Good morning, and welcome to United Community Banks’ First Quarter 2021 Earnings Call. Hosting the call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer; Jefferson Harralson; President and Chief Banking Officer, Richard 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 ucbi.com. Copies of the first 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 pages five and six of the company's 2020 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 Harton. Lynn Harton Good morning and thank you all for joining our call today. Our first quarter results reflect the strength of both our markets and our teams. Economic conditions and forecasts also continue to improve, and our results include a $12 million release from our provision for credit losses. We also realized an additional $10 million in PPP fee income as we have now had over 10,000 of our first round PPP loans forgiven. Including these items, our EPS reached $0.82 per share. Our return on assets was…

Thank you, Lynn. I will start my comments on page 7. We are pleased with our loan growth in the quarter. Overall loans increased by $308 million in the quarter with $518 million of new round three PPP loans that were netted down by significant forgiveness of first and second round PPP loans. Excluding PPP activity, we had $71 million in loan growth, which translates into 3% annualized growth in the quarter. The primary drivers of loan growth for the quarter were mortgage loans and real estate categories. Some of the growth for the quarter was muted by a strategic direction on shared national credits. In the bullets on page 7, we highlight the granularity of our loan book in which our top 25 relationships only comprise 5% of total loans. And we believe this is a demonstration of how we manage various levels of concentration. On page 8, we also feel encouraged about our credit quality and in general we are seeing stress decreasing in key areas. Our net charge offs were essentially flat with one basis point of net recoveries as we had the benefit of strong recoveries again this quarter. Navitas net charge offs were also relatively low in the first quarter at just 70 basis points which is the best number that unit has reported since the third quarter of 2019. We had a negative loan loss provision of $12.3 million for the quarter. The release came primarily due to our more optimistic economic forecast which was consistent with the trend in recoveries and declining nonperforming balances. You may recall that we had about $80 million in loan loss provisions for the year of 2020 which was about $60 million above net charge offs. So our first quarter releases were about 20% of our 2020 reserve…

Thank you, Rob. I'm going to start my comments on page 11 and talk about capital. Our capital ratios were relatively flat in the quarter and remain significantly over peer levels. We were able to redeem $15.7 million in expenses, sub-debt and troughs in Q1, and we are currently planning on paying down $50 million of senior debt in Q2 and another $15 million of bank level sub-debt in the third quarter. We are optimistic we can put some capital to work via M&A. And if that does not happen, you should expect us to consider using our $50 million share repurchase authorization sometime this year. Moving to page 12, you can see our net interest income and net interest margin. Spread income was driven by 9.5% annualized average earning asset growth and 7 basis points of contraction on the core net interest margin. We had expected the lion's share of our remaining first and second round PPP loans to be forgiven in Q1 and that, that would generate $13 million in PPP fees. That said, we ended up with $9.8 million of net PPP fees in the first quarter, with the other $3 million of fees from round one and two, moving to Q2 most likely. We also had $1.8 million and less loan accretion in Q1, which hurt the margin by 55 basis points. The larger balance sheet and a mix change towards securities on the larger balance sheet drove the majority of the core margin pressure. Adjusting for the day count with two fewer days, we were able to grow core spread income versus Q4. Page 13 shows the details of the strong deposit growth I mentioned in the quarter. Specifically, deposit growth was up 20% annualized. And core transaction deposits were up $948 million or 33%…

Thank you, Jefferson. We are proud to have kicked off 2021 with a strong quarter and we have a high level of optimism about the remainder of the year. We've got great opportunities in front of us to improve and grow, thanks to an outstanding team throughout the company. As one last shout-out to them, earlier this quarter, Forbes recognized United on its 2021 list of the 100 Best Banks in America for the eighth consecutive year. I am very proud of our teams throughout the company that make this possible year-after-year. And I'd like to now open it up for questions.

Thank you, speakers. Participants, we will now begin question-and-answer session. [Operator Instructions] Speakers, our first question is from the line of Jennifer Demba of Truist Securities. Your line is now open.

Sorry. Sorry about that. Hi, good morning. Question to Rob reducing some of your shared national credit exposure. Can you just kind of give us some detail on that and the rationale?

Yes. This is Rob. Hey, Jennifer. We identified in the Seaside acquisition, probably 10 different shared national credits that were more nationally-oriented than really locally-oriented. Something that Seaside had done really prior to our involvement in 2020. And so, we were exiting those credits over time.

Some, I just add in there, Rich may want to join in. So that would equate to about $30 million of shrinkage and shared national credits.

Oh, this quarter.

This quarter.

Yeah. In my mind understates the true volume that we showed this quarter.

Yeah. We were probably more at a 4% annualized growth rate if you add back the share national credits.

And how much more about would you like to exit.

So we're going through an ongoing evaluation. But I would say, it's likely that there's another $40 million.

Okay. And question for Lynn on merger interests or acquisition interest. It sounds like there's a lot of discussion going on in the industry right now. Can you remind us kind of what kind of target you're looking for and what you're not looking for also?

Yeah. Sure. So, there are a lot of conversations that are really exciting what's going on. We continue to be focused really on the smaller banks. Now, that smaller definition has gotten a little larger probably $3 billion, $3.5 billion or less. And the reason we like those is for a couple of things really only cultural side, we found that they're focused on service, they're focused on the employee engagement side really mirrors ours; I think there's more upside because we can bring the product set and limits that they don't have; and typically a lower price. So, that continues to be our focus. We continue to be focused in the five states that we're in today. And we're pretty optimistic that we'll be able to have some success there. So, I'd say the things we aren't looking for actively would be those outside of our markets. Not to say that we wouldn't consider the right one. I'd say I would probably say we're not actively seeking any kind of large transformational kind of situation. Not that again we wouldn't be interested if the right one presented itself. But there's – it needs to have certain criteria. You need to have pretty significant overlap to power through the changes that you need to make to put two companies together. You need to have real clarity of leadership because that's the only way you have clarity of culture. And so, our focus continues to be on these ones where in markets either where we already are or attractive markets in our states that we want to enter, we can find like-minded bankers to join up with.

Next question is from the line of Brad Milsaps of Piper Sandler. Your line is now open, sir.

Maybe Jefferson just to start and it sounds like you'll be losing maybe $6 million or $7 million in mortgage revenue next quarter. Expenses will stay relatively flat. Can you talk about any other leverage you might have maybe as it relates to the decision making around selling additional SBA or Navitas production is maybe they sort of offset some of that headwind?

Yep. Thanks. Great question. We do think the expenses will come down some with specific to mortgage in Q2 and then you'll see it come down more in Q3. So there are variable expenses. You'll just see the full impact of that in Q3. We have been for a year or so holding back our gains from our SBA pipeline. It's a great asset to keep on a balance sheet. We've been keeping those on the balance sheet. So you will see that start to increase. Keep in mind also the first quarter is our seasonally weakest SBA quarter. So look for a growth rate in that SBA activity. Navitas is the same way. Navitas, we have had good originations. We've had outstanding credit. We're very happy with where we are there. This is also their slowest quarter. Generally, we are looking for sales at the right price there. I would expect to see some in the second half of the year. We are at 7% or just under 8% of Navitas loans to total loans in an environment with a lot of cash. It's really nice to have these Navitas loans on the balance sheet but they do get really nice premiums and look for us to begin selling Navitas loans during the second half of the year

You might add that even though we are looking at mortgage production, like you said, every time we look at mortgage production they have, we have outperformed. And so there's some question about what that number actually might be next quarter.

A crystal ball – we've been – we've come up with our estimates, and we've been beating our estimates very consistently. And so we have seen – I think with the cash that’s on bank balance sheets, you are seeing there's a lot of demand for that. Paper, we have seen some margins come in. We are seeing a mixed change towards purchase. But we have been the market – you’ve seen this with the MBA too where they've been increasing their expectations in which they have a piece to add to that.

One other variable of that is we continue to hire. So we just hired three MLOs down in Florida, and we're just starting to get some traction there. And I will tell you that there is ongoing discussions with other MLOs as well. So – and as Lynn said, the market continues to outperform industry forecast.

That's great. And then just to just to follow up on the M&A discussion, I appreciate some of the color around kind of size and geography. Just kind of curious, deals that you are looking at. How impactful do you think some of these deals can be from an EPS accretion standpoint? Are – is pricing is such where you can really drive some high-single digit type EPS accretion or is the market is such where it's more singles – kind of single digit type – low-single digit type EPS accretion? Just kind of curious. Wanted to gauge kind of what the potential kind of opportunity is out there to lever some of your excess capital and push earnings higher.

Yeah. So, I mean, I would say they’d be similar to our recent deals in terms of size and impact. I think the pricing is attractive. You know there's a big differential in our pricing versus others. So, if you look at, you know, pay to trade kind of ratios, I think, they'll be good. And, you know, in terms of you might have two singles that look like a double then when you put them together, you could have two doubles that look like a homerun. But I don't think you're going to have one homerun if that makes sense.

No. That's helpful. I’ll hop back in queue. Thank you.

Next question is from the line of Michael Rose of Raymond James. Sir, your line is now open.

Hey. Good morning. Thanks for taking my question. Sorry if I missed this in the opening remarks, but can you just kind of walk through kind of your expectations for core NIM and then maybe separately how should we think about PPP fees this year, and what's the kind of the expectation for purchase accounting accretion? Jefferson, if you can just kind of, you know, walk through any sort of changes from last quarter. Thanks.

Yeah. Thanks. I'll start with the margin, and I’ll hit the other two pieces. So, core margin, what we're seeing here is our securities to average earning asset ratio has been increasing as we've been getting this really strong deposit growth that’s been ending up in the securities portfolio. To put some numbers behind it, we're at 17% two quarters ago. We're at 24% securities to average earning assets now. We have another really strong deposit growth quarter this quarter. On an average basis, we're up over $300 million on average deposit this quarter. And so some of that mix change is what you’ve been seeing. That said, I think you’re going to start seeing this mix change start to even out, so I think core margin is flat going into next quarter and then it should be as you get into later in the year, should be starting to increase. On the purchase accounting, the loan accretion, I think what we have here, we have $30 million left to accrete through. We did $5 million this quarter. I think our basis in that $4 million range. Then you have that increase as you get prepayments. So, kind of $4 million to $5 million there is what I'm expecting. On PPP fees, we have $28 million left to run through. In the second quarter, I'm expecting the lion's share of the remaining fees from round one and round two, which is $3 million to come through. And in the second half of the year, I would expect a good piece of that remaining $25 million from round three to start hitting in the second half. I think it will float into 2022, but I do think you get a really good piece of that full $28 million this year. Yeah. There is an important change in the second wave, which is the 2021 PPP, which loans under $100,000 and $150,000 now have a one-page signoff on forgiveness. So, after the eight-week period, you're going to see that move much faster than we saw last year. And that's 85% of our loans.

Yeah. And you finally start to see a little movement on the $2 million over. We have had one approved and they're working on it. So, yes. So, we have seen one. Yes.

That's great color. Maybe just to put a finer point on some of the capital you’re going to take this quarter in terms of the redemption of that and things like that. I just had to run the math, what’s the estimated impact just there estimated impact just there in isolation from the planned actions.

Yeah. So you’re looking at once they’re – once you get a full end quarter – once you get the full quarter impact of the actions that I’m thinking for Q2 and the full impact of Q1. The full impact of both of those is about 2 basis points, a little more. Then you get another piece on top of that on the $15 million sub debt.

Got it. And I did see that you guys did hire some folks down in – at Seaside on the LinkedIn page, the announcement. Can you just talk about broader hiring efforts? I know you guys have been fairly active and opportunistic. And what that could mean for expenses this year, i.e., what is – what's kind of in the plans and what would that mean from an expense standpoint. Thanks.

Sure. And this is Rich. And I'd say it's really the opportunities more than the plans. We continue to focus a lot on Florida. Gideon reminds us that it's the 17th largest economy in the world, and so a lot of good metro markets down there. I will tell you we have not seen the benefit yet, but we did have a BMO Harris kind of lift out in March. And I was talking to the leader yesterday on that. And so I feel very good about where that is going. And I will tell you that we're talking to three other teams down there of which some people have accepted. They haven't started yet. So we feel very optimistic about what's going on about both the opportunity, the customers and the talent in Florida. And we plan to take full advantage of that.

Great. Thanks for taking my questions.

[Operator Instructions] Next question is from the line of Catherine Mealor of KBW. Ma’am, your line is now open.

Oh great. Okay. Good morning. So, I wanted to ask, it’s just a question on the ACR. You saw a big decline in their reserve this quarter. Could you – would you say that the decline this quarter fully reflects the better economic outlook? And so, if kind of the Moody’s model effectively stays unchanged from here, are we kind of at a base for the ACR ratio or do you think you'll see further decline as a move for the rest of the year?

Yeah. So, the way that I'm thinking – this is Rob, Catherine. The way that I'm thinking of it is we provided $80 million last year and we charged off $18 million. So we built the reserve by $60 million in 2020. And then your comment though about the economic forecast, I would say it this way all of the benefit of the economic forecast has not been realized, and we weren't comfortable taking all of that just because the increase in special-mentioned loans that we had during the quarter. So, it didn't feel like it was right to realize all of that.

And your expectation in terms of when you might see.

But yeah, so just in terms of credit trends, then, I would say my expectation is that Q2 is kind of a flat quarter, right? So, once you put a loan in special mention, you probably are going to wait a quarter or two before you have the ability to move it out. So, I would say right now based on what I'm seeing, it would be my expectation that the special mention loans would begin to decline in the third quarter and fourth quarter. And as that happens, then we could see more of the realization of the positive economic outlook.

Right. Okay. So then, so we have kind of not give Q4 guidance, but kind of like a zero provision maybe next quarter and then renew the returns and negative provision depending on what growth in charge-offs look like as we move in the back half of the year? A - Lynn Harton That's a good way to think about it.

Okay. All right. Great. And then, on the senior care downgrade, it feels like it's really just that they're not cash flowing and leasing up according to the original plan. Are there anything there? Are there any projects within that category that you're really worried about that perhaps have a potential loss content or is it really just kind of downgrading given the cash flow and no leasing? A - Lynn Harton Yeah. So it's a good question. I would say in September, I was kind of worried about where things were going to go. And I'm much more optimistic now. We've seen a number of properties begin to demonstrate improvement in occupancies. And you're right. You're exactly right. So a project comes into – obtains a certificate of occupancy and they begin to lease up and they just – it just doesn't go as fast as it was originally thought that it would go. So it takes a little longer and we're carrying those projects and special mention. But we are seeing the majority of our projects are in fact improving in their occupancy. And we're pleased. I was pleased with the first quarter trends.

Thank you, Operator. Next question is from the line of Kevin Fitzsimmons of D.A. Davidson. Sir, your line is now open.

Just a quick follow-up question on – it seems like a lot of the discussion on hiring and maybe it was just the examples given but seemed like they were concentrated in Florida. But Rich, I know that's a tremendous market and the size of the market. I'm just wondering if is the focus on hiring more a byproduct that it's a good market environment right now to take talent or is it more a byproduct of the lack of M&A opportunities in that market just given the consolidation that's happened over the years. And you guys obviously got Seaside. But there's just not all that many sizable banks left to consolidate. So I guess that's what I'm wondering. Is Florida going to be – the build out in Florida going to be much more of a team lift out type of effort as opposed to traditional acquisitions? Thanks.

So, I'm going to answer that in two ways and I'm focused on Florida first and then the rest of the footprint because I don't want to leave that out. But certainly there are opportunities in Florida right now, for whatever reason, the timing of M&A kind of noise that makes people and talent available seems to be the perfect time in Florida right now where it was in Atlanta like 18 months ago. And so we're certainly taking advantage of those opportunities. I will tell you that we're certainly, its more throughout the rest of the footprint. We're really looking for experienced lenders that have deep portfolios and relationships that they can bring over. And those conversations are going on all the time. They're just not as much on the lift outside. There'd be one person in a particular market that's the right person. And so, that's kind of how we're looking at both opportunities.

Next question is from the line of Brody Preston with Stephens, Inc. Sir, your line is now open.

Hey. I have just a follow-up question on the SNCs . So, that’s about $30 million you ran off and you said it was about another $40 million you're considering. What's the timing of when that $40 million will run off? Is it a 2Q even or is it throughout 2021?

Yeah. It's a good question. I was actually thinking about that because I think it is a longer term, right? Those loans have – or I guess it's not longer, but it's not six months. So, it'll be over the next, I think, likely 18 months would probably be a good window for that.

Okay, okay. So, this quarter was kind of anomalous in this – the $30 million kind of all maturing this quarter? And so – yeah, go ahead.

Well, part of it depends, too, how these credits work, right? They'll do refinances, they'll do acquisition. Just – it's hard to predict those things, but probably 18 months is probably a conservative guess. But it just depends on the activity in those markets.

Got it. And so, the SNC runoff, that's about a third of the lower balances that you saw in the core C&I portfolio? And so, I wanted to ask what else was there that drove that reduction in the C&I loans this quarter?

I'll go ahead. We had a conversion. So, Seaside converted in March of this year, and we had a lot of loans reclassified in that process. So, there's just a lot of noise in that. And so we don't really think we saw any material changes in the overall portfolio, and we expect that – have a better view of all that Q2 going forward.

Understood. I appreciate that. And then, Rob, on the Senior Care loans, I understood that it's the lease-ups that's kind of caused the last couple quarters or you've migrated more of these to Special Mention sub-standard. But I wanted to ask is there a consistent theme that you're hearing from the sponsors on these projects that's causing the delay in the lease-ups relative to I guess the original time line?

Well, in the fourth quarter, it was very much about COVID. It feels like – and a lot of the markets were not open, and you couldn't go see a relative that was in a senior care facility. So you put mom in a senior care facility, and you can never see her again. So it just wasn't very appetizing. And then, of course, the fourth quarter is always a low season for these properties just because Christmas doesn't seem like the right time to do that especially if you're not going to be allowed to go visit in the facility. So early in January, we have started seeing some uptick in occupancies that we weren't seeing before, and we think that's largely due to – and we are tracking vaccinations of employees and residents on the properties and feel like the properties are making good progress there.

I would add we have a very good relationship with a third-party underwriter portfolio manager, and I have a monthly call with him just to check on the industry and where it’s going, what the trends are. And what we’re hearing is that the badge are starting to fill again and we probably won't see that impact until the end of this quarter. But all the trends are positive. Everyone's feeling much better about the industry. And obviously, vaccinations have all picked up. And they're on the priority list. So, the workers have all got them as well. So, the industry feels good. It's just moving slowly but it's moving in the right direction.

Yeah. Agree with that.

Got it. Okay. And then just switching back to mortgage, I understand that this can be volatile. But just assuming that the lower kind of fees do come through and I know that there's a lag. But Jefferson, I guess what dollar amount – if it's down 6% to 7%, what's the dollar amount of variable expenses you would expect that kind of work the way – it works its way out of the run rate maybe in 3Q based on that?

I'll give you some parameters on that. So, in total, we had $6 million of mortgage commissions this quarter. We expect that to be down. I see Rich talking kind of maybe in concert with volumes.

Yeah. I mean, it's going to be down, certainly, a couple million if we're down accordingly in terms of what we're making in fee income. That's a – so good question. Though, I'm not sure on this phone call I have that answer. But we can look at that and get back to you.

Got it. Okay. And on the SBA front, so the gain on sales that you guys have been having over the last few quarters have been hovering. If you just do the simple math of the fee divided by the loan sales and that kind of 8.5% to 9% range. But the economy improving and with rates still low, the premiums on that paper Can get a bit up pretty quickly. And so, I wanted to ask what you guys are seeing in terms of gain on sale margins moving forward for that business?

This is Rich. The answer to your question is right now gains are at record highs. Now remember, that it's based on the term of the loan and the pricing and the size of the loan. They do worry about concentration. So $5 million loan isn't going to sell as much as a $1 million loan. But to your point, they’re up probably 15% quarter-over-quarter from last quarter. So very strong right now to your point.

Got it. And then, I just had two last one real quick. Jefferson, what percent of the loan portfolio is floating rate at this point?

53%.

Okay. And go ahead.

And maybe this is your next question, but on that one slide, we have $1.1 billion of floating rate loans priced at their floors. So we're behaving right now on the next rate hike more like we're a 45% floating. If you got two rate hikes, about half of that would be off the floor.

That was the next question. Thank you very much.

All right.

Thank you for all the questions. I'll now hand the call back over to Lynn Harton for closing comments.

Great. Well, I once again, just thank you all for joining the call. Great questions. Appreciate the interest. If you have any follow up issues, please feel free to give any one of us a buzz. And we look forward to talking next quarter. Thank you so much.

And that concludes today's conference. Thank you all for participating. You may now disconnect.