Earnings call: United Community Banks reports mixed Q4 results

In the latest earnings call, United Community Banks (NASDAQ:UCBI) disclosed a mixed financial performance for the fourth quarter of 2023. The bank faced a decline in GAAP earnings, influenced by a one-time FDIC assessment and bond sale losses. However, its operating earnings rose to $0.53 per share, and the company maintained a robust liquidity position. Despite a slowdown in loan growth, deposit growth remained vigorous, particularly from public funds. Credit quality was noted as strong, with stable non-performing assets. Looking ahead, the bank anticipates improvements in 2024, focusing on net interest margin growth and credit results, while also leveraging market opportunities arising from competitors' challenges.

Key Takeaways

• GAAP earnings decreased due to a $10M FDIC assessment and bond sale losses.
• Operating earnings increased to $0.53 per share with an operating return on assets of 92 basis points.
• Deposit growth was strong, particularly from public funds, while loan growth slowed to 2.5% annualized.
• The liquidity position was strong, with over $1B in cash and equivalents.
• Credit quality remained good in the core bank, and Navitas losses are expected to normalize by mid-next year.
• The bank experienced 8% growth, excluding mergers, and improved customer service scores.
• Executives anticipate improvements in 2024, with a focus on managing rate exposures and growing net interest margin.
• Opportunities for market share gains are seen due to merger disruptions and competitors' liquidity issues.
• M&A activity is expected to be more likely in 2025 due to the current economic uncertainty.

Company Outlook

• The bank is focused on managing rate exposures and expects to grow its net interest margin.
• Improvement in credit results is anticipated in 2024.
• Executives see potential to take market share in the current environment.
• Cost management is a priority, setting up the bank to potentially outperform in 2025.

Bearish Highlights

• Financial results for 2023 fell short of expectations due to margin contraction and credit underperformance.
• Loan growth was slower than anticipated, with pay-offs exceeding new loans.
• Economic uncertainty is expected to dampen M&A activity in 2024.

Bullish Highlights

• Deposit growth remains strong, with significant contributions from public funds.
• Credit quality in the core bank is good, with non-performing assets stable.
• The bank has added two high-quality banks to its portfolio and strengthened teams.
• Navitas is expected to return to normal loss levels by mid-next year.

Misses

• GAAP earnings were impacted negatively by special assessments and bond sales.
• The expected growth rate for noninterest expense in 2024 is around 3%.

Q&A Highlights

• Executives discussed a pilot project in Atlanta aimed at reducing treasury management costs.
• Distress in the trucking industry was acknowledged, though specifics on charge-offs were not provided.
• The bank's M&A strategy favors smaller deals within existing markets.
• Loan growth opportunities may arise from industry merger disruptions.
• Liability sensitivity and the impact of rate cuts on loan demand were addressed.
• A mid-single-digit growth is expected in the Navitas loan portfolio.

Additional Insights

• Interest rates may decrease in the future, but the bank believes it can outperform before then.
• The senior care portfolio is stable, with potential for loss or recovery.
• Deposit growth in acquired banks and loan growth in Tennessee are showing positive signs.
• Criticized assets have decreased significantly since 2020 and are expected to stabilize.
• Leadership changes and regional improvements signal a positive outlook for the bank.
• Net interest margin guidance was provided, assuming no rate cuts, with a potential upside if the forward curve materializes.
• The composition of the bank's book in 2025 remains uncertain, with further details to be provided later.

InvestingPro Insights

United Community Banks (UCBI) has demonstrated resilience in a challenging environment, as evidenced by their latest earnings call. To provide a deeper understanding of the company's financial health and future prospects, let's delve into some key metrics and insights from InvestingPro.

InvestingPro Data shows a Market Cap of approximately $3.43B, indicating a significant presence in the banking sector. The P/E Ratio stands at 18.92, which aligns with industry standards, suggesting that investors are willing to pay close to $19 for every dollar of earnings. This metric, along with an adjusted P/E Ratio from the last twelve months as of Q4 2023 at 17.02, reflects a stable valuation relative to earnings. Additionally, the Price / Book ratio of 1.08 suggests that the stock is trading slightly above its book value, which could be seen as reasonable given the company's consistent dividend payments.

InvestingPro Tips highlight UCBI's commitment to shareholder value, with the company having raised its dividend for 10 consecutive years, showcasing a reliable income stream for investors. Moreover, the bank has maintained dividend payments for the same period, reinforcing its dedication to returning value to shareholders. This is particularly noteworthy for income-focused investors seeking stable dividend-paying stocks.

While UCBI's gross profit margins have been identified as a weak spot, the bank has shown a strong return over the last three months, with a 31.06% price total return, signaling a positive short-term performance that may catch the interest of momentum investors.

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Full transcript - United Community Banks (UCBI) Q4 2023:

Operator: Good morning, and welcome to United Community Banks' Fourth Quarter 2023 Earnings Call. Hosting our call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; President and 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 are included on the website at ucbi.com. Copies of the fourth quarter's earnings release and investor presentation were filed this morning 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 5 and 6 of the company's 2022 Form 10-K, as well as other information provided by the company and its filings with the SEC and included on its website. At this time, I will turn the call over to Lynn Harton.

Lynn Harton: Good morning, and thank you for joining our call today. This quarter was a bit unusual with several non-recurring items. First, the FDIC special assessment to replenish the insurance fund was $10 million. Additionally, we took the opportunity as rates fell going into the end of the year to sell some of our longer-duration bonds to shorten the average life of our balance sheet. While not the driver of this decision, this will also increase our earnings for 2024. Together, these two items reduced our GAAP earnings by approximately $0.39 in the quarter. On an operating basis, earnings improved to $0.53 per share, with an operating return on assets of 92 basis points. We had strong deposit growth in the quarter, centered primarily in our public funds relationships. The rate of contraction in our margin slowed with our core margin dropping only 4 basis points this quarter. By way of comparison, our core margin fell by an average of 19 basis points in each of the first three quarters of the year. Loan growth was slower at 2.5% annualized versus 5.4% last quarter. Our liquidity position continues to be very strong. We ended the year with over $1 billion in cash and cash equivalents and essentially no wholesale borrowings. Credit quality in the core bank was very good with only 5 basis points of net losses. Non-performing assets were essentially flat at 51 basis points. Navitas continued to experience higher-than-normal losses as we continue to work out the sleeper truck portfolio. We expect losses to trend back towards normal levels at Navitas by the middle of next year. I'm going to turn the call over to Jefferson now for more detail on the quarter and then I'll make a few comments on the full year.

Jefferson Harralson: Thank you, Lynn, and good morning to everyone. I am going to start my comments on Page 6 and go into some more details on deposits. As Lynn mentioned, our total deposit balances were up 7.9% annualized for the quarter. And if you adjust for the broker deposits we paid down, we grew total deposits by $504 million or 8.9%. The primary driver of the growth this quarter was public fund. We saw some seasonal inflow and got a couple of new accounts that accounted for the growth in this line item. The deposit growth in the quarter more than funded our loan growth, and our loan-to-deposit ratio moved to 79% from 80%. Our cost of deposits moved up 21 basis points in the quarter to 2.24%. And we saw continued shrinkage in our DDA accounts, but this is happening at a slower pace. Our deposit betas for the cycle were below the median a year ago but are above the median now at 42%, and we are hopeful to move closer to peers and get some of that back in 2024. We turn to our loan portfolio on Page 8. We grew loans in the second quarter by $116 million which is 2.5% annualized. This is a little lighter than we originally expected. We are seeing less demand from our customers who appear to be holding back on projects due to rates and uncertainty. We have seen our residential construction book shrink by about $97 million in Q4 and we also saw our construction commitments drop in Q4 in both commercial and residential. We saw Navitas loans grow at a 2% pace as we kept loan sales in this area high at $28 million. On Page 8, we also lay out that our loan portfolio is diversified and generally more granular and less commercial real estate-heavy as compared to peers. Turning to Page 9, where we highlight some of the strength of our balance sheet. As mentioned, our balance sheet is in good position with no FHLB borrowings and very limited brokered deposits. On the bottom are charts of two of our capital ratios, our TCE ratio and CET1. The TCE was up because of less unrealized losses. We had 28% of our AFS unrealized loss come back this quarter, and in both TCE and CET1, we are well above our peers. On Page 10, as I mentioned, our regulatory ratios also remain above peers and were mostly unchanged in the quarter. Our leverage ratio was down 24 basis points, driven by a larger balance sheet, being $400 million larger with a strong deposit growth. At the bottom of the page, we show a tangible book value waterfall chart, and note that the change in OCI was a benefit of $0.78. We put out a press release at the end of the year detailing our securities loss transaction in the fourth quarter. For risk purposes, we wanted to be shorter in our securities book, and now our AFS book has a 2.4 year duration, which we believe is a better risk profile through cycles. We have been continuing to be opportunistic in repurchasing our preferred shares at a discount to par. We bought back $1.8 million in Q4 and $7.1 million for the year, and we will continue to buyback small amounts depending on price. Moving on to the margin on Page 11. The margin came in a little better than I was estimating and was down 5 basis points and down 4 basis points on a core basis. We were pleased to see this translate into spread income growth this quarter. Our loan yield moved up 13 basis points to 6.15%, with our new and renewed loan yield in the 8.5% range for the quarter. We had slightly less loan accretion in the quarter as compared to Q3. This went from a 9 basis point benefit to the margin in the third quarter to an 8 basis point benefit in the fourth. Moving to Page 12, noninterest income. Excluding the portfolio restructuring, noninterest income was down $3.4 million relative to last quarter. This was primarily due to a $3.5 million negative swing in the MSR valuation. Other income was up $2.5 million in the fourth quarter, due mainly to the absence of the $1 million loss on the sale of branches last quarter, and then a variety of small items made up the positive difference. Our gain on the sale of loans were basically flat in the quarter. Another notable item was $2.5 million in unrealized losses on equity investments that we do not expect to repeat regularly. Operating expenses, on Page 14, came in at $138.8 million, which was up $3.5 million from last quarter. The primary reason for the increase is a $3.2 million negative swing in our group medical insurance costs. We self-insure and our medical cost came in higher than expected and required us to build our reserves sum in the fourth quarter. Excluding this event, our expenses were essentially flat. Let's talk seasonality a little bit. The first quarter is our seasonally worst quarter. Besides one less day this year in the first quarter, it's seasonally the slowest for SBA and Navitas and our corresponding loan sales. Mortgage volumes are picking up a little bit with lower rates but remain seasonally slow until spring. We will have lower group medical costs by about $1.7 million, but we will also have a FICO restart and other expense accruals. Net-net, on the expense side, I'm expecting them to be essentially flat for the first quarter. Of a net interest margin, the securities transaction is expected to take our yield up to the 3.10% range, which is a 4 basis point benefit to the net interest margin. Our loan yields should continue to increase and we are expecting our cost of funds increases to slow down. We still have new CDs coming on at higher rates than maturing ones, and DDA could shrink a bit, but we are starting to push back and lower some of our promotional rates. In combination, our margins should be relatively flat in Q1, somewhere between minus 2 and plus 2 basis points. Moving to credit quality. Net charge-offs were 22 basis points in the quarter with the bank being very low at just 5 basis points. Our NPAs were essentially flat. Our special mention plus substandard were improved slightly and down from a year ago. Our breakout on Navitas losses are on Page 17. Last quarter, we broke out long-haul trucking for the first time. We were having higher losses in this small book as Lynn talked about in his opening. This quarter, the book shrunk from $57 million to $49 million, and of that shrinkage, we had $4.4 million of losses. We changed our practice at Navitas to markdown repossessed collateral at the repossession date. This had the impact of recognizing losses sooner than we had been, and this added $1.8 million or 47 basis points to the Navitas loss rate this quarter. We continue to believe that Navitas losses will stabilize in the 85 to 95 basis point range later this year. Navitas' losses excluding long-haul were 96 basis points and we are putting on new loans in the 10.5% range. I will finish back on Page 15 with the allowance for credit losses. We set aside $14.6 million to cover $10.1 million in net charge-offs. This had the impact of building the ACL slightly in the quarter. With that, I will pass it back to Lynn.

Lynn Harton: Thank you, Jefferson. Great comments on the quarter. As we look back at 2023, I am proud of the way our teams responded to the many challenges the industry faced. In spite of industry-wide concerns over liquidity and deposit stability, we were able to grow customer deposits over 8% during the year, excluding mergers. We know from our internal surveys that our customer service scores grew significantly from already high levels. We added two very high-quality banks to the franchise with Progress and First National Bank of South Miami. Both have been performing very well and ahead of my expectations. We strengthened our customer-facing teams with new leadership at the state level in Tennessee and Florida, as well as significant market hires in Northwest Georgia, Atlanta, Orlando, Nashville, Knoxville, and middle market banking. We hired a new leader for Wealth Management to drive the expansion of that business. We strengthened our support and control teams as well with a new Chief Audit Executive and several important additions in credit, risk, and technology. We were named the Best Bank to Work For by American Banker for the seventh consecutive year. We rebranded the company with our fourth refreshing in our 70-year history. We added another outstanding Board member with highly relevant experience to help guide our continued growth. All were outstanding accomplishments for the year. However, our financial results for '23 did not meet our expectations. Much of the shortfall was driven by the margin contracting more rapidly than we expected. Part of the reason for that is that we reacted appropriately, I believe, to the turmoil in the spring, and increased deposit rates more rapidly than expected and perhaps more than required. We also realized we had let our assets become less interest rate-sensitive than we would have liked. We underperformed in credit due to a miss on a large shared national credit as well as entering into a small high-risk segment within our Navitas book in which we have since ceased originations. Fortunately, our belief in managing concentrations, including fixed rates, and not betting the bank, allowed us to maintain performance, which while okay from a peer perspective, is not at the level we strive to deliver. 2024 will be an improvement. We're focused on actively managing rate exposures and growing our net interest margin. Our relative credit results will improve in '24. We also see a great environment for taking market share. Merger disruptions continue, providing us opportunities to add talent. Some of our competitors are liquidity-challenged, also providing opportunities for us to grow. While the overall demand for credit may be lower if the economy slows, we believe we are well-positioned to grow our lending business regardless. Our customer service scores and responsiveness to our customers puts us in a great place to be able to continue to grow low-cost deposits as well. On the expense side, we have just completed some difficult decisions in putting together our budget and we will continue to manage our costs actively as the year unfolds. '24 will be a strong year for United and will set us up well to outperform in '25, which is our goal. I appreciate your support and interest. And now, we all look forward to your questions.

Operator: Ladies and gentlemen, at this time, we'll begin the question-and-answer session. [Operator Instructions] And our first question today comes from Michael Rose from Raymond James. Please go ahead with your question.

Michael Rose: Hey, good morning, everyone. Thanks for taking my questions. Bunch of calls this morning, but sorry if I missed this. But Jefferson, can you just give us your what rate outlook you guys have embedded into your outlook? And then, can you describe, if it's not the forward curve, what the sensitivity would be if you were to assume the forward curve, and then if we did stay higher for longer, and let's just say we didn't get any cuts this year? Just trying to kind of math out the sensitivity from rates. I assume it's not linear. So, I just wanted to get some perspective. Thanks.

Jefferson Harralson: Great. Yeah, thanks. Michael, great question. So, on the margin, when we were giving the guidance that plus 2% to minus 2%, not having any rate hikes in there -- or I'm sorry, rate cuts in there. And in that environment, we are expecting that the margin will increase throughout the year as we're take near the top of our deposit beta. We've had a 42% deposit beta cycle to date, we're projecting a peek at 45%. If rates were to follow the forward curve, I think we get a little bit of boost in there. If you look at our analysis, we're a little bit liability-sensitive right now. So, I think that, we would get an extra -- if you follow exact the forward curve, you might get 5 to 7 basis points positive if you follow the exact -- for the year, if you follow the exact forward curve currently today.

Michael Rose: Okay. That's helpful. And where does that assume that the NIB mix, non-interest bearing mix kind of troughs in your modeling?

Jefferson Harralson: Yeah. So, that would shrink to 27% range. So, we're at the 28% range now. We're seeing that slowdown. So, right around 27%.

Michael Rose: Okay. Perfect. And then, Lynn, I think you just made some comments around just some tough decisions around the budgeting process. I'm sorry if I missed it, but can you just talk about some areas where you're maybe scaling back a little bit and maybe some areas where you're investing? And just how that translates, and again, sorry if I missed it, to the kind of expense outlook as we think about this year? I think previously you guys were talking about, about a 3% year-on-year growth in '24 last quarter. Thanks.

Lynn Harton: That's right. So, I'll start and then Rich will kick in. We really took a hard look at our producers and kind of who is producing and who is not, made some difficult choices there. On the technology side, which projects do we really need to do, which projects can we cut out. Made some -- the branch decisions get more and more difficult only because all of our branches are profitable, but which ones do we need to consolidate and shutdown. Those are some of the bigger items. And Rich, I don't know if you'd like to add anything to that or Jefferson.

Rich Bradshaw: No, just we -- as you go through in looking at -- we've done this every year now in terms of the branches, so we're really looking also strategically and does it make sense and we're closing branches that's near another branch, so they're enjoying the economics of moving because we know if we close a branch near another branch, then we're going to keep about 90% of the deposits. And so, we've gone through that exercise, and those have been identified and notifications have gone out to the regulators. So, we're down the road on those.

Jefferson Harralson: Yes. I'll just add some – a detail on that. So, as we went into budget, we didn't have branch cuts in there. Now, we're planning on cutting four branches in 2024. In terms of investments, we are excited about Wealth Management. I don't think you're going to see a huge change in '24. But as we look in the years beyond that, I think it's -- we picked up two great trust in Wealth Management businesses in both of our Florida acquisitions. And really as we've come to understand that business, we know that our client base actually skews wealthier than average, probably wealthier than most people would think. We think it's a great opportunity to take that throughout the footprint, brought in a really strong leader for that. So that's one investment area that we're looking at.

Michael Rose: Great. I appreciate the puts and the takes. And maybe just finally for me, can you just talk about kind of borrower demand in your markets? I think previously you've talked about kind of a mid-single-digit growth expectation for this year. I certainly understand that you're in some really strong markets, but that borrower demand has probably come in a little bit. So, I just wanted to get a sense for where you see some opportunities. And then, I assume that you're probably not looking to necessarily grow your office portfolio or some of those other "higher risk" areas, but just some commentary there would be great. Thanks.

Rich Bradshaw: Good morning, Michael. This is Rich. And I think you summarized it pretty well, I have to say. But we are -- as you said, we're in the best markets, we remain optimistic. Certainly, looking for our new hires from late last year and our new hires that we just made, so I'm excited. We've made some more recent big hires, and these are both people that we have been recruiting for over a year. And so, we brought on Evan Wyant. Evan is our new Central Florida President in Orlando. And we brought in Spencer Wiggins, who is our new Market President in Mobile, Alabama, and will be -- has opened up an LPO there. Both these gentlemen bring portfolio with them. I mean they both carried a portfolio and either they have or will bring some additional lenders. So, we're excited about that to kick in with some of the lift-outs that we did late last year to Tennessee. One is, which was in Knoxville, is really kicking in. And by kicking in, I mean close loans not just pipeline. And so we're excited about that. And we're also excited about our continued investment in Florida. For the first time, Florida led the bank Q4 in production, and we're really excited about that.

Michael Rose: Okay. Thanks for taking all my questions. Appreciate it.

Operator: Our next question comes from Graham Dick from Piper Sandler. Please go ahead with your question.

Graham Dick: Hey, good morning, guys.

Lynn Harton: Good morning, Graham.

Graham Dick: Hey, I just wanted to circle back to the NIM quickly, specifically on the deposit betas. Jefferson, I think you said you're expecting to kind of catch back up to peers in terms of bringing your beta down if rates were to come lower. What are you expecting I guess in terms of deposit betas on some of the initial cuts if they were to occur in 2024? Do you think there'll be a lag or do you think it will sort of be linear where you have a set of indexed deposits that are going to reprice down immediately?

Jefferson Harralson: Yeah. So, we have $3.6 billion of index deposits. So, some of that would be immediate. We're using for the non-maturity deposits. We're using high-30s%, 37%, 38%, 39% range. But I also believe that we can maybe get some back possibly before rates start going down. We've lowered rates in our promotional money market CD or money market or ICS. So, we think we can use the strength of our balance sheet. No wholesale funding. The good deposit growth of this year. Lynn mentioned the 8%, our loan-to-deposit ratio at 79%. So, we believe that we can maybe start getting some of this back before rates start going down. And Rich may have some...

Rich Bradshaw: Yeah. I'll add a little color. We brought -- at the start to the year here, we brought down our money market special 35 basis points. There was over $2 billion in that product. So, that's -- just doing the math, that's about $7 million savings right there. And as you mentioned, Jefferson, the ICS, the treasury management, really hard to bring that down $1 million, and I will tell you, we're working on a pilot in Atlanta to even bring it down further.

Graham Dick: Okay. That's really helpful. And then I guess turning to credit, Navitas obviously, there's still distress in the trucker segment. I mean, do you expect it to come down to I guess 85 to 95 basis points, a total charge-off level at some point later this year? But I'm just wondering, on that long-haul trucking, the $49 million that's left, how much of that do you think is at risk I guess today of needing to be charged-off?

Lynn Harton: Yeah. I'm not sure I have an answer for you on that. I think maybe the best thing I could give you is that, we do a refresh of public score absolute probability of default, it's kind of like a FICO for small business, and I think that number is like a 15%. So, that would be one way to identify the higher-risk population of that group. But it's a really granular portfolio. So, short of that, I don't -- there is no risk rating that goes on. This is small business, $100,000, $200,000 loans.

Graham Dick: Okay. Is there anything I guess economically that could help that segment? I mean, with lower rates, do anything to help? I mean, I guess it might all be dependent on invoice size, freight invoices, but anything out there that might be able to help this thing out externally?

Lynn Harton: Yeah. So, I think it's more business-related than it is interest rate-related. So, the value of the tractors went down pretty dramatically towards the end of last year, but really in the second half. And so, I think it's more about the value of the tractors and the demand for trucking. A bunch of retailers got overloaded with inventory and demand went down. So, to me, it's really -- the root cause is really demand of transportation.

Graham Dick: Okay. Understood. And I guess just lastly, is more on M&A. I mean, you guys obviously have been very active over the years. How do you feel about M&A conversations in 2024, and the likelihood of maybe looking to bolster some of your markets, maybe like Florida, like you mentioned in terms of adding scale there even further?

Lynn Harton: Yeah. So, our strategy has -- it remains consistent. We like smaller deals in markets where we are, where we can be more additive. And at the end of last year and as we come into the first quarter, M&A I think is generally less likely because of the marks. And with high marks, you have to allocate more capital to an M&A transaction with questions about the economy, then you have to add a question whether or not you want to do that or not. Now, so my view has been that an actual transaction in '24 is not as likely as it has been in the past for those reasons. Now obviously, as rates come down, and those marks get less, as you get clarity about the economy, your comfort in using your capital becomes greater. So, look, could you do a small -- could a small deal in one of our markets happen? Yes. I don't think it's overly likely. I think '25 is kind of when you'll see more M&A activity come online.

Graham Dick: Okay. That makes sense. Thanks guys.

Lynn Harton: Thank you, Graham.

Operator: Our next question comes from Catherine Mealor from KBW. Please go ahead with your question.

Catherine Mealor: Thanks. Good morning.

Lynn Harton: Good morning, Catherine.

Catherine Mealor: Let me just start with just your growth outlook. I think this quarter was just a little bit slower and you talked about that in your prepared remarks. But just sort of thinking about how you think about loan growth, maybe just in the first part of the year. And then as we see rate cuts, what you think that will do net loan growth maybe in the back half of the year?

Rich Bradshaw: Good morning, Catherine. This is Rich.

Catherine Mealor: Good morning, Rich.

Rich Bradshaw: For Q4, production actually came in pretty much on plan. It was -- the reality for us was that pay-offs were greater than the forecast. And I really got into the weeds a little bit on that. And throughout our markets, we just had a fair amount of customers sold their business or they sold their owner-occupied real estate and did a sale leaseback. So, that was not in our projections. That was a little higher. The other thing, as we think about this quarter and next year or this year is, the thing that creates a lot of opportunity for us are the continued merger disruptions and the fact that some of our competition has fairly high loan-to-deposit ratios and just really aren't in the game right now. So, I think we are going to see, it's going to be a low-to-mid single-digit, but I think we're going to be just fine on loan growth and I think we're actually in -- that merger disruptions will also provide talent opportunities for us as well. So, we continue to want to be opportunistic on that. But having said all that, that's why I'm feeling good about where we are in Q1 and 2024.

Jefferson Harralson: On the rates down translating into demand question, I think a normal-shaped curve would really help. When you have a variable-rate loan, we're trying to price it in the mid-8%s right now. It's just a lot of people don't want to do that or even if they think the rates are coming down. So, I think, if you get lower rates and a more normal curve, I think you'd see some better demand. But at the same time, lower rates is implying a slower economy at the same time. But I think a normal curve would be very helpful. And I'll throw one more thing on deposits. Now, we do have deposit growth in our budget for next year. We have the seasonality outflows in Q1, I believe. So, I wouldn't be surprised to see deposits down a little bit in Q1. But we're pretty optimistic. We've been growing deposits pretty well and we think we'll have net growth in 2024.

Catherine Mealor: Okay. And then on your comment that you're now liability-sensitive, Jefferson, I guess two questions within that. I'm assuming a lot of that is coming from your just ability to lower deposit costs when we start to see rate cuts, just given that that kind of was surprisingly more higher than expected as we moved through the year. Just kind of curious on that just big picture. And then secondly, within that, what -- give the amount of loans that you -- fixed rate loans that you expect to mature and reprice in 2024?

Jefferson Harralson: Okay. So, let me get -- remind me the first question. How do we...

Catherine Mealor: How the liability -- because it's interesting like you've been asset-sensitive for so long and now you're liability-sensitive, and this quarter has been really interesting as different banks have answered that question differently than I would have expected over the past few weeks. So, just kind of curious what's driving that.

Jefferson Harralson: It's hard on the assumptions, but I would say we're temporarily liability-sensitive. Because we do have more assets tied to -- so for in Prime than we have liabilities. So, that might -- you might think of that as traditionally asset-sensitive. But I would say that those numbers are closer than they ever had been before because of this $3.6 billion that we have actually tied to -- on the liability side, tied to SOFR and Prime. So, that number would have been $600 million pre-Silicon Valley. So, the numbers are much closer on the assets are going to move directly with rates. And then from there, you're not going to see a lot of prepayments on the first 100 basis points move, because these mortgages are pretty far out the money, so they're behaving more like fixed rate loans temporarily, so you get that benefit. Now, that's not going to be as rates go way down. But in the near term, you're not going to see increases, we don't think, of prepayments because of that. So, it's a little bit peculiar as I think we'll end up asset-sensitive, but the prepayments are just so far out of the money. Now on the fixed-rate loan question, if I answered that one, I hope I did, is that, if you look at variable rate loans that are variable or scheduled to reprice within a year, then you add to it fixed-rate loans that mature within a year, it moves from about 32%, 33% to 36%, with adding into fixed maturity. So, you have 3% -- you're adding 3% to the floating rate category if you add in fixed-rate loans soon to mature. So, 36% with that.

Catherine Mealor: Okay. Got it. So, that 36% -- that $6.6 billion or 36% equivalent, that includes fixed rates that will mature this year?

Jefferson Harralson: That's correct.

Catherine Mealor: Plus your variable rate loans? Got it.

Jefferson Harralson: Correct.

Catherine Mealor: All right. Very helpful. Thank you, Jefferson.

Operator: Our next question comes from Russell Gunther from Stephens. Please go ahead with your question.

Russell Gunther: Hey, good morning, guys. Just a few follow-ups. One [Technical Difficulty] peak on the way up. But given the dynamics you just talked about with the funding profile and rate sensitivity there, do you guys think that that can ultimately outperform on the way down? And how are you thinking about that from a timing perspective?

Jefferson Harralson: Yeah. So, we are trying to -- we are pushing for having it outperform before rates go down. Rich talked about some of the rates that we've lowered. I don't know, I've seen some of the calls where some banks are talking about lowering, but I don't know if that's going on across the industry right now. So, I think we can begin to outperform before you start seeing rates come down. Now, as we all know, models have a lot of assumptions in them, and one of the biggest assumptions is going to be how competitors react. There are a lot of CDs maturing in the first half of this year. There is going to be -- there might be some more liquidity-constrained banks that we're going to need to price again as to hold our balances where we want them to be. So, it's a really tricky year to forecast, because if we come into some of our deposit pricing meetings and we're hearing about specials, last year, you'll remember, there was a special in Tennessee that we all had -- a lot of us had to, I don't know about match, but get close to. The competition is going to be a big piece of it, but we think we can chip at it with our strong balance sheet and our strong deposit base before rates are going down. Because relying on our down beta has been more than other banks has -- it could be tough because I just don't know what the competition is going to be doing.

Lynn Harton: Jefferson, I would add, the feedback from the market or people out in field is that the exception pricing request is way down.

Jefferson Harralson: Right.

Lynn Harton: So, we're not seeing the same demand for pricing increases in matching that we've seen previously.

Russell Gunther: Thanks, guys. And then just switching gears a bit to the expenses. So, the $3 million swing this quarter on the self-insured, I would think that could be pretty volatile but just contextually, is that an elevated results and a bit one-time in nature? And then just bigger picture, I hear you guys actively trying to manage for the year, how are you thinking about just overall noninterest expense growth for '24?

Jefferson Harralson: Yeah. So, I think the 3% range, I think Rich may have mentioned or maybe a questioner mentioned, is that 3% range is a good range to think about. And what I will say the fourth quarter was one-time, it will end up being -- there is some catch-up element in there, it will end up being a bit of a higher run rate for that number in 2024 as we have a higher expense run rate, but it won't be to the level of what it was in Q4. And I think you'll see it -- again a $1.7 million improvement in that line item in the first quarter.

Russell Gunther: Okay. Got it. Appreciate the clarification, Jefferson. And then, just last one for me, guys. The low-to-mid single-digit loan growth for '24, what are you guys assuming out of Navitas?

Jefferson Harralson: Yes, that'll be mid-single-digit there too.

Russell Gunther: Okay. Great. That's it from me. Thanks for taking my questions.

Operator: Our next question comes from David Bishop from Hovde Group. Please go ahead with your question.

David Bishop: Yeah. Good morning.

Lynn Harton: Good morning.

David Bishop: Hey, Jefferson, you spent some time doing a deeper dive into Navitas, but curious maybe an update on what you're seeing within the senior care portfolio. Any update in terms of credit trends and how comfortable you are in terms of getting your arms around potential loss content within that segment?

Rob Edwards: Yeah. So, David, it's Rob Edwards. In terms of senior care, it feels like the environment is stable. It doesn't really feel like it's going back to where it was pre-COVID. Just the cost of labor is different, and of course, interest rates are different and the cost of goods, really it's an operating business. We keep it in the CRE portfolio, but it's got many operating business dynamics to it. But it feels like it's stable. It's not going back. We haven't seen a ton of improvement. The improvement we see is kind of slow and steady, is the way I would think of it. So, we've got -- in terms of loss content, we've got three properties in non-accrual right now. We've charged them down to the appropriate appraised value we believe. There may be additional loss content in there or there may be recovery content in there and we continue to monitor those very closely and work to resolve them. So, I would just say, the environment is stable, where we have ceased originations in that portfolio and so it's in wind-down mode and you see that on the slide.

David Bishop: Got it. Appreciate the color. And then, one follow-up question. You spoke about the opportunities, I think, Lynn, in terms of Wealth Management. Any other opportunities to augment some of the other fee income lines? I know some of your peers are seeing the ability to add some pretty seasoned mortgage producer when the mortgage market recovers here. Any opportunities along those lines to augment fee income this year? Thanks.

Lynn Harton: Great question.

Jefferson Harralson: We're all looking at each other.

Lynn Harton: I think that Wealth is going to be the primary one. I think mortgage with where rates are, we've been mainly focusing on increasing the profitability there, not planning for an increase in revenue, but it's really on the very bottom. So, if you get rates lower, you might see some. But our initiatives, maybe not -- I was looking at Rich. And on the Wealth Management, it's where we're most excited about because of hiring a strong leader in that area. But I'm thinking about other areas, the gain of loans sold, I think should be relatively similar, but what do you think about the SBA?

Rich Bradshaw: Yeah. The SBA is a great product in an environment like this. And so, I think you saw the announcement. We came in 25th in the country in dollars out last year and we think that's just going to get bigger this year. And as our hiring discussions continue, I will tell you, there is a really material one going on there, and that I've been also involved in, so we look forward to that. But we -- as you are aware that we've continually added lines of business here since I've been here, since Lynn brought me on, and we're just going to continue that, just going to be opportunistic. This is kind of an interesting year and we all wait to see what the Fed does and stuff, so I almost think that discussion is a little bit like M&A. I think there is probably a more realistic opportunity in 2025 if we're looking at opening any new lines of business.

David Bishop: Great. Appreciate the color. Thank you.

Operator: Our next question comes from Christopher Marinac from Janney Montgomery Scott. Please go ahead with your question.

Christopher Marinac: Thanks. Good morning. I wanted to ask about the positive retention at the acquired banks last year. So, is that kind of where you wanted it to be? And then, how does it spill over into the deposit growth that you're looking for this year? Will you see deposit growth from those new markets or is it going to be more from the core UCBI franchise?

Rich Bradshaw: Sure. I'll start Christopher, this is Rich. Let's start with progress. To start, we announced that and closed January 1st, and then when you don't have your conversion until April, that's always -- it's hard to get new money in the bank when you're converting. So, since then, we lost some deposits at that point, but we've been building it up since and we do see that being positive for 2024. And then of course, the First National Bank of South Miami, whenever we do an acquisition, there is always some run down both in deposits and loans. Some of that is planned, some of it is not planned, but same thing, we expect that to be in good shape in 2024.

Lynn Harton: I might go back a couple of deals and just talk about Tennessee. I think we had more run-off there than we would have liked, but we have a new leader there, Kelley Kee. He's been there for a while now. We've had great hires. We're seeing better trends there. Florida, you mentioned already.

Rich Bradshaw: Yeah. I would add, in Tennessee, yeah, that we did have some challenges there. I think we absolutely got the right person in place and I think we'll see deposits in Q1 completely stabilize. And for the first time, we'll see loan growth in Q1. That's the projection right now.

Christopher Marinac: All right. Great. Thank you both. That's really helpful. And then, there's a quick one for Rob. What are your thoughts about the criticized assets this year? We saw some improvement this quarter. Will that kind of bounce around the given range or do you have further backdrop on that?

Rob Edwards: Yeah. Christopher, that's a good question. If you look back to 2020, we were at 4.1%. The criticized was 2.6%. And today, we're at 1.1%. So, I would expect it to kind of to go up, to be honest with you, just given where it is relative to where we've been historically, and what would be a more normalized level.

Christopher Marinac: So, Rob, that will obviously drive reserve behavior to some extent in provision that we've certainly seen you be conservative for these last few quarters. So, it just feels like more of the same, I guess is my question.

Rob Edwards: Yeah, it does. I mean, we're -- if you're asking about the future environment, right now it sort of feels like things are stable and everybody is sort of expecting, as are we, a soft landing. And if all that works out, kind of we would expect those numbers to be relatively stable. But they are so low that, I like your phrase, bounce around a little bit.

Christopher Marinac: Great. Thanks again.

Rob Edwards: Thanks, Chris.

Operator: [Operator Instructions] Our next question comes from Gary Tenner from D.A. Davidson. Please go ahead with your question.

Gary Tenner: Thanks, guys. Good morning.

Lynn Harton: Good morning, Gary.

Gary Tenner: Hey. I just wanted to ask you a couple of quick clarification points, Jefferson, on your kind of guidance around the NIM. If I understood correctly, your guidance assume no rate cuts, but if the forward curve played out, you'd see benefit of 5 to 7 basis points, is that correct?

Jefferson Harralson: That's exactly right.

Gary Tenner: Okay. And then a follow-up to Catherine's question in terms of the fixed rate repricing. If you kind of roll forward into 2025, what does the book look like? There is a larger slug of fixed rate maturities in '25.

Jefferson Harralson: That's a great question. I wanted to get back to you on that one. I'd be guessing a little bit, so let me get back to you with the answer to that. That's a good question. I don't have it at my fingertips currently.

Gary Tenner: Okay. That's all I had. Thank you.

Operator: And ladies and gentlemen, at this time, I'm showing no additional questions. I'll close today's question-and-answer session and turn the floor back over to Lynn Harton for any closing remarks.

Lynn Harton: Great. And again, thank you all for your time and interest, and we'd be glad to take any follow-up questions. Please reach out to Jefferson or me directly, and we'll look forward to talking to you soon. Have a great day.

Operator: And ladies and gentlemen, with that, we'll conclude today's conference call. We thank you for attending the presentation. You may now disconnect your lines.

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