United Community Banks, Inc.

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 Hardin, 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 investor presentation were filed this morning 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 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 Harten.

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 52 cents. down one cent 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 one basis point on a gap basis, and up two 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, we're 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 that 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 three 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.

Thank you, Lynn, and good morning to everyone. I am going to start my comments on page six 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 eight 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 seven. 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 CNI, 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 seven, 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 eight, 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 nine, 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 a basis point on a gap basis, and up two basis points on a core basis. Our loan yield moved up nine 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 eight basis points in the fourth quarter to a seven basis point benefit in the first. Our net interest margin should be moving higher in Q2 of five basis points by our estimation, plus or minus one to two 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 costs. That said, we are still seeing mixed changes with DDA and savings shrinking and mixed 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 write-up, 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 mixed change towards fixed rate product, over 90% was fixed rate, that we sell and get more of the economics up front. 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 next 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 on 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 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 $12.9 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. Thank you, Jefferson.