United Community Banks, Inc. (UCB) Q2 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to United Community Bank's Second Quarter 2020 Earnings Call. Hosting the call today are Chairman Chief Executive Officer, Lynn Harton Chief Financial Officer, Jefferson Lee Harralson Chief Banking Officer, Richard William Bradshaw and Chief Risk Officer, Robert A. Edwards. United's presentation today includes references to operating earnings, pretax, free 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 Both are included on the website at ucbi.com Copies of the second quarter's earnings release and investor presentation were filed this morning on Form 8-Ks 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 Page 5 and 6 of the company's 2020 Form 10-Ks as well as other information provided by the company in its filings with the SEC and included on its website. At this time, I will turn the call over to Lynn Harton.

Good morning and thank you for joining our call today. This was a great quarter with solid results and progress on our strategic goals. We had a large non operating item from the Navitas reserve release this quarter, which Jefferson will cover in more detail later. For now, leaving that aside, I will focus on our operating results. On that basis, EPS of $0.71 per share was up 8% over last year. Total revenue was up 7% over last year. Our net interest margins reached 3.68%, up 18 basis points over last year. and up 3 basis points from last quarter. Credit results were solid with bank only net charge offs of 9 basis points and total net charge offs of only 16 basis points. Past dues were very low at only 11 basis points and special mention and substandard accruing loans were at the lowest level in several quarters only 2.5%. Loan growth reached 6.8% annualized for the quarter More importantly, organic loan growth excluding Navitas was the strongest it has been in some time. Reaching 6.4% annualized for the quarter. For comparison, it was 4.3% for the year of 2025 and 3.9% annualized for the first quarter of this year. This is due to our investment in hiring new producers. When we decided early last year that it was time to sell Navitas, refocus on our core franchise, we spent time developing a playbook and strategy to put the same effort and attention we have paid to integrating merged teammates into hiring new revenue producers. We began executing that plan in the third quarter of last year and have seen net expansion of 17% in producers since that time. We are pleased with this execution and look forward to continuing strong growth as a result. Our operating return on assets was 122 basis points, and our operating return on tangible common equity was 13% both essentially equal to last quarter even with elevated hiring cost and a notable 1 time expense item. We continue to be excited about bringing Peach State into the United family. When we put the 2 teams together, we will have the best bankers and the top deposit market share in 1 of the fastest growing counties in the Southeast. Everything is on track for a close early in the third quarter as planned. Capital levels remain high and even though we had extended blackout periods resulting from the Navitas and Peach State announcements, we continue to have repurchase authorization remaining that is sufficient to retire the shares to be issued for the acquisition of Peach State which is our intention. I will now turn it to Jefferson to cover our second quarter performance in more detail.

Thank you, Lynn, and good morning to everyone. I will start on Page 4 and talk about some of the details of the quarter. We recorded GAAP results of $0.95 per share that benefited from a large non operating item. Specifically, we released our Navitas loan loss reserve as we reclassified those loans to held for sale. This added $0.25 to our GAAP earnings in the quarter. On Page 4, we also highlight a $4.5 million notable operating expense that we do not expect to recur. The second quarter, we settled with the State of California to obtain a lender's license for Navitas. Navitas had previously held a California license, but let it expire after we bought them in 2018 because we believed it was no longer required to have 1 under United ownership as a bank subsidiary. That said, we settled with the California Department of Financial Protection and Innovation, the DFPI, the $4.5 million represents our cost. About 75% of the $4.5 million notable item was not tax deductible. Including the associated legal fees and adjusting for the tax impact, estimate that notable items negatively impacted Q2 by $0.35 I will move on to Page 6 to talk about the deposit results. On an end of period basis, our customer deposits declined by $295 million with 2-thirds of the decline coming from expected seasonal public fund outflows. On an average basis, excluding public funds, our customer deposits grew $169 million or 3.3% annualized. We were also very pleased that our cost of deposits remained relatively flat improving by 1 basis point in the second quarter. On Page 7, we turn to the loan portfolio where our loan growth accelerated to a 6.8% annualized pace. Excluding Navitas, we grew at a 6.4% annualized pace. Similar to past quarters, we saw strong growth in the HELOC and C&I categories, which continued to be our focus for growth. We have included a new section at the bottom of the page showing what our new loan mix is ex Navitas, which is still diversified and C&I heavy. Turning to Page 8, where we highlight some of the strengths of our balance sheet believe that our balance sheet is in good position from a liquidity and capital standpoint. To be ready for any economic volatility. We show that our loan to deposit ratio excluding Navitas came in at 76%, up from 74%. Our CET1 ratio was relatively flat at 13.5% and remains a source of strength for the bank. On Page 9, we look at capital in more detail As I mentioned, our CET1 ratio was 13.5%. And our TCE was also flat at just under 10%. Moving on to spread income on Page 10. Spread income grew 14% annualized due to the combination of 6.8% loan growth, 6% average earning asset growth and the benefit of the extra day. Spread income grew 7% on a year over year basis. Our net interest margin increased 3 basis points to 3.68% compared to last quarter. Was up 18 basis points compared to last year. In the second quarter, is the sixth quarter in a row of margin expansion. Moving to Page 11, non interest income was $38.4 million in the quarter. Which was relatively flat as compared to last quarter when Q1 is adjusted for the $5.2 million gain on an interest rate cap that we sold last quarter. Our operating expenses were $159.9 million in the second quarter. Excluding the California lender license issue that I described earlier, non interest expenses grew by $2.9 million as compared to the first quarter. Of which our annual merit increase $1.8 million. The cost of new revenue producer hiring comprised the remaining $1 million of expense growth. Excluding the license issue, our efficiency ratio improved slightly to around 55%. We added a new page on Page 13 where we talk about our significant hiring since 9/30/2025. Since then, we have added 37 net new producers of which about half are commercial lenders. This increases our overall sales force by about 17%. We are encouraged we are starting to see the balance sheet growth from this initiative and this was a factor in our increased loan growth this quarter. Moving to credit quality on Page 14, net charge offs were only 16 basis points in the quarter and only 9 basis points on a bank only basis. Credit was stable. With essentially flat NPAs and nice improvements in past dues special mention and substandard accruing loans. On Page 15, we show the allowance for credit losses our $29.8 million net reserve release included a $38.5 million Navitas reserve release as we reclassified those loans to held for sale as a result of the pending sale of Navitas. On a bank only basis, we had an $8.7 million provision, which more than covered our $4.2 million in bank net charge offs. With the Navitas release, our allowance for credit losses moved down to 1.04% of loans. This decrease reflects the lower potential loss content and variability of losses with the sale of the Navitas portfolio. With that, I will pass it back to Lynn.

Thank you, Jefferson. Given that this will be the last quarterly call before the sale is completed, I would like to take this opportunity to thank the Navitas team for being a valuable part of United for the past 8 years. It has been a pleasure working with all of you and you have made a great contribution to our growth and success. I wish you continued success in your next chapter and I look forward to remaining in touch. I would like to now open the call to questions.

Question and answer session. To ask a question, you may press *1 using a touch tone telephone. To withdraw your questions, you may press *2. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is *1. To join the question queue. Our first question today comes from Stephen Scouten from Piper Sandler. Please go ahead with your question.

Yes. Thanks. Good morning, everyone. I guess maybe first question, hope I did not miss it in your comments, Jefferson, but obviously, 6 consecutive quarters in NIM expansion. Do you feel like we can get to 7 here? Or is the deposit cost kind of stabilizing here Does that negate that ability moving forward?

Hey, Stephen. that is a great question. I will talk about the go forward with the margin and I will throw in there what it might look like ex Navitas. So on a static basis, selling Navitas and reinvesting the proceeds at 4.25% moves our margin down by about 30 basis points But dynamically and I think where your question was going, the underlying margin should be widening because we will be adding loans at an increasing pace. the 6% range. So our reinvestment will end up being higher than that 4.5% We still have the back book of loans and securities that should provide some tailwind. And we also will be paying down with the proceeds of Navitas' borrowings and that shrinks the balance sheet a little bit and helps the margin. So Q3 is difficult because it hinges on the timing of the Navitas sale. But I believe the fourth quarter assuming the third quarter Navitas sales down maybe 20 to 25 basis points, if you assume 30 basis points down on a stag basis and that underlying widening margin should offset that over 2 quarters. And the third quarter is somewhere in between that down 20% to 25% and where we are today.

Okay. Got it. Yeah. That makes sense. And just around the time deposit specifically, I think in the deck, you noted 3-month repricings. Maybe coming off at 3.09%, and I think new CDs were coming on at 3.2%. So could we see CD costs going higher from here? Or is the liquidity from Navitas and paying down other higher cost funds? Does that allow you to kind of manage that a little bit more than just those numbers would suggest?

We have a few strategies in the CD book. 1 is that 30% is down from the 50% maturities that we have been having, we have been extending this book a little bit, which has the effect of raising the CDs a little bit. We do think we will have stronger loan growth in the second half, the competition is a little stronger for deposits. Now we will have something that will help us, which is a lot of cash to and a lot of big securities portfolio to fund some of our loan growth. But if you add all that together, I think our cost of deposits will drift slightly higher in the back half.

Okay. Great. And maybe just last thing for me. Curious, you know, we seem to be seeing an uptick in smaller bank M&A these days. Kind of sub-$5 billion in asset banks. what is kind of the conversation dynamics like? Do you feel like some of these potential smaller bank sellers are more receptive And just kind of any feel for what conversations are looking like and your appetite once you get beyond Peach State.

Hey, Steven. This is Lynn. I would, say they are very active conversations in that smaller bank, call it $1 billion and less size. So yes, would expect to see more activity once Peach State is completed. For the rest of the year. Great. Thanks for the color. Appreciate the time this morning, Thanks, David. Thanks, Dina.

Our next question comes from Jacob Morton from Stephen.

Hey. Good morning. This is Jacob Morton on for Russell Elliott Gunther. Just want to start out with, I hear you on the hiring. I am wondering historically, how much incremental annual loan production does an experienced banker contribute once fully ramped up And as a follow-up to that, what is your level of conviction on loan growth I hear you on the 6%, but I am wondering what specific asset classes are you expecting growth to come from and which geographies in your footprint do you expect to produce the most? Thank you.

Good morning, Jacob. This is Richard. In terms of the experience that we are looking for in the hirings side, $30 million funded would be where I would say that person is. We are going after the 20 years experience. We want them to have a portfolio that they produce greater than $100 million We know them in the marketplace. Just to be clear, we are using no recruiters in our hiring and culture makes a big difference. In terms of the forecast, in terms of Q3, we are looking at the 7% range ex Navitas. And then in terms of next year, I am even more confident obtaining upper single digit next year, particularly based on the hiring that has occurred and those the pace is going to slow down in the second half of the year, but we still have ongoing discussions. And in July, we have hired 5 more that are on payroll already. So we are feeling pretty good.

Got it. Thank you. And then I guess on the expense side now, a bit of a bigger picture question trying to get the pro form a expense base. But given recent commercial lender hirings and related aspirations, in addition to the impact of the sale of Navitas in 3Q close of the deal, when all is said and done and deal cost saves are achieved, where do you see the expense base shaking out? And longer term, what is a good core expense growth rate to consider?

All right. I will take that 1. Thanks, Jacob. So we just $154.5 million of expenses on what I would call run rate basis. Overlay Peach State adds $4 million quarterly and then we will have $2 million roughly of cost savings off of that $4 million next year. We expect that to close August 1, so think about that as $2.5 million hitting this quarter. Now offsetting that, you have Navitas has a $9 million quarterly run rate, and that will go away when the deal closes. Think about a $154 million expense base is growing at roughly a 3.5% pace then you have $9 million of expenses going away with Navitas, and $4 million coming on turning into $2 million with cost saves next year at Peach State. With an asterisk that we will be hiring lenders in an opportunistic way just as Richard mentioned. So Q3 has timing issues of when Navitas goes away, so it is hard But net in Q4, we should be looking at a roughly $150 million base. Maybe it is just a slight higher depending on the lender hires.

And Jacob, to finish answering your question, you had several in there.

Just to answer in terms of what type of where we are producing. it is going to probably look equal between C&I and Cree. And it would be spread across all the geographies. We are seeing really good equal production and the geographies are kind of fighting it out each quarter on who is the top. So starting to see really equal, which is a good feeling.

Got it. Awesome. I appreciate all the color there. And that is it for me. Thank you, guys. Thanks, Jacob.

Next question comes from Catherine Mueller from KBW. Please go ahead with your question.

Hi. This is Hannah Wen stepping in for Catherine Mealor. I wanted to start off on the reinvestment side as Navitas comes out next quarter and you redeploy the proceeds, how are you thinking about the timing and pace of the securities purchases throughout the rest of the year?

That is a great question and 1 that we are thinking about quite a bit because the 4.25% I think is a realistic number to think about, but I do not know if we invest that all right away because I think some of that will be in cash. So we are using that 4.25% as a proxy. So I think that is a relatively easy number to get to. But for the first 1 to 3 months, think you will see a portion of that at 3.75% in cash. Then again that will be offset somewhat by using some of that cash for 6%+ loans. We settled on the 4.25% as a good proxy, but I think it could be or 0.25%. I think it could start slightly slower than that or slightly lower than that and then move up towards 4.25% and beyond over time.

Great. Thank you. And then my other question is, I know you mentioned in your prepared remarks about repurchases. If you could just give a little more detail there on your mentality moving through the rest of the year. I know you were in the blackout period for this quarter, so we did not see any, but just curious where you expect to go for the rest of the year?

that is great. Thanks. Have said publicly that we intend to buy back the other $50 million of the $100 million in total consideration that we are paying for Peach State. We still expect to do that. We have $63 million in authorization as well. So think about that maybe for the rest of this year. However, in the bigger picture with Navitas sold, will be roughly a 14.5% CET1 ratio We have not given capital targets, so we are not giving capital targets today. But if you think about just getting back to the 13% range, that is about $300 million of excess capital. So I think that is something that we will be talking about in board meetings over the next year. So I think you could realistically see capital usage and perhaps buybacks increase significantly next year.

Great. that is all for me. Thanks for taking my questions.

Our next question comes Gary Tenner from D. A. David. Please go ahead with your question.

Thanks. Good morning. I just wanted to ask in terms of the gain on sale piece, kind of the relative impact of the equipment finance sales versus SBA just to kind of drill down to more base gain on sale number?

Going forward? Yes. So I do not have the amount of Navitas gain on sale in front of me. Do not think Let's talk after, but I think about 75% of the gain on sale this quarter was SBA. But let's talk after this and I will get you the exact number.

Okay. Appreciate that. And then just a follow-up on repurchases. My sense of things when you announced the sale of Navitas a couple of months ago, was a little more definitive maybe around buyback and maybe sooner than just thinking about 2027. Did anything change? Is it timing of the deal closing or anything that pushes that out? At all? Versus maybe front loading it a bit more?

Yeah. No. Nothing's changed. We are just continuing to evaluate all the options. Our priorities still remain obviously continuing to fund loan growth which is accelerating. Then opportunistic M and A, so think of things like Peach State. We are not looking at large deals. We are not looking at out of market deals. But as we mentioned earlier in the call, there continue to be some nice little small banks that very high quality that we are interested in. So in my mind doing some of those for cash is a more effective buyback in a way. Then we are looking at buybacks, we are looking at other balance sheet options as well. So nothing has changed. it is just we are continuing to evaluate all those options.

Okay. So maybe more sense of not wanting to just kind of slow pulling it a little bit to give you some more flexibility? If other things arise? Is that to think about it?

That is a great way to think about it. Okay. Alright. Thank you.

Our next question comes from Michael Rose from Raymond James. Please go ahead with your question.

Hey. Good morning, guys. Thanks for, taking my questions. Maybe for Richard, just wanted to go back to kind of the underlying strength in loan growth and the commentary about stronger growth in the back half of the year. Just as we think about the lending hires that you made, what you continue the addition of Peach State, and probably pay downs waning which I suspect has been, a headwind for you like it has been for others. I mean, should we begin to think about UCB as a kind of a mid to high single digit grower versus a mid single digit grower, which you have laid out previously? It just seems like you guys have some real momentum here in building out some other verticals. and markets? Thanks.

Well, Michael, I think you are spot on. So I agree with you. that is where we are headed. I feel that we have got a really good balance now with some strong C&I initiatives. I mean, for instance, the ABL group is really shown the last 2 quarters and provides another alternative for our lenders out there. So very positive.

Okay. Maybe as a follow-up. How should we think about kind of loan yields as we move forward ex Navitas? Just I know there is going to be a lot of moving parts in the third quarter for sure. But just on a go forward basis, just given the competitive dynamics and it just seems like there is going to be an increasing amount of pressure as we move forward. Love to hear any thoughts.

I can talk about it from a market perspective and competition perspective. Right now, we are seeing for the first time in a while that pricing and structure have both kind of leveled off. So you did see particularly CRE come down over the last year. That has stabilized. And again structure stabilized right now.

Perfect. And maybe just got it. Real quick, this is Jefferson. So the loan yield does come down in the with Navitas going away by about 30 basis points. And so and we are putting on loans new loans at a higher rate than that. So we do get the initial impact on Navitas going away, but we should have an increasing loan yield off of that lower base. Perfect. Appreciate it, Jefferson.

And maybe just 1 last follow-up. Just and congratulations on your upcoming retirement, Jefferson. But just trying to get a sense of when we could expect to see the announcement for a new CFO. Thanks.

Yes. So we are actively recruiting. We have got some great candidates in. My expectation would be probably sometime let's call it September, October, something like that would be a good timeframe. To expect that.

All right. Thanks guys. Thanks, Michael.

Withdraw your questions, you may press *2. Our next question comes from Christopher Marinac from Brean Capital. Please go ahead with your question.

Thanks. Good morning. I wanted to ask about the impact of the new, hires on loans. And should we see that accelerate? Richard had touched on that earlier. Just wanted to quantify that.

The answer is yes. Cause we really started this in Q4, saw their impact in Q2 in the call it the approximately $30 million funded, which for us is kind of like another state that is kind of how we think of the net fundings when we look at that. So, going forward, we expect to see that continue to accelerate in the rest of the year and obviously feel very good and optimistic about next year.

Great. Thank you for that Richard. Then, Jefferson, just a quick 1 on net charge offs ex Navitas. Is the number you told us in June still a good number to use?

Hey, Christopher. This is Robert A. Edwards. When I look back over the last 10 years, it is really been between 8 basis points and 13 basis points net charge offs for the bank, excluding Navitas. The last 2 years have been 12 basis points. So I am not remembering what we stated recently, but I would say those are good ranges. To think about going forward.

that is perfect. Well, thank you for that. I appreciate it. Yep. Then just a last 1 about M&A pricing. As you think about possibilities in the future, is the pricing, kind of similar to what you did with Peach State a few months ago? Is it any different as you have looked at the possibilities this year?

Yes. I would say each deal is a bit unique. We target a 3-year earn back in on an all stock basis. So it really depends on overlap, the underlying momentum of the bank itself. Peach State was unusual. So I would say that probably on the high side. But yes, each deal is priced individually, it is based on those attributes.

Sounds good, Lynn. Thank you all for taking our questions. this morning.

All right. Thank you. And with that, ladies and gentlemen, I am showing no additional questions. I would like to turn the floor back over to Lynn for any closing comments.

Great. Well, once again, thanks to everyone joining our call and for great questions. Have any additional questions, do not hesitate to reach out and we will look forward to talking to you again soon. Have a great day.

And with that ladies and gentlemen, we will conclude today's presentation. We do thank you for joining. You may now disconnect your lines.