loan yield improvement we saw this quarter, did the SBA had any influence on that just retaining those? I didn't know if that was meaningful at all?

I don't think it's big enough to affect the whole yield there.

Okay, fair enough, and Rob, just a big picture credit question, kind of continuing Jenny's line of credit, or thought rather, do you think that the stress testing that has now gone on higher yields and possibly being higher down the road, to what extent does that influence just the way you think about the reserve, the ability for customers to sustain these levels, LTVs, cap rates, et cetera.

So, it's interesting when you talked about higher interest rates. So what we're seeing is that the higher interest rates, and the stress testing is just requiring on the front end, certainly requiring stronger capital, I don't think we've done a deal in the last 90 days that didn't start with 50% or 45% equity number in it and 50% to 55% loan to cost. In terms of, if you're just talking about the standard portfolio, what impact does higher interest rates have, I'm not sure we're seeing all of that fully yet. But I think overall interest rates are a component of increasing costs, right? So there's wage inflation, there's cost of supplies are up and interest rates are up and what we see is some of our C&I borrowers, over the last year and a half have just needed to raise prices. And if they're on top of that, and doing that proactively, it works out fine. And we've had a couple of them that haven't been proactive and they're needing to catch up.

Great, Rob. That's helpful color and thank you both. I appreciate all the information this morning.

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

Okay, well, just in closing, I would thank you all for joining the call for your support. As always, if you've got additional questions, please reach out to us and we'll look forward to talking again soon. Thank you.

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