United Community Banks, Inc.

Good morning and welcome to United Community Bank's second quarter 2020 earnings call. Hosting the call today are Chairman and Chief Executive Officer Lynn Harton, Chief Financial Officer Jefferson Harralson, 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 highlight 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 earnings release and investor presentation were filed last night on Form 8K 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 page 3 of the company's 2019 Form 10-K, as well as other information provided by the company and its filings for the SEC and included on its website. At this time, I will turn the call over to Lynn Harton.

Good morning, and thank you all for joining our call. The second quarter continues to be strongly influenced by the effects of COVID-19, as you would expect. Significant growth in deposits driven by stimulus funds, client reactions to the economic environment, and new customer acquisition on the heels of the PPP program all have combined to drive our balance sheet over the $15 billion mark ahead of our acquisition of Seaside, which closed July 1st. Our EPS this quarter came in at 32 cents, 8 cents below the first quarter, and 23 cents below the second quarter of 2019. The primary driver of that decline was continued reserve building. as we increased the reserve by more than $27 million during the quarter, reaching 1.28% of total loans excluding PPP loans. Our pre-tax, pre-provision income was actually up $2.7 million over the first quarter and up $5.1 million from the second quarter of 2019. Due to the reserve building and the low margins on the significant increases in our investment portfolio, our return on assets dropped to 71 basis points for the quarter. Given the uncertainty in predicting where the health crisis takes the economy, our focus is on the things that will enable us to withstand whatever size credit storm materializes and also on those things that will put us in a position to succeed once we have more clarity on the operating environment. From a financial perspective, we outline those items on slide five. Our capital and reserve position is strong, ranking in the top quartile among our KRX peers in the first quarter. Our pre-tax, pre-provision ROA is also strong, ranking in the top 20% of our KRX peers in Q1. We have significant liquidity, driven by one of the best and lowest cost core deposit franchises in the Southeast. So financially, we believe we are well prepared. We're also in some of the best markets in the country, which we believe will both perform better during the COVID recession and will also rebound faster once the pandemic ends. As you can see on slide six, we now have a presence in 13 of the fastest-growing MSAs in the Southeast. And while the slide doesn't show it, our ability to support that growth is supplemented by strong shares in some very stable rural markets within our footprint. We're also proud to have taken steps to support our communities by establishing a United Community Bank Foundation this quarter. We funded the foundation with $1 million, and we look forward to helping deserving causes and organizations throughout our footprint. But the real strength of United is our team. During the second quarter, they set a new record in loan production. They welcomed nearly 4,000 new customers to United. And while doing that, they were recognized by J.D. Power for having the highest level of retail customer satisfaction in the Southeast. And that's the fifth time in the last six years they were recognized in that fashion. I couldn't be more proud of this team. And for those of you that are listening, I couldn't be more fortunate than to be here working alongside each one of you. I'd like to now turn it over to Rob and Jefferson for more details on the quarter.

Thank you, Lynn, and thank you for being on the call today. I'm going to start my comments on page seven. During the quarter, our loan portfolio grew by $1.2 billion. Now, $1.1 billion was PPP loans and $103 million in normal loan growth. That amounts to a 5% annualized pace. While our growth came in the owner-occupied and investor CREE categories, our 100-300 ratio still remains very low at 72 and 197, respectively. Moving on to credit quality on slide eight, our net charge-offs were improved from last quarter at 25 basis points. The losses this quarter were primarily driven by two credits. These credits were already struggling pre-COVID and had been rated substandard for the past year. However, the additional stress from the COVID environment did push them over the edge. On page 9, we show a deeper dive for you on the Navitas credit portfolio. The Navitas loan book represents 7.5% of our total loan book. We had a normal amount of charge-offs in the second quarter at 87 basis points. Navitas is a national business making loans for the specific purpose of purchasing equipment and software for the expansion or the improvement of small businesses. As of June 30th, there were about 31% of Navitas loans in deferred status. On the right side of the page, you can see the five largest business categories and the deferral amount within each of those categories. In the Navitas deferrals, we ask for at least a modest monthly payment or what we call a touch payment. And we are getting these touch payments from nearly all or 98% of our deferred loans. It's important to keep in mind that the standard process for loan payments at Navitas is to be on an automated ACH draft. So since June 30th, we are seeing many of these 90-day deferrals coming off of their deferral period and starting to make full payments. Specifically, the July 10th billing cycle has $49 million in formerly deferred loans where a full payment is now due. We have received a full payment on $44 million of those deferred loans. or on a percentage basis, 89% of the formerly deferred loans with payments due on July 10th have now made full payments. While we do not know if this trend will continue, we are encouraged by the amount of Navitas customers going back to making full payments. On page 10, The loan deferrals in total were $1.8 billion as of June 30th. This does include the Navitas deferrals that we just talked about from the prior page. The majority of the bank deferrals will be expiring in July, and we are working closely with the customers to assess the impact of last quarter's economic environment and the return to full payment, or possibly if a second deferral is warranted. We have some optimism that the deferrals at United and the Vitas will be down significantly in Q3. But there is a lot of uncertainty as communities and businesses go through the reopening process. On page 11, we included the same information as we did last quarter on the hotel and the restaurant exposures. Each portfolio remains at about 3% of our loan book Excluding PPP loans. Specifically on hotels, we have studied the top 65% of the portfolio, about $230 million in commitments. Our underwriting typically yields a break-even at 50% occupancy. We have $58 million committed that are under construction and $175 million in operating properties. The weighted average occupancy of the operating properties as of June 30th was 48%. We have been told that occupancy rates are climbing and we do plan on continuing to closely monitor this portfolio. On page 12, we look at the reserve and the reserve building that we did during the quarter. The allowance to credit losses increased by $27 million and is now at 1.28% of loans, excluding the PPP loans, and up 77% from year-end in dollars. We do expect the allowance to build next quarter as a result of the double-dip provision from the Seaside acquisition that occurred on July 1st. With that, I'll pass it over to Jefferson.