United Community Banks, Inc. (NASDAQ:UCBI) Q2 2024 Earnings Call Transcript

United Community Banks, Inc. (NASDAQ:UCBI) Q2 2024 Earnings Call Transcript July 24, 2024

Operator: Good morning, and welcome to United Community Bank’s Second Quarter 2024 Earnings Call. Hosting our call today are our 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 second 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: Good morning, and thank you for joining our call today. We were pleased with our performance this quarter. On an operating basis, our earnings per share of $0.58 was up 5% from last year and 11.5% from last quarter. We moved above a 1% ROA on an operating basis, reaching 1.04% for the quarter. Our net interest margin expanded by 17 basis points, due to our focus on disciplined deposit pricing, as well as ongoing loan repricing. Our margin increase led net interest revenue to increase by $9.6 million for the quarter. While non-interest income was down $3 million from last quarter on a GAAP basis, excluding a non-recurring gain we realized in the first quarter, our non-interest income was essentially flat. We held expenses on an operating basis flat for the quarter and we continue to look for opportunities to reduce our expenses and improve our results.

Tangible book value increased by 9% on an annualized basis. Credit trends remained solid and stable. Net charge-offs were 26 basis points, down slightly from 28 basis points last quarter. Equipment finance charge-offs continue to normalize as we expect and were down 24 basis points sequentially. Non-performing assets were up slightly from 58 basis points to 64, while special mention and substandard accruing loans dropped by 10 basis points. We have some additional information in the Appendix this quarter on our office and multifamily portfolios, both of which continue to perform well. While credit continues to be strong, we are selective on new credits and are actively managing existing relationships given the uncertainty in the environment.

This along with caution on the part of our borrowers contributed to a small decline in our loan outstandings this quarter. We continue to hire new teams and see new opportunities, and we believe growth will improve for the balance of the year. On the deposit side, we consciously allowed some higher rate unprofitable balances to exit, primarily in our public funds business. We continue to see some movement from non-interest-bearing to higher-rate products. However, the cost of our interest-bearing deposits increased just 3 basis points this quarter compared to 8 basis points last quarter. Our liquidity position continues to be very strong with a loan-to-deposit ratio of 80% and essentially no wholesale borrowings. I’ll now turn the call over to Jefferson for more detail on the quarter.

Jefferson Harralson: Thank you, Lynn, and good morning to everyone. I’m going to start my comments on Page 6 and go into some more details on deposits. As Lynn mentioned, our total deposit balances were down in the second quarter, primarily due to our strategy. With the loan demand being lighter and with significant cash on hand, we were able to lower our public funds pricing and pricing on some of our more promotional deposit accounts which translated into some deposit shrinkage, but also into a higher margin. We did continue to grow total accounts in the quarter and continued our momentum there, but we were able to be more strategic on the more expensive pieces of our funding base. Excluding public funds, our deposits shrunk $132 million or 2.6% annualized with the mix staying relatively stable.

Our cost of deposits moved up 3 basis points in the quarter to 2.35%. We turn to our loan portfolio on Page 7, loan shrunk in the quarter by $164 million. Loans being down is a combination of us being cautious on new loans, us moving some downgraded loans out of the bank and lighter loan demand from customers who appear to be holding back on projects due to rates and uncertainty. We saw Navitas loans grow a little bit in the quarter as we pulled back on loan sales given the lighter demand in other areas. On Page 7, we also lay out that our loan portfolio is diversified and generally more granular and less commercial real estate heavy as compared to peers. Turning to Page 8, where we highlight some of the strength of our balance sheet, we believe that our balance sheet is in good position with no FHLB borrowings and very limited broker deposits.

We believe this gives us some flexibility in managing through a tough interest rate and competitive environment. On Page 9, we look at capital. We had increases in our capital regulatory ratios and our TCE and all of our capital ratios remain above peers. Our leverage ratio was also up 24 basis points in the quarter. Moving on to the margin on Page 10. The margin came in 17 basis points higher in the second quarter on a GAAP basis and was up 15 basis points on a core basis. Our loan yield moved up 19 basis points to 6.43% with our new and renewed loan yields remaining in the 8.5% range for the quarter. We had slightly more loan accretion in the quarter compared to Q1 moving from a benefit of 7 basis points in the first quarter to 9 basis points in the second.

From here, I expect our loan yield to continue to increase and that our cost of funds is near a top. That said, we are still having some, albeit slower, negative mix changes, and we have a significant amount of CDs maturing in the third quarter. Currently, our CDs are coming on at about the same rate as maturing CDs, but industry competition could also change. Taken together our net interest margin should be flat in the third quarter plus or minus 1 basis points to 2 basis points. Moving to Page 11. Noninterest income was relatively flat, excluding MSR write-ups in both quarters. Better service charge income offset lower other fees and mortgage was relatively flat. Mortgage volume was higher due to seasonality and our mortgage production continued to be predominantly fixed rate that we sell into the secondary market, generating fewer loans for the balance sheet.

Our gain on sale of SBA and Navitas loans was down slightly compared to last quarter. We decided to sell fewer Navitas loans in the quarter to partly offset the soft loan demand at the bank. Our wealth management revenue was $6.4 million in the second quarter, up slightly from Q1, and I will direct you to Page 16. On an ongoing basis, we review all of our business lines and we underwent a study of our wealth businesses and how they fit together. We concluded that our retail, trust and insurance businesses have a great interconnection with the bank and bank customers, and we are a great long-term fit. While our registered investment adviser, FinTrust was not. We also found growing FinTrust was expensive and generally would require capital to buy advisers and their books at relatively high prices.

At that time, we decided to invest in and grow our private bank, trust and retail businesses and to sell the RIA. And we signed a contract to sell it in June to another large private registered investment adviser. While the deal will not close until the third quarter, most likely we wrote down some of the goodwill associated with FinTrust by $5.1 million. For the second quarter, FinTrust was in our numbers and accounted for 44% of the AUA but only accounted for one-third of the wealth management revenue. FinTrust contributes about $2 million of fees per quarter. Its expenses are roughly equal to its revenue, so the sale will not impact EPS going forward. Back to Page 12. Operating expenses came in at $140.6 million up just $200,000 from Q1.

We had our annual merit process that moved expenses higher and we also had higher health insurance costs, but this was offset by lower other expenses including lower incentives and lower fraud losses. Moving to credit quality. Net charge-offs improved to 26 basis points in the quarter with the bank being very low at just 15 basis points. Our NPAs were up slightly. Our breakout of Navitas losses are on Page 19. Navitas losses were improved at 1.42% and Navitas losses, excluding long-haul trucking were 1.01%, which was also just slightly improved and we are putting on new loans in the 10.5% range. I will finish back on Page 14 with the allowance for credit losses. We set aside $12.2 million to cover $11.6 million in net charge-offs and our ACL increased slightly in the quarter and is up year-over-year.

With that, I will pass it back to Lynn.

Lynn Harton: Thank you, Jefferson. Before we take questions, I’d like to add to Jefferson’s comments on our decision to sell our registered investment adviser, FinTrust. Several quarters ago, I asked Melinda Davis Lux, on my team to review our various wealth related businesses and develop a more comprehensive strategy. In that process she interviewed and spent time with multiple external resources, team members of our different wealth businesses as well as our frontline bankers. As a result of that review and under her leadership, we began to execute on building a more integrated wealth strategy. We want a bank-centric model designed to be understandable to bankers and deepen our relationship with clients. We want to minimize internal competition and conflict, and we want the business to be scalable and profitable.

The development of this more focused strategy led to our decision to sell FinTrust. While we recognize a small loss this quarter in doing so in the form of a goodwill write-down, it will be capital accretive upon closing in the third quarter and will have no impact on our ongoing net income. Additionally, I believe the FinTrust team will be more successful individually within a dedicated RIA business. I appreciate Melinda’s leadership on this and I’m excited about the outstanding leadership team she has assembled to drive this business. As we move forward in ’24, we will continue to sharpen our focus on execution throughout the company as we build a great bank with the incredible teammates we have here at United. And now we’d like to open the floor for questions.

Operator: [Operator Instructions] The first question comes from Stephen Scouten with Piper Sandler. Please go ahead.

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

Q&A Session

Rich Bradshaw: Good morning Stephen. This is Rich. With regards to Q2 results, as you know, high interest rates credit tightening and election uncertainty kind of dampered owner and sponsor’s confidence. We do see that improving a little bit. I’ve spent time talking to each state President as well as all the senior credit officers individually as well to see what activity looks like going forward. And right now, it does look like it’s picking up in Q3 as compared to Q2 and as well as more optimism even in Q4. So we’re feeling better about continued loan growth throughout the year. And in terms of products we see CRE starting to come back a little bit. Because it is been flattened, we’ve seen a lot of tapering of that product over the last year.

It is starting to come back a little bit. In the secondary markets, they are coming back as well. And then where we’ve got a lot of focus on owner-occupied CRE and have some specific specials on that and that’s performed very well for us.

Stephen Scouten: Okay. Great. That’s helpful color Rich. Thanks for that. And then if I could just dig into the NIM for a second. You guys noted the stability — relative stability around funding costs, but it also looked like loan yields jumped quite a bit. And I was wondering if there was anything maybe unusual there or any sort of the maybe non-accrual loans that were moved off the balance sheet, if that had a larger impact. And just kind of what you think — I know you said maybe flat quarter-over-quarter, but how you think about those funding costs and loan yields moving forward, specifically?

Jefferson Harralson: All right. Thanks, Steve, for that question. Nothing really unusual there. You did get the benefit from the higher loan accretion, which helped. I do think you are going to see maybe kind of 6 to 7 basis points increase in loan yield just from back-book repricing and then putting on new loans at [850] (ph). The cost of funds is a little — and some of it is going to be our decision to — whether we sell Navitas loans or keep Navitas loans the more we keep the more it can help that loan yield. That helped us a little bit this quarter. The cost of funds is a little different. Our actual June 30 cost of funds was a little lower than the first quarter average which gives some optimism to the third quarter. But at the same time, we have a very significant amount of CDs repricing.

A lot of banks have a lot of CDs repricing, so it is hard to tell exactly what this new money is going to come in at. But taken together, like I said in the prepared remarks, flat is probably a good for your model. But if there is some optimism, it could be better if it plays out like our current strategy has it. But I think flat is a good number given the uncertainty of some of our strategies.

Stephen Scouten: Got it. Okay. Great, I’ll let somebody else. Thanks for the color guys.

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

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

Lynn Harton: Michael, this is Lynn. I’ll start and Jefferson can add in. Our goal we sat down earlier this year and said look as a team, let’s figure out a way to hold our employee expenses flat if we can. That was the challenge I gave them as we move through the year, all the — at the same time, knowing that we’ve got to invest in growth, just like you mentioned. I think we are able to do both those things. So we just completed a review of positions where we believe we had excess capacity. Some of it is because of volume declines in some areas, some businesses, some technology improvements, frankly and some other areas where we put in and just — and always anticipated reducing employment in those areas because of those improvements.

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

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

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

Jefferson Harralson: Yes, for sure. So we are kind of budget positive operating leverage every year, and we are going to do what we need to do to generate some. It is not easy every year. But — so — but I think we’ll have loan growth, we will have customer growth. I think we will have some mortgage growth last year. I think we’ll have growth in our core businesses and our design will be to keep our expense growth lower than our revenue growth every year, but I think that’s going to be doable in 2025 as well. And I’ll pass it over to Rich for some comments, too.

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

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

Lynn Harton: Sure, Michael. This is Lynn again. So I would say we are in an open but conservative posture on M&A. I don’t feel like we have to do M&A. And frankly, there has been some positives to the slowdown that we’ve had, particularly in the ability to focus on some project work. But what we are seeing is, of course the math is getting better on M&A on — particularly on rate marks, they’ve improved through time and a little bit of rate moderation. You still got some marks on credit, particularly commercial real estate, the banks that we tend to look at tend to be smaller banks, and they tend to be commercial real estate heavy. So that’s a little bit of a headwind. It’s been interesting too to really look at the value of individual deposit franchise of the banks that we’re looking at because we have seen several recently that are — they are considering selling and some are better than others.

So our focus is on franchises we think will give us the opportunity to be additive with additional products, balance sheet where we can bring new talent in. Based on what we are seeing, we think we’ll see a number of those opportunities in the coming quarters and hopefully be able to execute on a small number of the best of them. And the deals we do, we really don’t worry about the regulatory side just because it being smaller. But it is going to be interesting to see what — what the political and regulatory world looks like in post-November for sure.

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

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

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

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

Jefferson Harralson: Right. So I think if you look at the back book we’re adding, put that together it’s probably 6 basis points to 7 basis points a quarter of additional loan yield.

Catherine Mealor: All right. Great. Thank so much. This is all I got.

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

Gary Tenner: Thanks good morning. One quick question on my end. Jefferson you mentioned a couple of times kind of the prospects of CD repricing in the third quarter as a potential headwind. Just wondering if you could detail the amount and rate of CDs that got mature in the third quarter.

Jefferson Harralson: Yes. Thanks, Gary. Great question. We have about $1 billion of CDs maturing this quarter. They’re maturing at about [420] (ph). Right now they’re coming on at about 420, so there’s some optimism that the headwind of CDs has — is already fully realized. But it’s such a — it’s a large amount that it’s hard to forecast. And then again, other banks also have a lot of CDs maturing as well. So we have some conservatism built in our forecast for that to move a little bit higher. Right now it is not. So again, we have — maybe there’s a little conservatism in the forecast, but right now, it’s 420 compared to 420. So it’s a — it’s not giving us a headwind to our margin. But we think it very well could give the amount and what we’re seeing from other banks.

Gary Tenner: Okay. I appreciate that. And actually, while we’re on that topic, could you give us the fourth quarter maturity schedule as well with rate?

Jefferson Harralson: It is roughly $1 billion. I need to get — it might be a little plus or minus, I need to come back to you with that, but it’s also a very large quarter.

Gary Tenner : Thank you very much.

Operator: Our next question comes from Russell Gunther with Stephens. Please go ahead.

Russell Gunther: All right. Good morning guys. Following up on the margin discussion, you guys also saw a nice lift in the security field. Could you just remind us about what that cash flow looks like coming due over the next couple of quarters and where you’d expect those yields to trend?

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

Russell Gunther: Got it. Okay. And then just to clarify the expectations for the 6 basis points to 7 basis point pickup in loan yields that assumes a similar level of Navitas loan growth going forward. Is that what’s kind of contemplated in that guide?

Jefferson Harralson: That’s correct. That’s correct.

Russell Gunther: Okay. Excellent. Thanks. And then with the comments made around the conservative approach to credit, the more cautious stance and then moving some problems out. Could you just provide a little more color about kind of where within the loan book, you’ve got that increased incremental conservatism?

Rob Edwards: So this is Rob. I’ll take that, I guess. The — really what has happened and I — on a couple of points is in the commercial real estate space, we’ve seen two things. One is we’ve reduced our appetite for speculative type lending. And so I think in the past, maybe there might have been some warehouse loans that you might have done speculative and going forward, we just said that’s — we’re not in that market. In addition to that, not only us, but also the sponsors in the multifamily space have looked at some of the building going on. And so we’ve increased our vacancy assumptions in the underwriting process and of course, the higher rates are impacting the underwriting process and all of that requires more cash equity. And so really, it’s in the commercial real estate investment space that we have just tightened up around the underwriting aspects, interest rates, vacancies, speculative nature, some of those aspects.

Russell Gunther: Okay. Great. Thank you for that. And then last one for me guys, just an update in terms of your sort of near-term net charge-off expectations, both within Navitas and then the core bank. Thank you.

Rob Edwards: Yes. So this is Rob. So I’ll start with Navitas and then move to the overall bank. On the Navitas side, we do expect charge-offs to continue to come down. We’ve seen over the road trucking was kind of the big story certainly in the fourth quarter, and that has come down — came down in the first quarter, it came down again in the second quarter to $1.7 million of their $5.5 million of net charge-offs. So I expect it to come down a little bit in the third quarter and more in the fourth quarter, leveling out in the 1% annualized range. So that’s Navitas. On the bank side — so it’s been right around $6 million and in that 15 basis point range, and I would expect it to remain relatively stable going forward.

Russell Gunther : All right. Great. Thank you guys for taking my questions.

Operator: The next question comes from Christopher Marinac with Janney Montgomery Scott. Please go ahead.

Christopher Marinac: I want to continue on the credit line of thinking for Rob. Could you just talk about the sort of inflows and outflows on the — both special mention and substandard. Do you see paths for upgrades? Are there future downgrades? Just kind of curious on the movement this past quarter.

Rob Edwards: Yes. So we’ve seen a fair amount of movement. We see payoffs, we see upgrades. I will give you 2 examples, I guess, one was a senior care credit that we had that we got paid-off on during the quarter. That was a special mention credit. And we are seeing a fair amount of movement in that space, at least an interest coming back in the senior care space. And then one of the credits we had, we upgraded was a C&I credit that I think got caught with some contracts that were — didn’t have the appropriate adjustments in them. And of course, labor costs went up and that was a special mention credit, and we were able to upgrade that credit. They figured it out and some got their contracts reworked and company back performing very well. And so you just see a variety of those types of either payoffs or upgrades. There is quite a bit of movement and really opportunity in the space.

Christopher Marinac: Great, Rob. That is helpful. And just a follow-up. Thanks for the disclosure in the slides on both office and multifamily. The level of criticized loans on both of those, those already reflect your stress testing for debt service coverage and some of those machinations in the past 6 months. What I’m asking is — because it would seem to me that the risk of those changing a lot is probably pretty low at this point.

Rob Edwards: Yes. So it does. We — I think I mentioned last quarter that we do go through a stress test for interest rate change on the credits. CRE credits over $1 million maturing in the next 12 months, and we do regrade those credits based on how the — how the debt service works out at the new interest rate. We did have several downgrades last quarter as a result of that. And some of those credits, we do place in management watch. So they might not be in special mention or substandard. If there is some time and opportunity for them to rework some of their leases, then we would give them the opportunity to do that before we downgrade them. So there — there could be some more downgrades, but I think like you said earlier, we are just seeing a lot of opportunity to move credits in and out of special mention through a variety of avenues.

Christopher Marinac : Great. Thanks for all the background today. I appreciate it.

Operator: Our next question comes from David Bishop with Hovde Group. Please go ahead.

David Bishop: Yeah, good morning. Thinking about that — that topic, the credit topic, I think you alluded to the fact that one of the senior care criticized loans paid off this quarter, there’s a pretty big waterfall over the next, I guess, six months and a lot of that substandard or special mention. What’s the thinking there? Do you think they’ll continue to resolve? Just curious how you’re going to manage that — that waterfall maturities? Thanks.

Rob Edwards: Yes. So we do continue to look for payoffs and upgrades of credits. We have – there is probably, I think, 18 credits overall that we are watching, four of those credits are in nonaccrual. And we have resolution strategies on all four of those credits that seem reasonable and would likely bring an exit. We are being patient in the portfolio. It feels like — my belief is that the long-term demands, population demographics that existed that created the — all of the construction in this space still exist, and there still is demand. It took a big pause during COVID, but we’re still seeing properties and people that are in need of this type of service and I think the demographics support it. So we are being patient, but we are encouraging payoffs and additional resolution strategies.

David Bishop: Got it. And then one final question, circling back to the commercial real estate, I appreciate the slide against the concentration. Just curious is there an appetite to grow that closer to the — the [250] (ph) range. There’s obviously a [205] (ph), there’s some room to move up. Just curious maybe at comfort level how hard to bring that ratio. Thanks.

Rob Edwards: Yes, we are comfortable. There is a variety of products in the commercial real estate business. We’ve listed out some. So we would be more comfortable doing some more warehouse that has long-term leases associated with it. We are being selective, particularly around markets and underwriting on the multifamily space. The retail segment appears to be strong. We continue to look at some grocery anchored tenant properties where the anchor basically handles the debt service. And so we think there is some opportunities, but being strategic about the specific property type that we approach.

David Bishop: Great. Appreciate the color.

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

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

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