United Community Banks, Inc.

Good morning and welcome to United Community Bank's third quarter 2024 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 third 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'll turn the call over to Lynn Harten.

Good morning, and thank you for joining our call today to discuss what we believe was a strong quarter. During the quarter, we had two unusual items that impacted our reported earnings. First, the sale of our manufactured housing portfolio, which we announced several weeks ago. As we mentioned then, it was a business that we had inherited in an acquisition and that we had made the strategic decision to exit. Given that decision, we believed it was best to sell the portfolio, which was both long-dated and heavily subprime, rather than continue to collect it over time. The sale resulted in a one-time loss of 18 cents per share, but should be neutral to earnings on a go-forward basis. The second unusual item was Hurricane Helene. We have several offices in western North Carolina, including eight in the areas that were most heavily impacted. We outline our loan and deposit balances in those most impacted North Carolina counties on slide five of the presentation. While it's too early to predict the exact impact of the hurricane, we felt it was prudent to increase our reserves on this $383 million portfolio to 3.5%. We will continue to track and report on these markets as we go forward. Our teams and the communities there are doing an incredible job of both taking care of each other and preparing to rebuild and repair the damage. Including the special reserve for Helene, our operating returns were strong for the quarter with a return on assets of over 1%. Capital continued to grow with our tangible common equity increasing by 53 cents per share or 11% on an annualized basis. Excluding the sale of manufactured housing, our loan growth was 1.5% annualized and customer deposits grew at a 5% annualized rate. Our margin was down, just slightly, quarter to quarter, but continues at a solid level of 333 basis points. Deposit costs were flat to the second quarter. Credit continues to be stable. Reported net charge-offs increased, however, as noted in the slides, that increase was due to the manufactured housing sale. Navitas losses improved slightly for the quarter, and the core bank, excluding Navitas and manufactured housing, had credit losses of 15 basis points. consistent with both the first and second quarters this year. We continue to have ample liquidity to fund growth, with our loan-to-deposit ratio at 78%, and essentially no broker deposits. Jefferson, why don't you cover the quarter in more detail now?

Thank you, Lynn, and good morning to everyone. I am going to start my comments on page six. Lynn spoke about the sale of our manufactured housing portfolio that closed on August 30th. We stopped originating loans in the third quarter of last year, and the sale came with an 18-cent loss that you can see impacted fee income in the quarter. In addition, while it did not affect earnings this quarter, we also charged off $11 million in manufactured housing loans as an estimate of the credit loss in the transaction, which was the equivalent of the amount of reserve we had already set aside for the portfolio. This $11 million of transaction-related net charge-offs takes our total net charge-offs from 24 basis points to 52 basis points and a quarter. The transaction slightly increased our regulatory capital ratios and slightly decreased our TCE and is neutral to EPS as we reinvest the proceeds. We do believe that the sale reduces our risk profile and allows us to reinvest capital in our other businesses going forward. Moving to page seven, we had a strong quarter in terms of deposit growth with 4.7% annualized growth. The growth came primarily in core transaction deposits as we benefited from public fund seasonality, which should continue into the fourth quarter. Our cost of deposits was flat at 2.35% in a quarter as we had been lowering rates on our promotional accounts to offset some negative mix change that occurred with small shrinkages in DDA and savings accounts. Moving to page 8, in the chart in the lower left, we highlight that we have been shortening our CD book this year and that 75% of our time deposits will mature within six months. We turn to our loan portfolio on page 9. Excluding the manufactured housing sale, loans increased by about 1.5% annualized. As mentioned in earlier quarters, our senior care book is in runoff and shrunk $38 million in a quarter, which hurt the run rate a little bit. We are optimistic that loan growth may be picking up some by looking at the increased activity in our loan approval meetings. Our commercial real estate exposure moved down on the whole in the quarter, with commercial real estate construction projects completing and with fewer new projects coming into the pipeline. Our loan book remains diversified and granular. Turning to page 10, 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. Our loan to deposit ratio moved down to 78% with the sale of the manufactured housing portfolio. And our CET1 ratio tipped over 13% in the quarter. On page 11, we look at capital in more detail. 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 nine basis points. We did take the opportunity in the quarter to call two small trust refers that totaled $8 million in size that lowered our capital ratio by four basis points, but took some expensive debt off the balance sheet. Moving on to the margin on page 12, the margin came in four basis points lower in the third quarter on a gap basis, and down two basis points on a core basis. Of the two basis points of core margin pressure, we estimated one basis point of that came from the sale of the manufactured housing portfolio. We had slightly less loan accretion in the quarter compared to Q2. Loan accretion went from a nine basis point benefit in the third quarter to a seven basis point benefit in the second. Moving on to page 13, On an operating basis, non-interest income was down $1.3 million from last quarter. That decrease, however, is more than explained with a $2.7 million MSR rate down in the third quarter, which was a $3.3 million negative swing from last quarter. Other non-interest income was up $1.9 million and had the benefit of $700,000 in BOLI gains and $900,000 and unrealized equity gains. Our gain on sale of SBA and Navitas loans was up slightly compared to last quarter. From a modeling perspective, remember that we sold our RIA FinTrust on October the 1st, and we expect our wealth income to be down by about $2 million next quarter and for their related expenses to be down by a similar amount or by $1.7 million. Operating expenses on page 14 came in at $140.9 million, up just $300,000, and the operating efficiency ratio was also relatively flat. Moving to credit quality, net charge-offs were 52 basis points in the quarter. Of the 52 basis points in losses, 24 basis points came from the estimate of lifetime losses in the manufactured housing portfolio transaction. and another one basis point came in manufactured housing losses that were not related to the transaction. Navitas losses improved and contributed 12 basis points of the 52 basis points in losses for the quarter. Excluding manufactured housing and Navitas losses, the bank's losses were low and stable at approximately 15 basis points. In other credit statistics, NPAs and past dues were improved, while special mention and substandard loans moved slightly higher. I will finish on page 16 with the allowance for credit losses. Our loan loss provision was $14.4 million in the quarter, and of that number was the $9.9 million special provision for Hurricane Helene. Excluding Helene, we had $4.5 million in provision compared to $12.7 million in net charge-offs. This differential came as our economic forecast improved favorably with the benefit of lower rates and a greater chance of a soft landing coming into the forecast. Taken together, the allowance for credit losses decreased slightly for the first time in over a year. With that, I'll pass it back to Len.