United Community Bank (UCB) has reported a steady first quarter for 2024, with operating earnings per share at $0.52, a slight decrease from the previous quarter. The bank's net interest margin showed marginal improvement, and while loan growth was modest at 1.2%, the bank's credit quality remained strong.
United Community Bank's liquidity position is robust, with a healthy loan-to-deposit ratio and no reliance on wholesale borrowings. Looking ahead, the bank anticipates low single-digit loan growth and potential deposit growth challenges due to strategic pricing. Margin expansion and increases in mortgage production and fee revenue are expected in the second quarter.
Key Takeaways
- Operating earnings per share were $0.52, down $0.01 from the previous quarter.
- Operating return on assets increased slightly to 93 basis points.
- Net interest margin improved by 1 basis point on a GAAP basis and 2 basis points on a core basis.
- Loan growth was lower than expected at 1.2%, with commercial real estate and construction loans flat.
- Credit quality remained strong, with total losses at 28 basis points.
- The bank expects low single-digit loan growth and margin expansion by 5 basis points next quarter.
Company Outlook
- Anticipates low single-digit loan growth for the remainder of the year.
- Deposit growth may face impact from pricing strategies.
- Margin expected to expand by 5 basis points in the next quarter.
- Mortgage production and fee revenue projected to increase in Q2.
Bearish Highlights
- The bank does not foresee significant loan growth without a change in Federal Reserve policy.
- Aggressive pricing for expensive depositors and public funds could lead to negative deposit growth.
Bullish Highlights
- Strong liquidity position with a loan-to-deposit ratio of 79% and no wholesale borrowings.
- Credit quality remains robust.
- Optimism for margin benefits from rate cuts and lower money market rates.
Misses
- Loan growth did not meet expectations, with a 1.2% increase.
- Commercial real estate and construction loans did not show growth.
Q&A Highlights
- Executives discussed neutrality towards rate cuts and maintaining a flat margin.
- Optimism expressed that rate cuts would benefit the bank's overall health.
- New pricing strategy and model focus on C&I lending over CRE lending.
- Balance sheet dynamics indicate that loan growth is expected to be funded by cash flow from the securities portfolio.
United Community Bank, which trades under the ticker UCB, has presented a mixed but overall stable financial outlook in its first quarter of 2024 earnings call. The bank's executives have expressed a cautious approach to growth, focusing on maintaining strong credit quality and liquidity while navigating the challenges of a dynamic interest rate environment.
UCB's strategic shift towards commercial and industrial lending, along with prudent expense management, positions the bank to potentially capitalize on future opportunities, even as it remains watchful of competitive rate decreases and market conditions.
InvestingPro Insights
United Community Bank (UCB) has demonstrated a consistent financial performance in the first quarter of 2024, bolstered by its strong credit quality and liquidity position. To provide a deeper understanding of UCB's financial health and future prospects, we've gathered some insights from InvestingPro that may be particularly relevant for investors and stakeholders.
InvestingPro Data indicates that United Community Bank has a market capitalization of $3.06 billion USD and a Price/Earnings (P/E) ratio of 16.72. The bank's adjusted P/E ratio for the last twelve months as of Q1 2024 stands at a slightly lower 15.52, which might suggest a favorable valuation compared to the current P/E ratio. Moreover, the bank has shown a modest Revenue Growth (Quarterly) of 2.7% for Q1 2024, indicating a gradual increase in its top-line performance.
One of the notable InvestingPro Tips for UCB is its commendable track record of raising its dividend for 10 consecutive years, which reflects a commitment to delivering shareholder value. This is particularly noteworthy for income-focused investors. Moreover, analysts predict that the company will be profitable this year, which aligns with the bank's positive outlook shared in the earnings call.
Investors interested in a comprehensive analysis of United Community Bank's financials and future earnings projections can find an array of additional InvestingPro Tips on https://www.investing.com/pro/UCBI. There are more tips available, providing a detailed perspective on the bank's performance metrics and investment potential.
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Full transcript - United Community Banks Inc (NASDAQ:UCBI) Q1 2024:
Operator: Good morning, and welcome to United Community Bank's First Quarter 2024 Earnings Call. Hosting the call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; President and Chief Banking Officer, Rich Bradshaw; and Chief Risk Officer, Rob Edwards. United's presentation today includes references to operating earnings, pre-tax, pre-credit earnings and other non-GAAP financial information. For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure in the Financial Highlights section of the earnings release, as well as at the end of the investor presentation. Both are included on the website at ucbi.com. Copies of the first quarter's earnings release and investor presentation were filed this morning 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 2023 Form 10-K, as well as other information provided by the company in its filings with the SEC and included on its website. At this time, I will turn the call over to Lynn Harton.
Lynn Harton: Well, good morning and thank you all for joining our call today. We're pleased to report solid performance this quarter. Operating earnings per share came in at $0.52, down $0.01 from last quarter, in part due to seasonally higher employment costs. Our operating return on assets was 93 basis points, up slightly from 92 basis points last quarter. As we've continued to work through changes in the interest rate environment, one of our focus areas naturally has been our net interest margin. We were pleased to see those efforts begin to pay off this quarter, with the margin holding steady up 1 basis point on a GAAP basis and up 2 basis points on a core basis, excluding loan accretion income. We continue to improve our loan and deposit pricing strategies to perform in a higher-for-longer rate environment. We're also seeing the effects of higher rates on loan growth as growth came in lower than we anticipated at 1.2%. The two portfolios with the highest correlation to interest rates, commercial real estate, including construction and mortgage were essentially flat with our C&I portfolio growing during the quarter. Deposits appear relatively flat on an overall level. But as Jefferson will discuss, we had solid core deposit growth outside of our higher rate public funds portfolio. Credit continues to perform well. Total losses came in at 28 basis points. We have two portfolios that are designed to have higher loss levels, Navitas and manufactured housing. Both portfolios also have higher coupon rates to compensate us for those higher loss levels. So excluding those portfolios, core bank losses were 12 basis points. Non-performing loans increased slightly to 58 basis points, and substandard loans decreased 3 basis points to 1.3%. Overall, credit metrics remain in a range consistent with strong underlying economic conditions. We continue to be mindful of how Fed efforts to slow the economy could negatively impact credit performance, but we're pleased with our results and have a positive outlook. Our liquidity position continues to be very strong with a loan to deposit ratio of 79% and essentially no wholesale borrowings. I want to turn the call over to Jefferson now for more detail on the quarter.
Jefferson Harralson: Thank you, Lynn, and good morning to everyone. I am going to start my comments on Page 6 and go into some more details on deposits. As Lynn spoke to, our deposit balances in total were essentially flat in the first quarter and we saw some continued, albeit slower, shrinkage in our demand deposits. Underlying this flat result, we had $228 million of deposit shrinkage in our public funds. This decrease was partly due to seasonality and partly due to our strategy to not match pricing in certain cases. We were pleased to be able to more than replace the public funds runoff with solid retail and commercial deposit growth this quarter. Our cost of deposits moved up 8 basis points in the quarter to 2.32%. Our deposit betas for the cycle were below the industry median a year ago, but are above the industry median now at 44%, and we are hopeful to move closer to peers to get some of that back in 2024. We turn to our loan portfolio on Page 7. We grew loans in the first quarter by $56 million, which is 1.2% annualized. This is a little lighter than we originally expected. We are seeing less demand from our customers who appear to be holding back on projects due to rate and uncertainty. We saw growth in C&I, but this was offset by shrinkage in investor CRE and in residential construction. We saw Navitas' loans be relatively flat as we kept loan sales high in that area at $28 million, similar to last quarter. On Page 7, we also lay out that our loan portfolio is diversified and generally more granular and less commercial real estate heavy as compared to peers. Turning to Page 8, where we highlight some of the strengths of our balance sheet, we believe that our balance sheet is in good position with no FHLB borrowings and very limited broker deposits. This gives us some flexibility in managing through a tough interest rate and competitive environment. On Page 9 we look at capital. We had increases in our regulatory capital ratios and our TCE, and all of our capital ratios remain above peers. Our leverage ratio was also up 21 basis points. We did not repurchase any preferreds in Q1, but we remain opportunistic as we bought back $7 million last year at a discount to par. Moving on to the margin on Page 10, the margin came in just slightly higher, up 1 basis point on a GAAP basis and up 2 basis points on a core basis. Our loan yield moved up 9 basis points to 6.24% with our new and renewed loan yield in the 8.5% range for the quarter. We had slightly less loan accretion in the quarter as compared to Q4. Loan accretion went from 8 basis points in the fourth quarter to a 7 basis point benefit in the first. Our net interest margin should be moving higher in Q2, up 5 basis points by our estimation, plus or minus 1 to 2 basis points. On the positive side, our loan yields should continue increasing and our cost of CDs should be near a top as new CD costs are very near maturing CD cost. That said, we are still seeing mix changes with DDA and savings shrinking and mix change towards more promotional pricing within NOW and money market accounts. Last quarter I mentioned that our terminal deposit beta would be 45%, but now we are thinking it's closer to 46%. Moving to Page 11, non-interest income was up $8.6 million to $37.2 million on an operating basis. Better mortgage fee income of $5.6 million drove most of the $8.6 million increase. For the quarter, we had $1.4 million of an MSR writeup, which compared to a $2.4 million write-down last quarter. This was a $3.8 million positive swing and the gain added just under a penny to earnings in Q1. Besides the MSR swing, core mortgage income was $1.8 million higher as we had greater volumes and a mix change towards fixed rate product. Over 90% was fixed rate that we sell and get more of the economics upfront. Our gain on sale of other loans was down $700,000 in Q1 and was driven by fewer SBA loans sold, even though the gain on sale percentages were a bit better. Operating expenses, on Page 12, came in at $140.4 million, up $1.6 million. The primary reason for the increase is a $1.5 million increase in FICA taxes. We also saw fewer expenses. We were able to defer as more of our mortgages ended up being sold. So the mix change towards fixed rate loans in the mortgage business ended up creating more loan sale gains, but we also had fewer deferred costs, or about $700,000 because fewer loans came on to the balance sheet. Moving to credit quality. Net charge-offs were 28 basis points in the quarter with the bank being very low at just 16 basis points. Our NPAs were up slightly. Our breakout on Navitas loan losses are on Page 18. We first broke out long haul trucking two quarters ago. The book has shrunk from $57 million to $38 million over that time. We had $2.4 million of long haul losses in Q1 as compared to $4.4 million last quarter. Navitas' losses, excluding long haul, were 1.06% and we're putting on new loans in the 10.5% range. I will finish back on Page 14 with the allowance for credit losses. We set aside $12.9 million to cover $12.9 million in net charge-offs and our ACL stayed relatively flat quarter-to-quarter and is up year-over-year. With that, I'll pass it back to Lynn.
Lynn Harton: Thank you, Jefferson. Before we take questions, I'd like to recognize our teams for a great accomplishment this quarter. At the end of March, J.D. Power recognized United Community as the winner of the Retail Banking Satisfaction Survey for the Southeast in 2023. While not announced publicly, we also know that we were rated as number one in trust in the Southeast. This is the 10th time that United has received this recognition, a testament to the dedication of our teams in taking care of our customers. We also received 15 Greenwich Excellence Awards for small business banking, a new high for us. I am fortunate to work with some incredible teammates throughout our company and I look forward to a great 2024 with them. And now we'd like to open the floor for questions.
Operator: [Operator Instructions] The first question comes from Catherine Mealor with KBW. Please go ahead.
Catherine Mealor: Thanks. Good morning.
Lynn Harton: Good morning, Catherine.
Catherine Mealor: I wanted start on growth. You mentioned that growth was a little bit slower this quarter and clients are being more conservative and pulling back. How are you thinking about growth for the rest of the year, especially if we don't get rate cuts and how that may impact origination levels.
Rich Bradshaw: Good morning, Catherine. This is Rich. I'll take that one.
Catherine Mealor: Good morning, Rich.
Rich Bradshaw: Good morning. Well, certainly interest rates are impacting and also we have customers that have kind of hit the pause button. So we do expect low single digit loan growth greater than Q1, but absent a change from the Fed, we don't see significant loan growth moving forward into 2024.
Catherine Mealor: And how about deposit growth? Should that match loan growth or are there more initiatives to still maybe even grow deposits at a faster pace than that?
Jefferson Harralson: Yes. So I think what you'll see is -- this is Jefferson. Hi, Katherine. So the overall strategy is to be a little more aggressive in pricing for our most expensive depositors, take public funds. So we're not matching some pricing on public funds. And so you may see some of our most price sensitive people leave the bank. We are getting really nice growth in our retail and commercial, more core areas. And so we're trying to do a bit of a mix change a little bit. So I wouldn't be surprised if we ended up having a quarter where we had negative deposit growth because of this mix change that we're trying to do. But I think if I'm guiding for the whole year, I think it'd be positive growth.
Catherine Mealor: Great. And is that -- that mix change, is that partially what's driving your belief that the margin should expand by 5 basis points next quarter?
Jefferson Harralson: That's a little bit on the...
Catherine Mealor: I think that's more coming on the funding side?
Jefferson Harralson: That's right. So we are -- in the first quarter, we lowered some of our money market rates. We lowered some of our other promotional pricing. We didn't match on the -- some of our public funds accounts. And so we're doing it more on a targeted basis, though, versus a kind of a mass basis. We're just trying to optimize our cost of funds and our margin. And our margin even before we get rate cuts. So we're trying to fight back a little bit for benefit of our margins. So that's some of it. A big piece of it, too, is no longer headwind. In the CD book, we are seeing CDs come on at about the pace and about the rate that they're coming off. So you don't have that headwind anymore. We have the continued mix change towards loans. On the asset side, we have continued -- we're putting on loans at a higher yield than where our loan book is. So it's really a lot of little things. But I think the CD piece of it is one of the biggest pieces of things. That was a headwind that's now not.
Catherine Mealor: Great. Very helpful. Thank you.
Operator: The next question comes from Michael Rose with Raymond James. Please go ahead.
Michael Rose: Hi, good morning, guys. Thanks for taking my questions. So good to see a nice rebound in mortgage this quarter. Just wanted to get a sense for trends there, pipelines and then I know the -- some of the loan sale gains were a little bit lower. Just wanted to get kind of your thought process there, the market for SBA and Navitas paper, just as we kind of conceptualize what fee income could look like over the next couple quarters? Thanks.
Rich Bradshaw: Good morning, Michael. This is Rich again. In terms of mortgage production, we do expect Q2 to be greater than Q1. We also expect the fee revenue to be greater as well. However, with interest rates at 7.5% now, we don't see the seasonality be as much of an uptick as you would normally expect or historically expect. And then I'll address the SBA side. In the SBA world, you need to have -- see -- a lot of what we do is on the construction side in SBA, and you have to have certificate of occupancy in order to sell. So a little bit timing this year. We expect to -- this quarter was a little bit off in terms of number of loans that we could sell, but the pipeline is where we want it to be, and we expect that we will catch up this year, particularly in the second half of the year. And what's also given us optimism is the secondary market is up about 20% to 25% from last year. So we feel good about that.
Jefferson Harralson: Yes. So from SBA, the first quarter is our slowest seasonal quarter, and we do expect increases just like Rich said. On the Navitas loan sale piece of it, we only grew -- we're very flat on the Navitas side for the first quarter. We sold on the higher end of what we have historically sold, $28 million. So as we go into second quarter, we're going to reevaluate. Do we sell a little bit less and have that loan growth be a little higher, or do we keep the loan sales where they are and keep that book flat? So I don't know if we've made that decision a little bit, but it's possible we could pull back on our loan sales a little bit. But the main driver of that line item is really that SBA line because it has a higher gain. So I would expect that line item to increase throughout the year.
Michael Rose: That's very helpful, Jefferson. Thank you very much. Just as a follow up, I know you guys have talked about M&A likely being a 2025 dynamic. Totally get that. But you guys have obviously very strong capital levels. You do have a buyback in place. I know the earn back maybe isn't as good as it would be if you were trading lower, but nonetheless still very attractive as we think about it. Any reason that you wouldn't more aggressively look at the buyback and usage of it, or just it's uncertain out there, you don't know the direction of the economy, so you'd rather just maintain relatively high capital levels near term? Thanks.
Jefferson Harralson: I think it's a little more of the latter. We do have the preferred buyback still in place, but we saw that price move closer to par since the beginning of the year. So I think we're still, I guess, actively looking at that lever. We like buying it less than par because of the increase to tangible equity if we do the buyback, we really like having higher capital relative to peers in this environment. So we're always looking at it. We'll always have our authorization there, but we're not actively looking at that strategy currently.
Michael Rose: All right. I'll step back. Thanks for taking my questions.
Operator: The next question comes from Stephen Scouten with Piper Sandler. Please go ahead.
Stephen Scouten: Hi, good morning, everyone. Thanks. I guess on the Navitas loans, it sounds like at 10.5% yield, even though the net charge-offs have been obviously higher, that the spreads there remain extremely attractive. So is that kind of the math that would drive potentially selling a little less and holding a little more?
Jefferson Harralson: Yes. And we are looking at that. We want to stay below our kind of self-imposed limit. We do have a little room there. We continue to really like the business, like the team there. And so that is a consideration as we go forward.
Stephen Scouten: Okay. And as it pertains to kind of credit around that book and maybe, I think you guys kind of called out manufactured housing as well that could have higher losses over time. It seems like, at least for Navitas, that that could be -- maybe begin to crest given what you're showing on the long haul trucking balances. Do you have any view on what that book looks like in the quarters ahead in manufactured housing as well?
Rob Edwards: Yes. Hi, Steven, it's Rob Edwards. On the Navitas book, it is also our view that losses did crest and have now come down. In fact, during the quarter, in the long haul sector, we saw past dues come down dramatically. So we're expecting continued improvement in that portfolio to come down in the second quarter and then maybe more normalized results in the third and fourth quarter. As it relates to manufactured housing, charge-offs are up, but I would say we've done a lot of studies. Freddie Mac has 20 years of results on manufactured housing, and our results are consistent with what you should expect of this portfolio. And so we're not surprised by the performance. But I would just say, keep in mind we did stop originating last year. And so the loss rates may seem a little higher than normal. And anytime you have a runoff book, as you're not originating new credit, the loss rates will be a little bit higher. But it's consistent with what we have expected and modeled.
Stephen Scouten: Okay. Very helpful. And then maybe just last thing for me, kind of a more big picture question. I'm curious, it's been a pretty, I don't know, I'd say it's a difficult environment for you all to operate in as a bank here today. And hopefully things look a little bit better in 2025. But from a strategic priority perspective, what's the focus for you all today primarily as you think about positioning yourself well to outperform your peers when that environment does kind of improve and stabilize?
Lynn Harton: Yes. Thanks. This is Lynn, Stephen. I would say the primary focus is really on building our organic growth through organic teams. Rich continues to hire and work on that opportunistically, really getting our Tennessee franchise stabilized and turned around when that is really exciting to us. What we see going on there and that's been a drag on us in the past. We believe Florida is really starting to work forward. And so those internal things on the growth side are what we're focused on. On the pricing side, Jefferson mentioned margin. So really doing a lot of just kind of one-on-one elements around how do we price better, how do we get the balance sheet structured a little better. So I would say it's more internally focused, we do. I do continue to look at M&A opportunities, frankly surprised at the number of those that are coming to us in that you wouldn't think this would be a time that a lot of sellers would raise their hands, but we continue to look at those. But I would say the primary focus is internal, getting ready for what we see as a lot of opportunity in '25.
Stephen Scouten: Great. That's really helpful color, Lynn. Appreciate the time, everyone.
Operator: The next question comes from Russell Gunther with Stephens. Please go ahead.
Russell Gunther: Hi, good morning, guys. I wanted to follow up on the margin discussion. So, Jefferson, appreciate the commentary you gave for the coming quarter. Would you expect that type of pattern to continue absent rate cuts, or how are you kind of contemplating the remainder of the year? And then as we do get cuts, if we do get cuts, how would you expect the margin to behave?
Jefferson Harralson: So, thank you for the question, Russell. We are essentially neutral to rate cuts right now. We have -- in order to have a flat margin, we need to get a 39% down total deposit beta to keep it flat. And we think that we can do that. But a lot of it's going to be determined upon what our competitors do, how much rate cutting we do before this rate cut comes. But we think that we are essentially neutral to rates. So I think what you're going to see is some of the trends that we're talking about continue in the back half of the year. So I would expect our margin to increase absent rate cuts. And if we get rate cuts, I think it's neutral to the margin, but it's very good to the whole bank. I think if we got rate cuts, I think Rich's forecast on loan growth would change some, and I think our credit risk and other things change. So we think we're a better, stronger industry and bank with rate cuts. But on the margin specifically, I don't think it changes our margin a lot. And Rich may want to add.
Rich Bradshaw: Yes, I was trying to think the best way to illustrate that. Currently our underwriting interest rate is 8.5%. So that makes it difficult for some of these deals and projects to pencil out where if rates go down, then all of a sudden you're talking this makes a lot more sense. So that's why we're very optimistic if we see some rate decreases.
Russell Gunther: That's really helpful color, guys. I appreciate it. And then last one for me would just be on expenses. So you gave some good direction in terms of the dynamics this quarter. Just how do you see that playing out for the remainder of '24 on the non-interest side? Thank you.
Jefferson Harralson: Yes. Thank you. Good question. And so, to lay out the expense, what it looks like this year, number one, we had some eliminations at the end of the year that we started getting benefit from probably in February. We have four branch closures that should be kind of late April, early May. So we have many projects across the bank with targeted outcomes either via new technology, making us more efficient or just trying to be more efficient with people or processes. So that is kind of the bigger picture and the more direct picture is in the second quarter, we have about a $2 million increase due to merit. We have a little bit of offset of that from seasonal FICA expenses declining. Then I would expect kind of that normal kind of low single digit growth rate kind of besides that. So you have a little bit of a bump in Q2 and then flattens out for the rest of the year.
Russell Gunther: That's great, guys. Thanks very much.
Operator: The next question comes from Gary Tenner with D.A. Davidson. Please go ahead.
Gary Tenner: Thanks. Good morning. I had a little bit of a follow up to the NIM question. As we're looking at it from the loan yield side, 9 basis points expansion this quarter, a little bit less than you had in the fourth quarter, barring any changes to the rate environment, do you suspect we'd have a similar amount of yield pickup 2Q, 3Q or is the kind of lower loan growth outlook maybe an impediment to that level of expansion?
Jefferson Harralson: Yes. So I think in Q2 that 9 basis point range is a good target. I can see it waning off a little bit in third and fourth quarter if the growth doesn't pick up a little bit, because that replacement with the new 8.5% loans coming on, slowing down, I can see that slowing it down a little bit, but I like the plus 9 for Q2 and then maybe slowing down a little bit from there.
Gary Tenner: Thanks, Jefferson. And then as it relates to your guide then, that 5 basis point plus or minus 2 basis points is, would you say that deposit pricing or loan growth, which one of those is a bigger lever right now for you?
Jefferson Harralson: That's a good question. I would say it's more on the deposit side as our bigger lever. We have a little more control over that. And it seemed and it has more, I guess -- well, yes, I would say deposit pricing on that, but they both affect it, of course.
Gary Tenner: All right. Thanks for the questions.
Operator: The next question comes from Christopher Marinac with Janney Montgomery Scott LLC. Please go ahead.
Christopher Marinac: Thanks. Good morning. Wanted to ask either Rob or Rich just about the inflows and outflows on sort of criticized assets this quarter whether you look at it from the special mention or the classified side. Just wanted to get more detail on the puts and takes of what's coming and going on and off.
Rob Edwards: Hi, Chris, it's Rob. So on the classified side, basically we upgraded one very large substandard credit, C&I credit. And so that played a role there. In terms of other items, we do go through a process, and we just finished one in Q1 where we look at maturing loans in the next 12 months and re-amortize them, look at the impact of interest rate on payments and trying to identify upcoming problems and address the risk rate at that time. So we did have a senior care project that got downgraded and we had a large C&I credit that got upgraded. So just some movement in those types of spaces.
Christopher Marinac: And, Rob, I presume that some of that also is just debt service coverage and normal things, but they're still performing as agreed.
Jefferson Harralson: That's correct. Yes. That's right.
Christopher Marinac: Okay. And then my follow-up question just has to do with kind of risk adjusted returns. I mean, it kind of lends itself to the slide on the Navitas every quarter. But it's also part of a broader question. Are you comfortable with what you're getting across the various business lines? Do you think those may even expand as rates stay high for longer?
Rich Bradshaw: That's a great question. I'll start with that. So I would say, on Navitas, where it's a very profitable company, but we're used to it being a lot more profitable than it is today. So we are really looking forward to those losses normalizing between now and Q4 to get that back up to the profitability that we like.
Jefferson Harralson: If you look at our marginal deposit yield or cost and our marginal loan yield that maybe speak to that because it's really a matter of we've got to burn off some of these old fixed rate loans.
Lynn Harton: That's right.
Jefferson Harralson: Yes. So along those lines, if you think about our new loan yield, our new loans coming on at 8.5 and our new deposits coming on in the low 4s, that's a really wide, nice incremental margin. Now you're seeing pricing pressures on both sides of the balance sheet. It's not an easy environment, but it's optimism as we go into the back half as we go into '25, because just like Lynn was saying, these older fixed rate loans that are hurting our profitability burnout over time. And so time is our friend to increase these ROAs and ROEs that you're seeing. We don't like having an ROA below 1%. Our budget and our forecast have us moving over that over time. We expect to be there over time. And so we feel good about our individual businesses and their improvements over time as well. And we can talk about any specific business. I don't want to -- if you're talking about more specific businesses, we can talk about that too. But we are targeting to be in a more profitable bank and having our ROAs and ROEs increase over time.
Rich Bradshaw: Jefferson, I would add, we've probably been about two months ago now, but we spent a lot of time on pricing strategy and a new pricing model, and that's been in place, and we're going to see those benefits now and a little more emphasis on C&I versus CREE. And that's been a big part of all this. We're measuring that on a monthly basis by geography and how -- what the results are.
Christopher Marinac: Great. That's super helpful. Thank you all for the -- for your contributions there. I mean, it's an interesting illustration that the new borrower paying 8.50 certainly comes on as a strong credit, strong coverage, so that their ability to repay is still very good.
Jefferson Harralson: Yes.
Operator: The next question comes from David Bishop with Hovde Group. Please go ahead.
David Bishop: Yes. Good morning. Jefferson, a follow-up question on the balance sheet. How should we think about the securities cash flows per quarter and assume some of that's going to flow into funding loan growth this year? Just curious how those balance sheet dynamics should work.
Jefferson Harralson: That's right. So if we are getting a couple $100 million a quarter, let's call it, $150 million or $200 million a quarter of cash flow coming from the securities portfolio, our loan growth has been wider than that. So you've seen a lot of more reinvestment to the securities portfolio, and that is a reason that you're seeing, and we're expecting to see that securities yield to grow throughout the year because we are investing into new securities. So a lot of that question, the answer we'll see comes from our expected deposit growth. If the deposit growth with our strategies that we've been talking about can stay flat, then you're going to see a lot more reinvestment in the securities portfolio, and that can fund the loan growth as well. So my base plan is for relatively flat deposits. Take the cash flow from the securities, see how much of that is funds and loans, and maybe it funds all the loans, we don't know. But I think maybe the bigger question that you're asking is, I think you will see balance sheet be relatively flat this year, but grow a little bit, all depending upon where -- what deposits do.
David Bishop: Great. Appreciate that guide. Then one final question. You'd mentioned the hope or desire potentially to start dialing back rates there. Are you seeing any of your competitors tap down rates yet on money market or CD specials or how they stabilize your market and allowing you to move down? Just curious what you're seeing from a competitive backdrop. Thanks.
Jefferson Harralson: Maybe I'll start real quick and pass to Rich. I would say very limited and scattered, but we're a little bit. Would you...
Rich Bradshaw: I would agree. And there's still every once in a while an irrational one, but it's calmed down a lot. Certainly has calmed down a lot.
David Bishop: Great. Thank you.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Lynn Harton for any closing remarks.
Lynn Harton: Great. Well, thank you all for joining the call. We look forward to additional questions. If you have them, please reach out directly. And we look forward to talking soon. Thanks so much.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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