United Community Banks, Inc.

Good morning and welcome to United Community Bank's first quarter 2022 earnings call. Hosting the call today are Chairman and Chief Executive Officer Lynn Harten, 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 first quarter's earnings release and investors' 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 pages 5 and 6 of the company's 2021 Form 10-K, as well as other information provided by the company in its filings with the SEC and included on its website. At this time, I will turn the call over to Len Harten.

Good morning, and thank you all for joining our call today. The first quarter was a great one for United and certainly an interesting one from a more macro perspective. Our results this quarter include the acquisition of Reliant. And as a reminder, Reliant provides us with $3 billion in exposure to Middle Tennessee, primarily the Nashville MSA. Reliant has been recognized as the best-performing small bank in Tennessee for several consecutive years, and we're excited and fortunate to have them as part of our team and our ongoing performance story. The normal double-dip acquisition loan loss provision for Reliant impacted our reported results as noted in the release in the presentation deck. Absent this provision and other merger charges, our operating return on assets would have been 1.1% and our return on tangible common equity would have been 13.9%. Both solid numbers we're proud to present. We continue to see strong loan and deposit growth. Deposit growth despite flat deposit cost, was almost 7% annualized on an organic basis, excluding the impact of Reliant. We experienced one of our best organic loan growth quarters at over 9% annualized, again, excluding the impact of Reliant and PPP. We expect to continue to take advantage of the strength of our markets and ongoing large bank merger disruption for the foreseeable future. Beyond the quarter, I continue to be very optimistic Yes, inflation is a concern, but I'm also reminded that real GDP growth has been very strong and is now back up above pre-pandemic levels. And our markets in the southeast are outperforming the country as a whole. Increasing interest rates bring both opportunities and challenges, depending upon the pace and scale of increases. I believe the economy is strong enough to withstand the type of rate increases the market is currently predicting. And actually, rate increases in those amounts should be healthy for the economy long term. While we are continuously scanning for the first signs of credit stress, we have not seen any weakness to date and are confident in our underwriting and approach to concentration management, regardless of how the environment develops. Finally, we continue to be excited about our culture and mission. Last week, we completed our annual Spring Leadership Conference, bringing together about 200 of our leaders across the company for a two-day event focusing on the future of the industry and our own future. And I can tell you that group is as excited and as connected as I have ever seen them. So, Jefferson, now why don't you give us more detail on the quarter? There are more moving parts this quarter than normal, and I know our audience will appreciate your view on our performance and outlook.

Thank you, Len. I am going to start my comments on page eight and talk about what we believe is one of the core strengths of the company, and that's the deposit franchise. The mix is attractive with 38% of the deposits being DDA and is also 92% non-time. Plus, we grew core transaction deposits by $478 million in the quarter. We're at a 13% annualized pace while keeping the cost at six basis points of total deposits. Another key piece of our strategy and culture can be seen on page nine with a look at our loan portfolio. The portfolio is CNI heavy. very diversified, and very granular. Adjusted for the Reliant deal and the Reliant-related loan sale, we had our strongest loan growth in some time at 9.4% annualized. The strong loan growth was driven by C&I and commercial construction, and we are optimistic about the growth prospects for the rest of the year. On page 10, we saw some nice margin expansion this quarter, which we will talk about in the next pages, but we really have a nice medium to long term opportunity to remix our assets and some of this came to pass in Q1 with some help from Reliant. Our loan to deposit ratio moved to 68% from 64% and our loans to asset ratio moved to 59% from 56% as our cash to assets ratio moved to 8% from 11%. All the beginning of a trend that should help our profitability over time. On page 11, our capital ratios came in as expected with the Reliant deal closed, and we are now right in line with our peer group. Our TCE intangible book per share were down with a sharply higher rate environment and the corresponding decrease in OCI. Given our balance sheet flexibility with the low loan to deposit ratio, we moved about a billion dollars of our securities to the held to maturity classification this quarter, and specifically the held to maturity to total securities moved to 38% of the portfolio from 20%. There were no buybacks in the quarter, but we do have a $50 million authorization in place. Moving to page 12, we have a good story in our spread income and net interest margin this quarter. Our net interest margin was up 16 basis points But excluding PPP fees and loan accretion, the core net interest margin was up 24 basis points. Of the 24 basis points of core margin expansion, 15 basis points came from blending in the higher margin reliant into our numbers, and another nine came from putting excess cash to work and other mixed change improvements along with higher rates. We can talk about asset sensitivity, too, in the Q&A, but we do benefit significantly from higher rates. With the speed and size and energy of the expected rate hikes, it's hard to estimate deposit betas, but given our high level of cash, our low loan-to-deposit ratio, and the quality of our deposit base, we believe we are as well positioned as anyone for higher rates. On the next page, page 13, we take a closer look at fee income that was up $1.8 million quarter-to-quarter. and was benefited by a $6.3 million MSR gain and the Reliant numbers coming in, and was offset by $3.7 million in securities losses. Excluding MSR gains in both quarters and Reliant, mortgage was down $1.2 million in the quarter, even as we had increased lock volume. Locks moved up 9% to $757 million in Q1. And this was offset by a decrease in the gain on sale as the gain on sale percentage moved back to pre-pandemic levels. Our purchase to refi mix was 63% purchase, 37% refi. Excluding Reliant, our service charge income was down about $1 million in fourth quarter, which was in line with our estimate when we put in the new fee schedules in November. next to expenses on page 14, which is a good story, as we improved our operating efficiency in a quarter to 53%. Reliant, of course, came into the numbers for the first time. It's hard to tease out the components exactly, but we benefited from legacy UCBI expenses being down versus Q4 on an absolute basis by about $3 million, partially due to getting the full impact of the AQUESTA cost savings. We also got half or a little more of the Reliant cost savings which leaves us with about $2 to $2.5 million to go as the conversion is happening later this month. Page 15, we had another good quarter with regards to credit quality, with net charge-offs of $3 million, which is eight basis points of loans annualized. While we had $3 million of net charge-offs, we had $23 million of loan loss provision, and along with reliant PCD marks, this increased our reserves by a good $35 million. Of the $23.1 million provision, 18.3 came from the Reliant double dip, and the remaining $4.7 million was mostly due to a worse economic forecast going into our CECL model. On page 16, you see we have generally improving trends in special mention and substandard accruing loans, with NPAs just slightly higher. We remain optimistic about credit in 2022. And finally, on the next page, page 17, you can see the movement in our reserve that moved to 1.02 percent of loans from 97 basis points with the benefit of reliant and court provisioning that was in excess of net charge-offs. All said, we are encouraged by the strong loan growth and the margin expansion and the efficiency improvement and look forward to the rest of 2022. And with that, I'll pass it back to Len.