UNITED COMMUNITY BANKS INC Q1 FY2025 earnings call

• Strong start to 2025 with operating earnings and ROA improvements. - Loans and deposits grew, non-interest-bearing DDA up. - Net interest margin increased due to lower deposit cost. - Credit quality stable. - Operating expenses lower. - Recognized by J.D. Power for retail banking satisfaction. - Acquisition of American National Bank closing May 1st.

Operating earnings were $0.59 per share with an operating return on assets of 1.04%. Loans grew at an annualized pace of just over 5%, deposits at 5% annualized. Non-interest-bearing DDA balances up $46 million from year end. Net interest margin increased 10 basis points. Non-interest income was down $4.8 million from last quarter but run rate of fee income flat excluding notable items. Operating expenses lower. Deposit growth was $309 million (5.3% annualized) with cost of total deposits improving by 15 basis points. Loan growth in C&I was 7% annualized, Navitas 15% annualized, HELOC 13% annualized. CET1 ratio at 13.3%, TCE over 9%. Net charge-offs 21 basis points, loan loss provision $15.4 million covering net charge-offs.

• Margin expected to be up 5-10 basis points next quarter due to deposit cost reduction and mix shift. - Balance sheet growth driven by deposit growth, expecting 2%-4% growth from deposit side. - SBA fee income expected to exceed 2024 levels.

• Economic uncertainties, potential impact from tariffs. - Risk in small commercial segment. - Potential impact of recession on small business dominated portfolio.

Q: Maybe to start on the margin expectations going forward, Jefferson, just a great result this quarter. Maybe how you're thinking about the trajectory going forward, if you could touch on where spot rates ended March, and then any willingness to maybe flex the loan to deposit ratio here?

A: Yes. Thanks, Russell. Great question. We -- spot rates on cost of deposits were right around 2%. We think we can lower that through the quarter and that will be the key part to our expectation for our margin to be up 5 basis points to 10 basis points next quarter. A big piece of that is -- a piece of that is also the improvement in that mix between loans and securities. I would expect our securities book to shrink a little bit and our loan book to grow and the combination of those things should be, should push our margin up 5 basis points to 10 basis points.

Q: Hi, good morning, guys. A couple of questions. First, I appreciate that the first quarter loan growth certainly came in as you expected, in that it was stronger than the fourth quarter. I just wonder if your comments a moment ago on your customer interactions aside, can you talk about any change in borrower behavior and pipelines over the last few weeks? Are you seeing deals pushed out, or borrowers just being a little more conservative in how they're managing their business from an investment perspective, et cetera?

A: Good morning, Gary. This is Rich. Yes, I'll comment on that. So, right now we're seeing Q2 kind of similar to Q1 in terms of pipeline. So to answer your question shortly, and the short answer is, we've not really seen it negatively impact the pipelines. So, that's a very positive thing. We do have some that are saying they're kind of in the wait and see mode. And as Lynn said, they're managing through it. So, right now we feel pretty good about where we're at and we feel good about the markets that we're in.

Q: Hi, good morning, everyone. Appreciate the time. I think you guys talked a little bit about the desire to be opportunistic around capital deployment. Could you give us an idea what, you know kind of that stack rank of capital priorities looks like today? And especially with the weakness in the group in stock prices, how you think about that $100 million share repurchase authorization?

A: Yes, great question. So, in terms of deployment, I mean, always organic growth first. Historically, we've been more M&A focused in terms of secondary, but at this, at these prices, the earn back on repurchasing shares is roughly equivalent to an M&A deal. So, I'm highly confident in our own book. Why? So I've got, in my mind a no risk in a three-year earn back investment or an investment that's going to be to have some risk embedded with a three-year earn back. We'd go, we'd put the stock buyback ahead of M&A at these prices, so.

Q: Hi, good morning, guys. Thanks for taking my questions. Just wanted to go to the deposit slide. Was there any sort of campaign that drove the interest-bearing growth or any sort of timing around municipal deposits? Obviously, really good growth. I did see the average balance in those deposits pick up a little bit. Anything to read into that in terms of some of your smaller business customers just trying to conserve cash, just given the uncertainties? Just trying to better understand, and appreciate the growth this quarter. Thanks.

A: Yes, thanks. I'll start maybe with the seasonality of the public funds and pass it to Rich. We didn't have any special campaigns that I can think of. Maybe Rich has something. But we did have that shrinkage of public funds in the first quarter. I would expect probably $150 million or so, maybe up to $200 million in shrinkage. And the second, if the typical seasonality plays out, but I think it was across the board just strong deposit growth, but I'll pass to Rich to see, if he has.

Q: Thanks. Good morning. I just have a follow-up question on the margin. Heard you on the second quarter guide, Jefferson, just kind of seeing some nice expansion again just from what you can do on the deposit side. Can you just remind us bigger picture, if we start to see Fed cuts in June, how you think your position? I know you've moved a lot more of your deposits to be directly indexed, so that should continue to come down. But just kind of curious to update us on how we should think about the trajectory of your margin once the Fed starts to cut. Thanks.

A: Thanks. Great question. I think that any quarter you get a cut, we're going to get an initial decline in margin. And once we get the opportunity with the passage of a quarter or two, we should be able to get most all of it back. I do think that we are slightly asset sensitive and so a rate cut does hurt us a little bit. But I think the bigger picture is any quarter that we don't get a cut, we have a decent chance at margin expansion, because of the repricing on the asset side of the balance sheet, but we are asset sensitive. And if the forward curve is saying three cuts and we get those three cuts that will hurt our margin a little bit, especially in the initial quarter of the cut.

Q: Yes. Good morning. Hi, Jefferson. Just curious, I may have missed this in the preamble, but any color you can give, I know the presentation has nice color in terms of the roll-off rates, maturing CDs, what you're expecting to sort of reprice those into? And maybe where you're seeing the average durations trending too? Thanks.

A: Yes, thanks. We, last quarter we repriced the CDs in the 3.50% range or just a smidge under. We think the repricing of the CD book would be either at that level or slightly better. We have moved -- we had moved our CD durations to be very short in that four-month range and you're seeing a more normalized spread than in the past. We've changed our pricing around to encourage a little bit longer term CDs. So you'll see the CD portfolio lengthen just slightly and we've had very good experience with our CDs repricing our keep rates there and being able to reprice those at a lower rate. We were very pleased this quarter to grow CDs even as we were shrinking the rates and we're hopeful to be able to do that again.