United Community Banks, Inc.

Good morning and welcome to United Community Bank's second quarter 2024 earnings call. Hosting our 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 second 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 for joining our call today. We were pleased with our performance this quarter. On an operating basis, our earnings per share of 58 cents 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 discipline 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 gap 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 remain solid and stable. Net charge-offs were 26 basis points, down slightly from 28 basis points last quarter. Equipment finance charge-offs continued 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 three basis points this quarter compared to eight 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.

Thank you, Lynn, and good morning to everyone. I am going to start my comments on page 60. 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 three basis points in the quarter to 2.35%. We turn to our loan portfolio on page seven. Loans 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 wider 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 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. We believe 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 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 gap 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 seven basis points in the first quarter to nine 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 one to two basis points. Moving to page 11, non-interest 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 fell 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 a 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 were a great long-term fit. while our registered investment advisor, FinTrust, was not. We also found growing FinTrust was expensive and generally would require capital to buy advisors 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 advisor. 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 of just $200,000 from Q1. We had our annual merit process that moved expenses higher. 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 Len.