United Community Banks, Inc.

Good morning and welcome to United Community Bank's fourth quarter 2024 earnings call. Hosting our call today are Chairman and Chief Executive Officer Lynn Harton, Chief Financial Officer Jefferson Harrelson, President and Chief Banking Officer Rich Bradshaw, and Chief Risk Officer Rob Edwards. United's presentation today includes references to operating earnings, pre-tax, pre-credit earnings, and other non-GAAP financial information. For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlights section of the earnings release as well as at the end of the investor presentation. Both are included on the website at UCBI.com. Copies of the fourth quarter's earnings release and investor presentation were filed this morning on Form 8K with the SEC, and a replay of this call will be available in the investor 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 10K, as well as other information provided by the company and 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 were pleased to report earnings of 61 cents this quarter and $2.04 for the full year. On an operating basis, we recorded earnings of 63 cents for the quarter and $2.30 for the year. This represented an annualized growth in operating earnings of 11% from last quarter and an increase of 9% for the full year of 2024 compared to 2023. Our tangible book value increased 9% year over year and had a 7% annualized rate during the fourth quarter. Our operating return on assets reached .08% in the quarter, and we finished the full year at 1.02%. Our operating return on tangible common equity increased to .1% for the quarter and .4% for the full year. There was no single driver of performance this quarter. Rather, we recorded strong, balanced performance across all of our businesses. Loan growth accelerated at the end of the quarter, reaching a 5% annualized growth rate with several different product types contributing. Deposit growth totaled almost 4% annualized during the quarter, with seasonal growth and public funds driving those results. As the Fed lowered short-term rates this quarter, we were able to decrease deposit costs by 15 basis points, nearly offsetting the 21 basis point decline in loan yields. Our overall margin was down 7 basis points, but net interest revenue increased by 1.1 million over the previous quarter. Credit continues to reflect solid economic conditions in our footprint. Total net charge-offs were 21 basis points, our lowest rate since Q2 of 23. Other credit metrics were also stable at low levels. Expenses were well managed, essentially flat with the third quarter. Our operating efficiency improved to 55%. We continue to have ample liquidity to fund growth and are looking forward to our opportunities in 2025, including the expansion of our South Florida footprint with American National Bank. Jefferson, why don't you cover the quarter in more detail now?

Will do. Thank you, Anne, and good morning to everyone. I'm going to start on page 5 and lead off by talking about deposits. We enjoyed $213 million of deposit growth, or .7% annualized. We had stable DDA, and we had the benefit of seasonally strong public funds. The strong deposit growth funded substantially all of our loan growth in the quarter. We were proactive in lowering our deposit costs. Our cost of total deposits improved by 15 basis points in the quarter. We have a total deposit beta of 22% so far, but we believe we are still on pace for a high 30% range total deposit beta through the cycle. On page 6, we go into some more detail on deposits. In particular, we show our opportunity to reprice CDs here in the first quarter. We have been shortening our CD book over the past year, and we have a significant amount of dollars maturing in the first quarter. Specifically, we have over half of our CD book maturing, which is $1.8 billion at 4.14%. We should be able to reprice these in the 350 range, given the current environment. On page 7, we turn to the loan portfolio, where growth picked up nicely, specifically in areas that we are targeting. We had 13% annualized growth in CNI, which includes owner-occupied CRE, and 15% annualized growth in the NVIDIS book. We have also been targeting our HELOC product for growth, and we were pleased with 20% annualized growth in that area. Turning to page 8, where we highlight some of the strengths of our balance sheet, we have a small amount of wholesale borrowings and very limited broker deposits. Our -to-deposit ratio stayed at 78% in Q4 after moving down from the 80% level with the sale of our manufactured housing portfolio in Q3. Our CEP1 ratio remained over 13% in the quarter. On page 9, we look at capital in more detail. We had increases in most of our regulatory capital ratios and our TCE, and all of our capital ratios remained above peers. If you recall last quarter, we took the opportunity to call a small amount, or $8 million, of trust-referreds that saved some money and helped the margin. We took a similar action in the fourth quarter, redeeming $60 million of subordinated debt. This debt was about to slip from the low 5% range to the low 8% range, so it saves us about $1.8 million in 2025. It was also just beginning to lose Tier 2 capital treatment. The redemption moved our capital ratio down by about 30 basis points, and the total capital ratio ended up down 20 basis points in the quarter. The redemption also generated a $2.2 million gain as the debt came to us in an acquisition and was marked on the books at a premium. This gain is called out on page 4 as a notable item. Moving on to spread income and the margin on page 10, we achieved 2% annualized growth and spread income. We were pleased with this outcome given the sale of the manufactured housing portfolio that negatively affected the average loan balances. Excluding the MH impact, we estimate that our spread income growth was in the -5% annualized range this quarter. The margin came in 7 basis points lower in the fourth quarter. The decrease was in line with our expectations and was explainable by the manufactured housing impact of 2 basis points and the mixed change due to public fund seasonality of 5 basis points. Excluding these two items, our margin was flat, which we view as a good outcome while we work on executing to achieve the high 30% total deposit beta as compared to the 22% achieved so far. Moving to page 11, on an operating basis, non-interest income was up $5.2 million from last quarter. The growth came despite a $1.6 million shrinkage in wealth income fees with the sale of our non-interest income on October 1. The total fee income increase was benefited by a $3.5 million MSR write-up and a $1.4 million realized gain on the sale of equity securities and was offset by $3.3 million in securities losses. Including the debt redemption gain I mentioned before, our run rate of non-interest income is closer to the $36 million range. Besides the highlighted items, we had strong results in debit card income, customer swap income, and treasury management fees that drove -to-quarter growth on a core basis. Our gain on sale of SBA and Navitas loans was similar to last quarter adjusting for the manufactured housing sale. Operating expenses on page 12 came in flat at $140.9 million. We had about $1.2 million of tail expenses from FinTrust that we expect not to repeat next quarter. Moving to credit quality, net charge-offs were improved to 21 basis points in the quarter. Recall that our net charge-offs excluding the MH sale was 28 basis points last quarter. Overall losses were lower. Navitas losses were a little bit higher and contributed 13 basis points of total losses up from 12 basis points last quarter. Excluding MH and Navitas' losses, the bank's losses were low and stable at just 8 basis points down from 15 basis points last quarter. In other credit statistics, NPAs and past dues were improved while special mention and substandard loans moved slightly higher. We'll finish on page 14 with the allowance for credit losses. Our loan loss provision was $11.4 million in the quarter and more than covered our $9.5 million in net charge-offs. We also covered loan growth with the provision and the reserve stayed stable at .2% of loans. We still have $9.9 million of reserves set aside as a special provision for loans in a county area in North Carolina for Hurricane Helene. We already had $3.1 million in reserve on these loans before so the total reserve is $13 million on these loans in the nine counties or .5% of total loans there. Our update is that we have $27 million in storm-related deferrals, 18 million of which occurred in the nine-county area where we have the special reserve. We believe that our current provision is sufficient to cover any potential losses. With that, I'll pass it back to Lynn. Thank you, Jefferson.

Before we open for questions, I want to give a special welcome to Ginger Martin and her team at American National Bank. It has been a pleasure getting to know them and I'm very confident they will be an outstanding addition to our South Florida team. I'm also glad to welcome Matthew Bruno as our new leader for our Miami operation. Matthew is a 25-year veteran of the market, well-respected, and is already making a tremendous positive impact on our business there. And finally, I want to recognize that 2025 is United's 75th anniversary. We plan on making it a great year and we look forward to sharing that with you. And with that, I'd like to open the floor for questions.

Thank you. We will now begin the question and answer session. To ask a question, please press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Michael Rose with Raymond James. Please go ahead.

Hey, good morning, everyone. Thanks for taking my questions. Maybe just wanted to start on loan growth. It was really good to see the CNI growth. Just wanted to get some color around what drove that. Was it increased utilization or was it just market share gain? And then just as we kind of contemplate, you know, 2025 and an outlook, you know, I would think there would still be some headwinds in some of the portfolios like senior care and multifamily. But it does seem like, you know, some of the CRE and CNI categories could be some tailwinds, particularly if the economy performs. So if you can just kind of give some color there, I'd appreciate it. Thanks.

Good morning, Michael. This is Rich. For the Q1 forecast, we're expecting a similar quarter to Q4 or slightly better. Some of the drivers, business owner confidence is certainly up. Pipelines are very strong. Talking with the credit officers, their throughput, they're seeing more deals than they've ever seen. And I feel like our new higher than growth initiatives have really paid off. Lastly, I want to point out that Florida led the bank in Q4 loan production, followed by North Carolina and South Carolina. Last quarter, that was Tennessee. So for two quarters back to back, the new markets have been leading the banks. We're very pleased with that. In terms of other drivers, you're right, CNI was up 20%. Equipment finance up 15%. Income producing CRE, 9.5%. And we're very pleased that owner occupied CRE, which is a real big initiative for us at the end of the year, was up 9%. In terms of 2025, we're very optimistic. It's probably too early to talk numbers for the year.

Okay. Helpful. And then Jefferson, appreciate all the color and the moving parts on the margin. Just as we think about some of the, you know, you lay out some of the loan repricing opportunities, but if you can just give us, you know, kind of some color on the repricing on the asset side and liability side and how we should expect the margin on a core basis to kind of trend from here. Thanks.

Yep. So I still think we're slightly asset sensitive if you were to bring the whole curve down. Now, you know, what's occurred here is a tilt that's actually positive for us with the steeper curve, but still with the rate cut, there's some timing elements until you get the lag of deposits to be priced back down to where we think our target for deposit betas are. So taking that together, we're all putting new loans on in the 7.25 range. If you look at December sort of pricing, so any quarter you don't get a rate cut, we should see a little bit of loan yield improvement from the back book repricing and the new loans coming on at .25-ish. We should get a little mixed change benefit in the first quarter with a slight ebbing of the public funds. Lynn had mentioned that we had the quarter loan growth was late quarter, so we get the benefit and the average balances in the first quarter, which is nice. We expect good loan growth in the first quarter as well. So combine all that together, and I think we're five to ten basis points up on the margin in the first quarter. As you go into 25, I think you're going to see, again, you should see an improvement in the margin in any quarter. You don't get a rate cut. Even the ones you get a rate cut, I think we can go back and get that high 30s deposit beta in there and make it neutral over time.

I appreciate all that, Caller. Jefferson, very helpful. There may be just one final one for me for Lynn. Just as it relates to M&A, obviously the A&B transaction, nice addition to what you're building in South Florida. Can you just talk about what's changed in your mind since the election? It does seem like banks are going to be allowed to do maybe a few deals at once or per year. Any updated thoughts there and does what you're looking for potentially change under this new administration? Thanks.

Sure, Michael. First, we are very excited about American National. It's a small deal, very high quality just to tuck in. With that, we have always been very confident that we have the capacity and the ability to do one additional one. This year, in addition to American National, whether or not that happens, of course, depends on the opportunities that are out there. There's definitely been a pick up in conversations since the election. There's just a better environment overall for M&A. People are getting their balance sheets better understood and better taken care of. Of course, the approval side is anticipated to be better. Honestly, for us, the size deals that we've done up to 15%, which would put $4 or $5 billion as the top end. Those smaller deals that we do, we've not seen and wouldn't have anticipated any change. They've always been very easy to get approved. That part is not affecting us much, but I just think the general atmosphere is very conducive and we would certainly expect to see some opportunities during 25.

Great. Thanks for taking all my questions,

guys. The next question will come from Katherine Miller with KBW. Please go ahead.

Thanks. Good morning. Good morning. Just a quick comment on credit. Can you talk a little bit about your outlook for now that we've got manufactured housing out of the balance sheet, Navitas is a little bit higher, your core bank has just seen such low losses. Is there a way to think about what an appropriate level of provisioning or net charge off we should expect in this upcoming year?

Yeah, hey Katherine, it's Rob. The way I'm thinking about it is we had $58 million in charge offs in 2024. About 14 of that was related to manufactured housing either from regular charge offs before the sale or created by the sale. So that gets you down to 44 million. I'm kind of thinking about that as being a good number for the outlook for 2025 right now. Things feel very stable. So that's kind of the way I'm thinking about it for next year.

Okay, great. And then Jefferson, you mentioned that some of the other items and fees will come out. But as you think about the outlook, can you talk to us about your outlook for kind of

the next year? I'll start with that. I know Rich will have some things to join in there on the SBA side and mortgage really. Mortgage, well maybe I'll pass it to Rich first and then he'll come back to me on anything else. Maybe mortgage and SBA and then I'll come back with any other pieces of it. Sure,

in terms of, good morning Katherine. In terms of mortgage volume, the MBA is forecasting 10% down for 2025 and we're forecasting a similar type number. In terms of SBA, if you recall from last call, the SBA changed the regulations on when you can sell on a commercial construction loan, which we do a lot of in the SBA side. And so it's not changing the gain of sale, but it's just changing the timing when you're allowed to sell. And so that's all pushed out. So Q4 was lower and that's going to push into Q1 and Q2. So we're expecting a little bit better Q1 than we did Q1 a year ago.

And I'll throw in on the VEDAS. We had been selling this quarter, too, was in the $20 to $30 million range. I would expect that to be a little smaller, maybe the $10 to $20 million range per quarter next year, mainly because it's more profitable to hold it on the balance sheet. We have good capital and liquidity, so we might hold a little bit more there. Especially, too, as we think our overall loan growth is going to pick up, we have more room on the balance sheet to keep more of the VEDAS loans as well. So I would expect the seasonality to change on the SBA, like Rich said, and good growth there. Then I would expect VEDAS to be a little down on their loan sales in 25.

Great. Very helpful. Thank you.

The next question will come from Christopher Maranek with Jani Montgomery Scott. Please go ahead.

Thanks. I had a deposit pricing question. As you look at NMA, what's the likelihood of reprice those deposits on the front end? And is that an opportunity bigger this year than it had been in the past?

Well, I'll start. Len may have something to add in on there. It kind of depends on the bank you buy. We have some banks have great core deposits like ours, and the opportunity is not as big. Other banks that we see have very high deposit costs, and so we have the opportunity to use our liquidity to get that down. So we're seeing a flow of both of those, so it really depends on what bank comes across the trends on there. I will say, I'll add one more thing on there, is that every bank you see opportunity in the marks on the asset side. So the ability with our 13% tier one capital to absorb a loan mark or to absorb a securities mark and then have a higher margin coming out of it is very high. So I think M&A can really help you with the marks on the asset side, but it really is a bank dependent on the liability side. Well said.

Great. Thank you for that, Jefferson. And just a follow-up for Rob on NVIDIS. Is there the possibility for NVIDIS for losses to go down this year and kind of moderate from what we've seen?

Well, certainly on the -the-road trucking, we expect losses to moderate this year, right? So we started the year with a $44 million -the-road portfolio, and we're starting the year with a $26 million portfolio. So down pretty dramatically. And I would expect losses, you know, so we had $7 million, $7.5 million in losses on the -the-road portfolio in 2024, and I would expect that number to be closer to $4 million in 2025. So I think that will be a driver there on the NVIDIS losses.

Great, Rob. Thanks very much. I appreciate it.

The next question will come from Gary Tenner with DA Davidson. Please go ahead.

Thanks. Good morning, everybody. I wanted to ask Jefferson about the CD maturities. You mentioned, obviously, half of them in the first quarter, and then you've got another sizable slug in the second quarter. How are you thinking about kind of managing the duration of the renewals there from a regulatory perspective, really trying to get a sense of whether there will be another opportunity to work pricing down more over the course of the year as we move later into 2025?

Thanks, Gary. That's a great question. Typically, our most popular CD has been in the 11-month or 13-month or 12-month CD, and so historically at the bank it's been closer to an average of about a year out. With the expectation of rates coming down, we really shortened that. We made our best rate the seven-month, and we made it the four-month, and that's what's given us this opportunity here. As we reprice these, we are now moving at our pricing to be more equal or opportunistic at each price point. So what you're going to see is it's lengthening out of these CDs, and you'll see more growth in the 11-month, 13-month, 12-month CD. It'll take a little bit, but what you should see is a gradual lengthening of the CD book versus where it is now.

Thank you, Joliah.

This will conclude our -and-answer session. I would like to turn the conference back over to Lynn Harton for any closing remarks. Please go ahead.

Once again, many thanks for joining the call, for your interest. We look forward to continuing to be with you through the year. We expect it to be a great one. So take care and have a great day.

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