Q1 2025 United Community Banks Inc Earnings Call
Speaker Change: United's presentation today includes references to operating earnings, pre-tax, pre-credit earnings, and other non-GAAP financial information.
Speaker Change: For these non-GAAP financial measures, United has provided a reconciliation to the corresponding GAAP financial measure in the financial highlight section of the earnings release as well as at the end of the investor presentation.
Both are included on the website at ucbi.com
Speaker Change: Copies of the first 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
Speaker Change: Please be aware that during this call, forward-looking statements may be made by representatives of United.
Speaker Change: Any forward-looking statement should be considered in light of risks and uncertainties described on pages 5 and 6 of the company's 2024 Form 10K, as well as other information provided by the company and its filings with the SEC and included on its website.
Speaker Change: At this time, I'll turn the call over to Lynn Harton.
Lynn Harton: Good morning, and thank you for joining our call today. We're happy to report a strong start to 2025.
Lynn Harton: Operating Earnings were 59 cents per share with an operating return on assets of 1.04 percent, both solid improvements from a year ago.
Lynn Harton: Loans grew at an annualized pace of just over 5% and deposits grew at an annualized rate of 5% as well.
Lynn Harton: We saw growth in non-interest-bearing DDA for the first time in several quarters, with balances up 46 million from year in.
Lynn Harton: Arnetta Interest Margin increased 10 basis points over the fourth quarter, driven by lower deposit cost.
Lynn Harton: Credit continues to reflect quality underwriting with non-performing assets lower and credit losses stable from last quarter.
Lynn Harton: Operating expenses were lower both from last quarter and when compared to the first quarter of 2024.
Lynn Harton: I'd like to congratulate and thank our teams throughout the bank for strong balanced performance as we begin the year.
Lynn Harton: This quarter JD Power recognized United for the 11th time as the Retail Banking Satisfaction and Winner for the Southeast.
Lynn Harton: They also recognize us as being number one in trust and number one in people this year. It's amazing accomplishment for our team.
Lynn Harton: United teammates continue to live out our values of team, truth, trust, and the golden rule. I am proud to be part of this great group of people.
Lynn Harton: With these results and the strength of our balance sheet, we are well positioned to succeed despite the uncertainties developing in the economy.
Lynn Harton: Ultimate tariff impacts are impossible to predict at this point. As you can imagine, we've been soliciting feedback from our clients on the issue, and they reflect confidence and their ability to navigate the environment successfully.
Lynn Harton: Impacted companies are adjusting quickly, with price increases, sharing or splitting tariffs with suppliers, finding ways to change their material sourcing, and cutting costs in other areas to maintain margins.
Lynn Harton: Consumer spending and employment in our markets remains strong. We are watching the environment closely, but see no calls for elevated levels of concern at the current time.
Jefferson Haralson: Jefferson, why don't you cover the quarter in more detail now?
Jefferson Haralson: Thank you Lynn and good morning. On page five, we were very pleased with our deposit growth in the first quarter. We enjoyed 309 million dollars of deposit growth or 5.3% annualized.
Jefferson Haralson: Reachee this growth, even with approximately $85 million and seasonal public funds outflow
We were also happy to see 3% annualized DDA growth.
Jefferson Haralson: I would also like to add that the deposit growth funded more than all of our solid loan growth in the quarter.
Jefferson Haralson: We were proactive in lowering our deposit cost, our cost of total deposits improved by 15 basis points in the quarter.
Jefferson Haralson: We have a total deposit beta of 30% so far and we continue to believe that we are on pace for a high 30% range to pass a beta through the cycle.
Jefferson Haralson: We were able to reprise $1.4 billion in CDs, costing 4.14% that matured in the first quarter to 3.49% while growing the books slightly.
Jefferson Haralson: On page 6, we show that we have additional opportunity in repricing CDs with $1.3 billion matureing at 3.78%. We should be able to save 25 to 30 basis points on these
Jefferson Haralson: On page 7, we turn to the Lone Porfolio, where growth continued specifically in areas that we are targeting.
Jefferson Haralson: We had 7% annualized growth in C&I, which includes owner-occupied CRE, and we also had 15% annualized growth in the Navidus book.
Jefferson Haralson: We have also been targeting our heat-lacquon book for growth and we were pleased with 13% annualized growth in that area Thank you very much for your time, Gary Tenner.
Jefferson Haralson: Turning to page 8, where we highlight some of the strengths of our balance sheet. We believed our balance sheet is in good position from a liquidity and capital standpoint to be ready for any economic volatility.
We have no wholesale borrowings and very limited broker deposits.
Jefferson Haralson: Our loan-to-deposit ratio is low and stayed at 78% with our balanced loan-and-deposit group.
Jefferson Haralson: Meanwhile, our CET-1 ratio increased at 13.3% and remains a source of strength for the bank.
Jefferson Haralson: Moving to page 9, we look at capital in more detail. Our TCE ratio was up 21 basis points and went over 9%.
Jefferson Haralson: and we had increases in most of our regulatory capital ratios.
Jefferson Haralson: We were able to grow capital in a solid way, even with good long growth in the quarter.
Jefferson Haralson: Our TCE and all of our capital ratios remain above peers which we believe will allow us to be opportunistic in our capital use.
Jefferson Haralson: Moving on, spread income increased 6.5% compared to last year, and 3.2% annualized from the fourth quarter, even with two fewer days.
Jefferson Haralson: The margin came in 10 basis points higher in the first quarter, the increase was in line with our expectation and came mainly due to our ability to bring down deposit cost.
Jefferson Haralson: Excluding two basis points and less purchase accounting adjustments, our core margin increased by 12 basis points.
Jefferson Haralson: Moving to page 11, on an operating basis, non-interest income was down $4.8 million from last quarter.
Jefferson Haralson: That said, our run rate of fee income was essentially flat, excluding last quarter's notable items, such as an MSR right up and realize security's gains.
Jefferson Haralson: Operating expenses on page 12 were improved by $1 million in the quarter, which we were pleased with as we were able to generate some operating leverage in a quarter that is typically our weakest seasonal quarter.
Jefferson Haralson: Moving to credit quality, net charge-offs were 21 basis points in the quarter, flat to Q4, as Nevada losses improved and offset slightly higher bank losses.
Jefferson Haralson: I will finish on page 14 with the allowance for credit losses. Our global loss provision was $15.4 million in the quarter and more than covered are $9.6 million in net charge offs.
Jefferson Haralson: We also covered a long growth with the provision and the allowance for cut-a-bosses moved up just slightly to 1.21% of loans.
Jefferson Haralson: We reduced our hurricane Helene Reserve by $2.6 million to $7.2 million as we are feeling more comfortable with potential loss content.
Lynn Harton: We believe that our current provision is sufficient to cover any potential losses. With that, I'll pass it back to Lynn.
Thank you, Jefferson.
Lynn Harton: We are also glad to welcome American National Bank into United with our closing date set for May 1st.
Lynn Harton: American National has a talented team led by Ginger Martin and Amy Mahaney that will be an outstanding addition to our South Florida franchise and a great start to United 75th anniversary year.
Lynn Harton: and with that I'd like to open the floor for questions.
Speaker Change: First question comes from Russell Gunther with Stevens, please go ahead.
Good morning, guys. Morning. Morning, Russell.
Speaker Change: May I just 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.
Speaker Change: where spot race ended, March, and in any willingness to maybe flex the loan to deposit ratio here.
Thanks Russell. Great question. We Thank you.
Spyrate on cost of the pod is we're right around 2% [inaudible]
Speaker Change: Big 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 in our loan book to grow and the combination of those things should be, should push our margin up five to ten basis points. [inaudible]
Okay.
Speaker Change: Super Healthful. And then just switching gears, you guys mentioned no cause for elevated concerns at this time.
Speaker Change: of all the potential impacts from tariffs and the current trade war. You guys get good granularity in the deck on the low-import folio but would be helpful to get your sense for what parts of the book you're paying closer attention to today that may have.
Speaker Change: Barrowers, it's an outside exposure to all that's going on. And, you know, if you could touch on expectations within the Vedas, both from an asset quality and growth perspective, that would be helpful as well.
Speaker Change: Sure, this is Lynn Russell. I'll start now, let Rob jump in. You know, it's really just too hard to tell. Everybody is...
Speaker Change: So we're talking to a lot of clients as I mentioned and everybody is looking at where their tariff impacts are [inaudible]
and what point in the supply chain? Okay, and so...
Speaker Change: It's rare that you see somebody who's directly infected. We've got one, for example, client of a client, not a client of ours, but one of our client suppliers who's 100% tied to China and they're really concerned about what's going on.
Speaker Change: And so our client is more well, how can I replace that supplier with somebody else and so it's just it's a very I don't think you could say this
particular sector.
Speaker Change: is more impacted necessarily than another. It just really is almost a client-by-client basis. It's a way
Speaker Change: is the way we're taking it. And I would say, I've been very pleased. I've had a lot of these conversations myself and
Speaker Change: They're reacting very quickly. They learn during COVID, some of them have memories back to the GFC that you've got to take actions quickly. So as I mentioned in the preamble, whether it's going ahead in justing prices, going ahead in negotiating splits.
Speaker Change: and a fair number of them are looking at this as an opportunity. You know, we've got talked to a couple of domestic manufacturers who've already seen increases in orders, moving from Canada, moving from other areas. So it's...
Speaker Change: It's a real mix bag, and we're not at all downplaying that it could have an impact. In fact, it turns raw, but I mean, I think.
Speaker Change: The real impact is going to be, if you have a recession, if you have an increase in unemployment, I mean our portfolio in total is small business dominated, it's going to be impacted by any recession and I would assume Rob that's what you would think with Navitas Yeah, we've been saying sort of the potential risk is in the small commercial segment and so Navitas is a place in that segment as does the bank and so certainly that's true
Speaker Change: Six Spaces Points from the previous quarter. So it feels like at the moment, you know, things are kind of going well and kind of the way we would think they would go. And even the losses in the over the road space were right on target for where we expected them. So when we look at first quarter, it's kind of what we would have expected to see and no surprises. [inaudible]
Speaker Change: Certainly there's uncertainty as you're talking about and in that small commercial space so we're watching it very closely.
Speaker Change: Okay, great guys. Well, I appreciate y'all taking my questions. Thank you
The next question comes from Gary Tenner with the A. Davidson.
Please go ahead.
Big Burning, everybody. A couple of questions.
Speaker Change: First, I appreciate that, you know, the first quarter of longer certainly came in as you expected in that it was stronger than the fourth quarter. I just wonder if, you know, you're
Speaker Change: 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, you know, deals pushed out or, or, you know, borrowers just being...
Speaker Change: A little more conservative in how they're managing their business from a from a
you know, investment perspective, et cetera.
Speaker Change: Good morning, Gary. This is Rich. Yeah, 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 in the short answer is we've not really seen it
Speaker Change: 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.
Speaker Change: Great, appreciate that. And then follow-up question in terms of SBA and fee income. We've heard from a couple of banks that it's become a bit more challenging and late to get SBA deals approved, possibly due to staffing reductions.
Speaker Change: in the administration. Have you seen this at all? Is it potentially a headwind for getting a cell income?
Your turn.
Speaker Change: Gary, we are a preferred lender which means we have the approval to approve loans via the SBA so
Speaker Change: generally we're not going through them for approval so where you would see it a little bit on the 504 program we don't do a lot of 504.
Speaker Change: So on the 7A program, I feel good and the first quarter was our largest first quarter ever in SBA and right now premiums are holding the secondary market as well.
Speaker Change: Great. And if I can ask one more quick question, just on expenses, you know, effectively your operating expenses have flatlined over the past year, you know, a lot of success in holding that flat. So excluding, you know, the small acquisition, closing and May, where do you kind of see the trend here for the remainder of the year on expenses?
Jefferson Haralson: Thanks, Gary's Jefferson. I'll answer the question on expenses. We're keeping expenses to close single digit, but you do have a merit seasonality coming in at next quarter at $2.2 million.
Jefferson Haralson: We do expect with AMB closing on May 1st that adds about $2 million to the quarter as well and besides that there should be some modest growth in the second quarter and then think about his longer term in that kind of three to four percent range.
Great. Thank you.
Stephen Scouten: The next question comes from Stephen Scouten with Piper Sandler. Please go ahead.
Hey, good morning everyone. I appreciate the time.
Stephen Scouten: 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 capital priorities looks like today, and especially
Stephen Scouten: with the weakness in the group. The stock price is how you think about that $100 million share of a purchase authorization.
Stephen Scouten: Yeah, great question. So, you know, in terms of deployment, I mean, always organic growth. First, you know, historically we've been more M&A focused in terms of secondary, but at this, at these prices, you know, the earn back on repurchase and shares.
Stephen Scouten: is roughly equivalent to an M&A deal. So, you know, I'm highly confident in our own book, you know, why?
Stephen Scouten: You know, so I've got a, in my mind, a no risk, you know, three-year earn back investment or you know an investment that's going to be to have some risk embedded with it with a three-year earn back. I would, we'd go, we'd put stock my back ahead.
of M&A at the at these prices. So.
Yeah, that makes a lot of sense. That's great.
Um...
Speaker Change: And then kind of thinking about the balance sheet moving forward. It sounds like if I'm hearing things correctly
Stephen Scouten: We could see maybe more of an average earning asset remixed throughout the year, which helps them in and presumably helps earnings, but maybe not a lot of net average earning asset growth. Is that the right way to think about your expectations for kind of medium term balance
Stephen Scouten: Stephen, I would say yes with the caveat, so I think our debauchery is going to grow at the rate of our deposits and then from there you're going to continue to see that remix from
Stephen Scouten: Loans from Securities to Loans. So in combination, I would expect some balance sheet growth, but it will be driven by the deposit growth. So I think 2 to 3 percent, maybe up to 4 percent, balance sheet growth from the deposit side. So I would expect some balance sheet growth from the deposit
Stephen Scouten: Okay, that's helpful. And I think from a securities perspective, there's maybe 255 million that ran off this quarter. What's kind of that normal cadence that you expect in terms of cash flows off the securities? But I would expect that same pace for the rest of the year.
Stephen Scouten: Okay, and then just last thing for me, I know you guys said in the credit commentary that the loan loss reserve ticked up a little bit based on higher unemployment trends, I mean I guess remind me are you guys using the moody scenario and have you disclosed any of the weightings and then maybe last part of that is I know some of the April data with a little bit worse, so how do you think about that will help?
Stephen Scouten: kind of managing through those various scenarios, weightings and so forth.
Rob Edwards: Yeah, so, hey, this is Rob. Just on the allowance, we do use the moody scenarios. I don't think we have provided weights per attribute.
Rob Edwards: 11 different models for the various segments of the portfolio in each.
Each model has different weightings in it.
Rob Edwards: In terms of how we look forward, I think the way I would say it is, certainly we...
Rob Edwards: The Economic Forecast plays a significant role but really just as much as what we're seeing in the portfolio. So there's got to be a balance of validation. We've seen forecasts in the past, recent past.
Rob Edwards: that have sort of overstated what actually happened pretty dramatically. And so we're cautious to just blindly follow the forecast and
Rob Edwards: I really want to see the portfolio begin to perform in some consistent manner with the forecast before we start moving dramatically.
Stephen Scouten: Yeah, that's really well said. Thanks for all the color in the time. Great work. I'll add in there, Stephen, that we use the baseline forecast and some banks would use a weighted S2 or something like that. And we use the baseline. That's where your question was going.
Great, thanks, Jefferson
Speaker Change: The next question comes from Michael Rose with Raymond James. Please go ahead.
Michael Rose: Thank you very much. Thanks for taking my questions. I just wanted to go to the positive slide.
Michael Rose: What was already sort of, you know, campaigns that drove the interest rate growth or any kind of sort of timing around?
Michael Rose: Municipal deposits. Obviously, you don't really get crowed like this, David.
Michael Rose: of the average balance in the vehicles deposits pick up a little bit. Anything for reason there, reason to that in terms of some of your small business, your customers are trying to conserve cash, just giving them their needs, just trying to understand or appreciate the growth of the score.
Yeah, thanks.
Speaker Change: I'll start maybe with the seasonality of public funds and past the rich. We didn't have any special
Speaker Change: campaigns that I can think of, maybe Rich has something but we didn't have that shrinkage of public funds in the first quarter, I would expect probably 150 million or so, maybe up to 200 million dollars in shrinkage.
Speaker Change: plays out, but I think it was across the board just strong deposit growth, but I'll pass the rich to see.
Rich: He has. I would agree with you on that and I would say the one thing when we had a start to see some of the CDs maturing so we did put a little more emphasis on the money markets and we saw some growth there and that would be the only thing I'd really add.
Rich: All right, great. As a follow-up, I notice that loans in Tennessee kind of reversed a multi-quarter trend of declining balances. Anything there of note and any of the special businesses, you know, there.
Rich: Michael, thank you for asking that question. So I'll say in the last three quarters our new markets have led the production throughout the company. So Tennessee led in third quarter, Florida led in fourth quarter, and Tennessee led again in first quarter followed by Florida. So we feel very good about that. And that's a lot of the new team coming in, the leadership through Kelly Key and Sharon Thompson, a lot of new hiring, a lot of focus on C&I, and a lot of hard work.
Thank you for your work.
Speaker Change: All right, great. Maybe Final One for me, and this kind of relates into Stephen's question. But
Lynn Harton: Obviously you get the A and B deal closing, Len, you mentioned that the earned back on the buyback is about equivalent to a...
Lynn Harton: An M&A deal, I'd argue it's actually more attractive, just given it's somewhat risk-free.
Lynn Harton: But what does the M&A environment look like at this point? It does seem like a lot of people are on pause but
Lynn Harton: You have some of the secular trends around M&A and some of the challenges that...
You have X-Face or are still in place, so-
I always think that you guys is just kind of up.
Speaker Change: You know, unique in that you want to do some smaller acquisitions relative to your size, but we just love, you know, just some commentary on how you see M&A flying out over the next couple of years. Thanks.
Speaker Change: The market turns around, terms of prices. I don't, I don't see much happening. For some of the reasons you mentioned A, in a Bob Axe or more attractive, B, a lot of the banks that we would talk to the smaller banks, they...
Speaker Change: They tend to focus on a certain number versus an exchange ratio and the numbers today that just don't work so...
Speaker Change: and you know that you got the added piece of a little bit of, or...
Speaker Change: some maybe more than a little bit of economic uncertainty out there.
and so, really, how much?
Speaker Change: Do you want to, you certainly it's not an environment where you want to extend yourself on the M&A side. So personally, I think we're continuing the conversations feel great about it longer term, but I wouldn't see much happening in the next 12-18 months.
Perfect, thanks for taking my questions.
Catherine Mueller: The next question comes from Catherine Mealor with KBW. Please go ahead.
Catherine Mueller: Thanks, good morning. I just have a follow-up question on the margin. I heard you on the second quarter of Guide, Jefferson, just...
Catherine Mueller: 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?
Catherine Mueller: and 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 click curious to update us on how we should think about this trajectory of your margin once the Fed starts to cut. Thanks.
Catherine Mueller: Thanks, great question. I think that any quarter you get a cut, we're going to get an initial
Catherine Mueller: Declined the margin, and once we get the opportunity with the passage of a quarter or two, we should be able to get most of it back.
Catherine Mueller: I do think that we are slightly as sensitive and so a rate cut does hurt us a little bit, but I think the bigger picture is any
Catherine Mueller: on the asset side of the balance sheet. But we are asset sensitive and if the Ford Carvestane three cuts and we get those three cuts that will hurt our margin a little bit, especially in the initial quarter of the cut.
Speaker Change: Okay, great. That makes sense. And then just on, on fees, any update to your outlook on fees and it will be on SBA and Navitas for the course of the year.
Speaker Change: I'll start that maybe with Navidas and maybe I'll pass the rich on SBA which he answered some of that.
Speaker Change: But on the V this we elected not to sell to sell loans this quarter and so we had an absence there in our games on load sold
Speaker Change: and I think it's most likely that we would not sell Navitas long to the second quarter, although we have not made that decision fully yet. I think as a for modeling, maybe
Speaker Change: Assume that we won't sell Navitas loans possibly because I think that's our most likely second quarter take. That gives it go into the year and as the Navitas loans approach closer to 10% you may see us start selling maybe in the second half of the year. But we'll see what the prices are and what we think the relative economics are.
Speaker Change: That'll pass the rich on SBA. Sure, and as I said on SBA, prices in the Secretary market are holding.
Speaker Change: First quarter was said was our best first quarter ever, and that's usually seasonally low, so...
Speaker Change: We're feeling good about the year and feeling good about, I would expect that our fee income for the year would exceed that in 2024.
Stephen Scouten: Great. And Jefferson, on your belief that you won't sell Nevada since the second quarter, is that more a pricing decision, or is that more because if the core bank kind of slows down on growth, that's a good way to still kind of be able to deliver kind of that load of missing single digit, all longer with targets.
Stephen Scouten: Let's think it's better economics for the company to, I think it's high quality credit. I think it's a nine and a half percent loan and having it on the balance sheet for the full year is more creative than selling it. So it's more of a relative economics call.
Speaker Change: Great. I mean, maybe one more on the, on seeds, the service surges fell down a little bit, this quarter, which I know we always see seasonally. But should we expect that to kind of come back up to the level that we saw in the back half of the year? Or is there anything just to be aware of that we shouldn't be modeling there?
Stephen Scouten: Nothing to be aware of, I think it's not really a growth business for us, but I would expect that to return towards previous levels.
Stephen Scouten: Okay, I feel like ten and a half per quarter range. That was reasonable. Okay, great, thank you, great quarter.
Speaker Change: The next question comes from David Bishop with Hubby Group. Please go ahead.
David Bishop: Yeah, good morning. Hey, 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 rate.
Speaker Change: of maturing CDs. What you're expecting to sort of reprise those into and maybe where you're seeing the illustrations, turning to, thanks.
Speaker Change: We had moved our CD durations to be very short in that four month range, and you're seeing a more normalized spread.
Speaker Change: Then in the past, we've changed our pricing around to encourage a little bit longer term CDs. So you'll see the CD portfolio linked in just slightly.
Speaker Change: and we've had very good experience with RCD's repricing or keep rates there and be able to reprise those at a...
Speaker Change: 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.
Speaker Change: Got it. And one final question as to how keeping a good effective tax rate to use moving forward. Thanks.
22
Perfect, thanks.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Lynn Harton for any closing remarks.
Speaker Change: Well great, and thank you everyone for joining our call into the United Team, this listening and congratulations again on a great quarter and for the investors and support out there. If you have any additional questions feel free to reach out to myself for Jefferson, and we look forward to talking to you soon. Thank you.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.