Good morning. And welcome to United Community Banks First Quarter 2020 Earnings Call. Hosting our 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 Highlights section of the earnings release, as well as at the end of the investor presentation. Both of these are included on the website at ucbi.com. Copies of the fourth quarter’s earnings release and investor presentation were filed last night on Form 8-K 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 three of the company’s 2019 Form 10-K, as well as other information provided by the company in its filings with the SEC and included on its website. And at this time, I will turn the call over to Lynn Harton.

Good morning. You know normally I prefer to have a short earnings call and just let the numbers speak for themselves. But this quarter obviously the numbers don’t tell the whole story, so I am going to spend a bit more time on some other topics. So please just bear with me a few minutes. I will start on page three of the deck with how I am viewing our response to the COVID crisis. Fundamentally, I am focusing on all our employees, our customers and our risk management processes. Employees and customers because they are the drivers of our long-term value post-crisis. Risk management because that’s what’s going to drive our ability to come out of the crisis and shape to take advantage of the opportunities we expect. And my support for those areas comes from our comprehensive pandemic plan and our Board governance. As I note on slide four, we have got an extraordinarily strong Board, including three members, who are actually active senior execs at major U.S. banks during the last crisis. Their knowledge and challenge to the management team, along with the rest of our Board and an additional three of whom lived through the crisis as United Board members, continues to provide the right balance of oversight and support as we make our plans. On slide five, I have also been pleased that at the thoroughness and responsiveness of our business continuity plan owners to both put our plan in place quickly and to make adjustments as need dictates. Turning to our focus areas on slide seven through nine, I outline several steps we have taken to support our teams. Currently, we have 54% of our branch teams working remotely and we have the ability to scale that up to 88%, if needed. I also…

Thank you, Lynn. This quarter I am making a change and starting with loans and credit on page 17. Our ending balance of loans was up $122 million from 12/31 or 6% annualized. Of the $122 million about $60 million came from draw activity. These draws came in the middle and at the end of March at the beginning of the stress but had been stable throughout April and into this week. Our commercial loans to commitments ratio moved to about 67% from 63% at year-end with withdraws. As Lynn mentioned, we have $961 million of PPP loans coming onto the Q2 balance sheet, which represents about 14% of our existing commercial book. As far as funding goes we expect a significant portion of the PPP loans will be funded this week and early next week. We expect to use a mix of available cash, the PPP liquidity facility, and perhaps, some FHLB funding as well depending on timing. In our initial planning, we are estimating that 70% of the PPP loans will be forgiven to the borrower within six months. On the credit side we have booked approximately $900 million in loan deferrals as of Friday or about 10% of our loan book. Of the $900 million in loan deferrals about $169 million comes from Navitas. To give you some transparency later in the deck, we have some additional information on Navitas, Seaside, as well as our restaurant hotel and senior care portfolios that we are carefully monitoring. Specifically, our restaurant book and our hotel book each separately make up about 3% of loans or about 6% in total, and again, in the back there are some more detail on these exposures. Navitas makes up about 8.5% of our loan book and we did execute a $22 million sale…

Thank you, Jefferson. Clearly, the shutdown has caused the most serious economic stoppage of our lifetimes combined with the most massive government intervention in history and we simply don’t know at this point what the ultimate ramifications for our customer base will be. But I do believe and I want to close my prepared remarks with this, that we will be able to accelerate many of our long-term goals as we execute over the next several quarters. The investments we have made in technology will show results and we are already seeing how we can digitize our business even more quickly than we imagined. Our branch delivery system will be able to be improved more rapidly as well. Our brand will be strengthened, as service and connection will stand out in this environment. And by the way, we just found out late yesterday that we were recognized by J.D. Power for having the highest retail banking satisfaction in the Southeast for 2020. That’s the sixth time in the past seven years we have received that honor, which is a truly amazing testament to our team and how they live our brand out every day. And finally, we believe that M&A opportunities post-crisis will likely increase for the type of service-oriented banks we like to partner with. And speaking of M&A on slide 26, I have a few comments about our Seaside acquisition, which we announced right before the COVID crisis began. As we have progressed, our decision to partner Seaside has only been reinforced. We are in constant contact with their team and that time together continues to prove the similarities of our cultures. We both remain focused on serving our clients and I believe that both during and after the crisis we will be better together. And with that, I’d like to open it up for questions.

[Operator Instructions] And our first question will come from the line of Brad Milsaps from Piper Sandler. You may begin.

Hey. Good morning, guys.

Good morning.

Good morning.

Jefferson, you guys did a nice job hanging onto the net interest margin this quarter in light of your everyday happened, lot of it happened in late March. Just curious if you maybe had spot rates for maybe loan yields and deposit costs at the end of the quarter, just trying to get a sense of directionally kind of how what kind of pressure might be on the horizon?

Yeah. So I might get back to you on the spot rate, but we will talk about the margin a little bit. I think, that our margin will be directionally down when we had unusual amount of accretion. So you probably have -- you had 26 basis points this quarter, the run rate is probably closer to 10 basis points, so I think maybe down 15 basis points from the accretion piece of it. The LIBOR rate has been irrationally high as it moved with fed funds and so we have $3 billion on LIBOR loans. I would expect that to come down or even without -- within or rate cuts obviously. We have a very significant number of CDs coming due at high prices. We have $300 million at $190 million, so you should see a continuation of the cost of funds moving down. So it’s extraordinary moving parts of timing at PPP inside, so not given and you didn’t ask for specific margin guidance. But I can get back to you with what I think the spot rates are for the yields and the costs.

Okay. Great. That would be helpful. And you brought up PPP for a moment, I think, you noted in the slide deck that you though kind of most of your loan growth would just be kind of limited to that program. You guys had tremendous production again this quarter, didn’t necessarily translate to a lot of net growth. But would you back away from kind of where we are now, kind of your mid single-digit kind of loan growth excluding the TPP program or do you think there’s opportunities, if you guys can take advantage out there, given as strong as your capital is, all the liquidity as kind of being in a better seat than most banks?

So, Brad. This is Rich. You bring up a great question. So number one, we are being cautious and very selective. However to your point, we do see an opportunity. There are a lot of long-term strong companies out there and we really feel like the big banks are going to take their eye off them that’s a great opportunity for us. We will look for those companies to demonstrate the impact of COVID-19 on them now and on the future, and what their action plan is, so providing they could do that we would be supportive of those requests.

You might want talk about the hires you made in the first quarter as well…

Sure.

…before?

So a couple of things on that, normally we would be leading off with that, but it’s a different world. We were extremely successful in Q1 and have lift out in Atlanta. We lifted out a team leader, Craig Daudi and four CRM’s, Commercial Relationship Managers out of SunTrust. And we also -- and I say SunTrust because put it in perspective we have one from BB&T. So all through this that they came -- that was the makeup and really excited they came on very late in March and they brought on deals and deposits right away, and they have also jumped in on our PPP program, so from that perspective, we are excited about what they bring to the table.

Okay. Great. Maybe one final one, Jefferson, would you expect kind of weighted average fee on the PPP launch to be around 3% for you guys?

That’s in a ballpark.

Okay. Great. I will hop back in queue. Thank you.

Okay.

And our next question will come from the line of Jennifer Demba from SunTrust. You may begin

Hey. This is Brandon King on for Jennifer. I see that you disclose your deferral rate for the Navitas portfolio, but I was wondering what the deferral rates per industry were for the broader portfolio?

So, this is Rob. So if you go to the back of the deck there’s we have broken out deferral rates, talk some about restaurants and hotels. So we have listed some of those and then also senior cares at the back of the package. So that’s probably a good place to start and then maybe just I would break out for you kind of the overall Bank is at right around 9% deferral rate and Navitas is around 22%. So that’s probably kind of within those maybe five different categories. That’s a good way to think about it.

Okay. Were there any other sectors that stood out? How much you are seeing?

No. There’s a variety of different numbers, but those are the ones that that when, of course, when we put the deck together that we got focused on and seemed to be some of the high watermarks. And then, of course, the Navitas ones separate, we have listed also if you are -- if you look at page 28, we have listed the top five sector deferral rates for Navitas specifically there.

Okay.

Yeah.

And then one more question, as far as your internal stress test results, how did -- how does your loan loss reserve now compared to the losses you are seeing in those stress test?

Well, it’s a great question. Thanks for asking. We had a -- we run so many. I mean, we have run stress test of the last cycle. We run stress test specifically to our loss in the last cycle. We run various CCAR stress test. So we have run, I don’t know, 20 different, probably, capital stress tests. And -- but we do feel like we have very significant capital and for any reasonable -- continuing to run stress test, I am looking at the new Moody’s results, but we feel comfortable where our capital is and we believe that for almost any reasonable loss scenario that our capital is fine.

All right. Thank you very much for the color.

And our next question comes from the line of Tyler Stafford from Stephens. You may begin.

Hey guys. Good morning.

Good morning, Tyler.

Hi, Tyler.

Hi. I wanted to start on fees, Jefferson, so, I guess, what do you expect the impact of the PPP, I guess, distraction to get beyond just the normal SBA gain sale revenue over the near-term to be?

Yeah. I might pass that over to Rich on…

Sure. There are some -- we had an existing pipeline rolling into Q2, obviously, 95% of the effort right now is focused on PPP. I will say that the secondary market has come back a little bit from first quarter, about half the buyers are active in the ranges in gain on sale or 106 to 107 currently.

And do not sell loans that, you noticed, probably, in the first quarter and we had $25 million origination, so there’s a bit of backlog for Q2.

Okay. So you would expect to sell SBA loans, but not Navitas loans?

Correct.

Okay. And why not sell Navitas loans at this point…

Just I don’t know what the market will be for Navitas loan. Let’s say, we are just going to watch the market, watch the credit markets and see where the bid might be. That’s a good thing about having flexibility on your balance sheet that we can hold these loans if we want to. We have been selling loans late last year and early this year at that 6% gain. I don’t know what that gain would be now and if we, and so for now, we are going to plan on holding them and if the gain continues to be in that 5% to 6% range, we may consider it. Also think of it another way, we have 8.5% of our loans in Navitas right now. We are going to have at least $1 billion for PPP loans for some short period of time. We are going to add Seaside in there too. So that percentage of 8.5% is going to come down a decent amount. So we have a lot of room to get to that 10% level as well. So we are not -- so that’s how we are thinking about. We may sell, but we don’t need to for our 10% gain.

And I was going to add, we -- we are expecting another good performance for mortgage.

Right.

And back on Navitas just for natural condition of what’s going on is, their volumes down about 30% anyway and they are really looking at either to come as an opportunity to up credit quality during this time. There’s a lot of their competitors, as Jefferson said, don’t have a balance sheet. So we expect volume to be down any way. We expect credit quality to be up, in terms of the new originations. So that’s part of it as well.

Okay. That’s helpful. Maybe sticking with Navitas, do you know how much of that portfolio today that equipment is idle right now versus being actively used?

The probably the best measure of that would be the deferral piece and as you can see in there in the deferral segments, it would be what you would expect, a fitness and beauty salons, for example, obviously they can’t operate and so. But there’s -- they are still seeing a fair amount of activity, I mean, whether landscapers, whether short-haul trucks. So it’s -- there are businesses still operating and businesses need equipment, and this is essential use equipment. So it’s hard to give what they are -- what we are doing on the deferral side is, we have got an automated portal set up to request the deferral and then contacting the clients and requesting the first deferral is for 90 days, but during that time, we are requesting touch payments. So, a small payment just to kind of keep contact, keep, keep, keep engaged with the client and we are just taking a wait and see. I mean, because, obviously, these are customers, they want to be back in business, they want to open back up, but in many cases, they have got to get the government to allow them to open back up. And our expectation is honestly that as we at the end of the 90 days, a lot of those will be deferred again and we will probably increase those touch payments and it’s just going to be bridging those clients back into the recovery.

Okay. And I do appreciate all the details around the Navitas kind of breakdown by deferment in the hotels and restaurants in the back. And I guess, maybe just shifting over to my last question, If -- I totally appreciate that you guys are entering this recession -- recessionary environment with a significantly higher capital position than most of your peers. But as I sit back and look at, the reserve ratio that you guys built to of 99 basis points and then kind of add up some of the different portfolios that you laid out in your deck of Navitas at 8.5%, the hotels at 3%, restaurants at 3%, senior care at 5%, and then, I think, retail CRE is somewhere around 3.5%, and then, you gave us some you know syndicated credits and leverage details. It looks like around 25%, 26% of the total portfolio are just some of these type hotbed type portfolios and I am not trying to imply that you guys are under reserve. But I am just trying to better understand what went into your CECL calculation and assumption. And well, I guess, why do you feel comfortable that 99 basis points, at least specially relative to some of your other peers that at least so far have built reserves a little bit higher at this point?

Yeah. So, Tyler it’s Rob. I would say a couple of things. One is you do have to understand, and I think, Jefferson mentioned it in his comments, and I think he said it appropriately. So the models are built off of correlations from past experience. And so we are in a situation where just as you look at the models, you have to understand that there may be moments of disconnect. But I would say this also we are also -- usually you get like one set of scenarios from we use Moody’s for the economic forecast, usually get one a month and we are now in a situation where we are one a week. And so it’s -- keep in mind CECL is built off of what you think is going to happen in the future and based on what happened in the past, and it’s because of the element of deferral and government stimulus, it really is a challenge to know for sure what is going to happen in the future. We -- at quarter end we kind of looked at it, and said, we are in the hotel space, but we are in it at a 50% loan-to-value with some really strong operators with strong liquidity. We feel good about that. We are in the leverage loan business, but we are in it in a very small way at $70 million and if -- while it is leveraged it’s generally leveraged at less than four times and that’s based on commitments, not based on outstandings. Most of ours would come way down when -- if you would measure what I call true leverage, which is the outstanding to cash flow -- outstanding debt to cash flow. So I feel we don’t have -- so we have that $70 million, I would say, is negligible in the portfolio and then we don’t have any oil and gas exposure. So I feel really good about the specific components that we mentioned. And then also good that some of the components that other folks are having to talk about are not in the book at all.

Okay. That’s very helpful. Maybe just one more on that, could you provide with the new CECL reserve for the Navitas portfolio is?

So it’s $15 million.

$15 million. Perfect. All right. Thanks guys. I appreciate it.

Yeah. Thanks, Tyler.

And our next question will come from the line of Kevin Fitzsimmons from D.A. Davidson. You may begin.

Hey, guys. Good morning.

Good morning.

So you mentioned a few times, Jefferson, the PPP, could you just kind of walk through how we should expect the noise to occur the next few quarters. So I would suspect that a lot of banks have talked about the second quarter will have elevated expenses, you will have higher average balances because of the loans, you will have a dilutive impact to the margin because of the 1% carry on those loans. But then whether it occurs in late second quarter or it occurs from third quarter, you will have the origination fees come through, which I would think come through the margin. But I think some companies are having it come through the income, if you can just talk with some of that?

Yes. I think, our -- the fees that we earn here will come through the margin. I think, you -- for the second quarter, I think, you laid it out very well. We are not expecting any -- we are expecting to amortize that fee over the two years of the loan. And as I mentioned in the prepared remarks, I think about 70% of these will be forgiven within six months that kind of gets you right to that end the third quarter early fourth quarter that you will see some of these fees are starting to come in. So I would expect that you would get kind of 1.8 of the fee roughly in Q2 and you would get kind of 70% of those fees split between Q3 and Q4. That’s how I am thinking about it currently. On expenses you know we probably run some over time expenses. Now I don’t think it’s going to be super meaningful. On the expense line I do expect our expenses to be flat to down going forward. So I don’t think that the PPP you are going to really see that by itself in the expense line.

Okay. Great. And then one just follow-up on the allowance ratio, so -- on Tyler question, so I know from past acquisitions it’s obviously been loans that are marked that you typically you have to factor it in, but now with the post CECL world, I would suspect that that’s all been adjusted. I wanted to just clarify because I know you said at one point you guys adopted CECL, but I thought your -- I thought I heard you said another point that you delayed the impact of it, so I just want to clarify that?

No. We adopted, we declined to delay the impact and there was another question on there as far as the CECL.

Just on the allowance ratio, whether there was any kind of caveat or clarifying points to make based on past acquisitions on that when we are looking at it versus peer?

I think that’s the bring over of the -- so I -- if you go back to our Q4 deck, I think…

Yeah.

… the number that we brought over from acquisition was in the $3.5 million range. So but you are right, Kevin. All that’s been as a part of the transition from incurred loss to CECL, you do bring over that purchase -- purchase discount goes away from effectively, it’s sort of its hidden and subtracted from the loans and now it’s a on the purchase credit impaired, it’s part of the allowance and it was, I think, the number was around $3 million that we brought over.

Yeah. And maybe thinking a little bit on the accretion side that I mentioned that we have $15 million of purchase accretion that we are still running through that were positive.

Right. Right. Got it. Got it. Okay. That’s all I had. Thank you, guys.

Yeah.

And our next question comes from the line of Michael Rose from Raymond James. You may begin.

Hey, guys. Sorry if you addressed this, I got on late, but mortgage piece was really good at this quarter, if you back up the MSR impacts from both quarters. Can you just give an update on kind of where pipelines are today and maybe what should expect from a mix and a volume perspective as we move to the second quarter? Thanks.

Michael, hi. This is Rich. So the mortgage, we expect to continue to have a strong Q2 based on the pipelines. So we feel good about that. I will tell you that we are being cautious and in terms of our portfolio, what we put on our books, non-government, we have tightened up the credit criteria, increasing FICO scores and reducing maximum loan sizes.

Okay. And then maybe just one follow up, I think, you mentioned earlier in the call, that you brought on another team and you expect to be opportunistic. What areas would you expect to be opportunistic, as I assume some of those at risk portfolios would be de-emphasize at this point. So, I guess, where do you see the greatest opportunities, as you look out the next couple of quarters and maybe if you can size it? Thanks.

It’s interest -- this is, Rich, again. It’s interesting. So there’s certainly are going to be opportunities. And I would say, it’s not -- you are not going to take an unusual answer, but the PPP thing has given us a real opportunity. So the big banks have not come out all that favorable, in many of our rural areas the smaller banks don’t have the PPP program. So we are getting just a lot of feedback and actually not just feedback, people are moving accounts right now, because they feel better about what we have been able to do in this program and come through for the communities that we serve.

Yeah. Because this really is -- as you said Michael, I mean, we have put up clearly a pause on all these highly affected areas and it’s really just kind of core C&I long-term companies that really we are seeing the opportunity with. It’s hard to size it, but it’s a real thing and we are seeing it every week.

Got it. So generally on the small business front. Okay. That’s helpful. Thanks for taking my question, guys.

Thanks.

Thank you. And our next question comes from the line of Catherine Mealor from KBW. You may begin.

Thanks. Good morning.

Good morning.

Good morning.

Just a quick clarification on back to Navitas, did you think that when you mentioned that originations volumes are down, would you expect to continue to grow Navitas balances from here?

Yeah. I will start with that. I do for Navitas applications are down. So we would expect lower originations. That said now we are not selling Navitas loans so it adds a little bit. We are not planning on selling anyway Navitas loans so it adds a little bit to the balance. So I would expect a slight positive growth in Navitas balances throughout the year.

Okay. Great. And then you also mentioned that the Navitas CECL reserve is $50 -- I think $50 million, what was that compared to year-end?

Yeah. So Catherine, this is Rob. It was really up from 12.5% to 15%.

Got it. Okay. Okay. Great. The rest of my questions were answered. Thank you.

And our next question comes from the line of Christopher Marinac from Janney Montgomery. You may begin.

Thanks and thanks for the detail both on the call, as well as in the disclosures. Rob, if we go back to the $900 million deferrals kind of companywide. How do you consider that in the big picture? Should we think about as kind of a de facto criticized number and that those loans kind of get worked out from here and that number comes down or with the $900 million growth, just kind of curious how you think about it in the big picture?

So anecdotally I think it’s interesting to think about and I -- there’s a there’s a numbers way to think about it and then there’s a real life way to think about it. And you may have heard that the Georgia governor opened Georgia back up for business and the day after that happened we were on the phone with some regulators that live in Atlanta and they were talking about how their one guy said his daughter, another guy said his wife, as soon as the order was lifted they all reached out to the beauty salon to make their reservations to get into crank those businesses back up. So it’s hard to say, Chris, I mean, I don’t want to be evasive. But I think you know people are ready to get out. We are sensing a wave here in the Carolinas and in the Southeast of people ready to kind of get back to normal. And I -- so it’s hard to say that you know some percentage of these people that had deferrals. We sent everybody home and told them not to go and there’s clearly a pent up demand for these businesses people are going to go back out to eat, they are going to get their hair cut, that’s they are going to start traveling again. And so it’s just really hard to have any element of predictability around it.

Yeah. I mean, it’s clearly, as we all know, this is not a borrower specific. I have got a problem, I can’t run my -- I am a bad manager of my business. This is a broad economic shutdown. So we are not looking at deferrals in the normal way. I mean, if we -- if we are not looking at these, at this point as TDRs. We are supportive of clients deferring their payments. We know they want to get back into the business. And I think that’s where as it comes to the reserve and all these other things, we have just got to see some of these data work its way back out to see what really happens. And again, we would like to be more definitive, but it’s just not a normal environment. If you think about unemployment rising like it is, but yet unemployment benefits covers, probably, for most people 70% to 80% of what they are making, we are seeing very few mortgage and HELOC deferrals, which would you would normally expect to see problems exist stop -- start there. So we are, obviously, very trying to stay very close to these clients, so that we understand what’s going on with them. But we are not viewing them as special assets by any means at this point.

Got you. That’s very helpful. I appreciate that a lot. And then just a follow-up as it pertains to the PPP, is it possible or even likely that you would take some type of expense accrual just against those fees as that they particularly a couple of months from now as they start to come in on forgiveness. Just curious on if a legal reserve or just unanticipated expenses to set aside would make sense?

Yeah. Chris, that’s a -- it’s a great question and we have been thinking about a little bit. It is a nice earnings that should come in a lot in the second half of the year. And there is room to set aside possibly a legal reserve or possibly some profession or really anything, is just a -- it will add to our profitability in a short-term way in the second half of the year. So we haven’t decided what to do with that if anything, but there is that ability to do so and we will look more into it in the third quarter and fourth quarter.

Sounds great. Thanks for all the time this morning.

Thank you.

Thank you. I am not showing any further questions at this time.

Okay. Great. Well, thank you all for joining the call. We appreciate your support, your interest, great questions and we will look forward to talking again soon. Have a great day.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. We now disconnect.