UNITED COMMUNITY BANKS INC Q4 FY2024 earnings call

• Earnings: Reported earnings of $0.61 this quarter and $2.04 for the full year. On an operating basis, earnings were $0.63 for the quarter and $2.30 for the year, with 11% annualized growth in operating earnings from last quarter and 9% increase for the full year of '24 compared to '23.
• Tangible book value: Increased 9% year-over-year and at a 7% annualized rate during the fourth quarter.
• Returns: Operating return on assets reached 1.08% in the quarter and 1.02% for the full year; operating return on tangible common equity increased to 12.1% for the quarter and 11.4% for the full year.
• Deposits: $213 million growth, 3.7% annualized, funded substantially all loan growth; cost of total deposits improved by 15 basis points.
• Loans: Growth accelerated with 13% C&I, 15% Navitas, and 20% HELOC annualized growth.
• Balance sheet: Low wholesale borrowings, limited broker deposits, loan-to-deposit ratio 78% in Q4, CET1 ratio over 13%; redeemed $60 million of subordinated debt, saving $1.8 million and generating $2.2 million gain.
• Noninterest income: Up $5.2 million from last quarter despite FinTrust sale, benefited by MSR write-up and realized gain on equity securities.
• Credit quality: Net charge-offs 21 basis points, lowest since Q2 '23; other credit metrics stable.
• Expenses: Well managed, flat with Q3, operating efficiency 55%; ample liquidity to fund growth, looking forward to 2025 opportunities including South Florida expansion with American National Bank.

Deposits: Enjoyed $213 million of deposit growth or 3.7% annualized, with stable DDA and seasonally strong public funds. Loans: Loan growth accelerated with 13% annualized growth in C&I (including owner-occupied CRE), 15% annualized growth in the Navitas book, and 20% annualized growth in HELOC. Margin: Overall margin was down 7 basis points, but net interest revenue increased by $1.1 million over the previous quarter. Credit: Total net charge-offs were 21 basis points, the lowest rate since Q2 of '23, with other credit metrics stable at low levels. Expenses: Expenses were well managed, essentially flat with the third quarter, and operating efficiency improved to 55%.

• Expect Q1 to be similar to Q4 or slightly better.
• Anticipate loan growth in Q1, with margin expected to improve in quarters without rate cuts and aiming for high 30s deposit beta over time.
• Optimistic about M&A opportunities in 2025, expecting potential deals given improved M&A atmosphere post-election.

• Potential impact of interest rate changes on margin and deposit pricing.
• Uncertainty in M&A opportunities and their approval.
• Credit risks in specific portfolios like Navitas and Senior Care, Multifamily.

Q: Good morning, everyone. Thanks for taking my questions. Maybe just wanted to start on loan growth. It was really good to see the C&I growth. Just wanted to get some color around what drove that? Was it increased utilization? Or was it just market share gain, and then just as we kind of contemplate 2025 and an outlook, I would think there'd still be some headwinds in some of the portfolios like Senior Care, Multifamily. But it does seem like some of the CRE and C&I categories could be some tailwinds, particularly if the economy performs. So maybe you can just kind of give some color there, I'd appreciate it.

A: Good morning, Michael, this is Rich. For the Q1 forecast, we're expecting a similar quarter to Q4 or slightly better. Some of the drivers, business owner confidence is certainly up, pipelines are very strong, talking with the credit officers, their throughput, they're seeing more deals than they've ever seen, and I feel like our new hires and growth initiatives have really paid off. Lastly, I want to point out that Florida led the bank in Q4 loan production followed by North Carolina and South Carolina. Last quarter, that was Tennessee. So for two quarters back to back, the new markets have been leading the bank, so we're very pleased with that. In terms of other drivers, yeah, you're right, C&I was up 20%, equipment finance up 15%, income producing CRE 9.5%, and we're very pleased that owner-occupied CRE, which is a real big initiative for us at the end of the year was up 9%. In terms of 2025, we're very optimistic, it is probably too early to talk numbers for the year.

Q: Thanks. Good morning. Just a quick comment on credit. Can you talk a little bit about your outlook for -- now that we've got manufactured housing out of the balance sheet, Navitas is a little bit higher core, your core bank has just seen such low losses. Is there a way to think about what an appropriate level of kind of provisioning or net charge-offs we should expect in this upcoming year?

A: Yeah. Hey, Catherine, it's Rob. The way it is, we had $58 million in charge-offs in 2024, about $14 million of that was related to manufactured housing, either from regular charge-offs before the sale or created by the sale. So that gets you down to $44 million. And I'm kind of thinking about that as being a good number for the outlook for 2025 right now. Things feel very stable, and so that's kind of the way I'm thinking about it for next year.

Q: Thanks. I had a deposit pricing question. As you look at M&A, what's the likelihood to reprice those deposits on the front end? And is that an opportunity bigger this year than it had been in the past?

A: Well, I'll start. Lynn may have something to add in on there. We -- it kind of depends on the bank you buy. We have -- some banks have great core deposits like ours, and the opportunity is not as big. Other banks that we see have very high deposit costs, and so we had the opportunity to use our liquidity to get that down. So we're seeing a flow of both of those. It really depends on what bank comes across the trends on there. I will say I'll add one more thing on there is that every bank you see opportunity in the marks on the asset side. So the ability with our 13% Tier 1 capital to absorb a loan mark, to absorb a securities mark and then have a higher margin coming out of it, is very high. So I think M&A can really help you with the marks on the asset side, but it really is bank dependent on the liability side.

Q: Thanks. Good morning, everybody. I wanted to ask Jefferson about the CD maturities. You mentioned, obviously, the half of them in the first quarter and then you've got another sizable slug in the second quarter. How are you thinking about kind of managing the duration of the renewals there from a rate perspective, really trying to get a sense of whether there'll be another opportunity to work pricing down more over the course of the year as we move later into 2025.

A: Thanks, Gary. That's a great question. We -- typically, our most popular CD has been in the 11-month or 13-month or 12-month CD. And so historically, at the bank, it's been closer to an average of about a year out. With the expectation of rates coming down, we really shortened that. We made our best rate to seven month, and we made it the four month, and that's what's giving us this opportunity here. As we reprice these, we are now moving it or pricing to be more equal or opportunistic at each price point. So what you're going to see is a lengthening out of these CDs and you'll see more growth in the 11-month, 13-month, 12-month CD, it will take a little bit, but the -- what you should see is a gradual lengthening of the CD book versus where it is now.