Operator
quarter 2026 earnings call. Hosting the call today are Chairman and Chief Executive Officer Lynn Jefferson Harrelson, Chief Banking Officer Rich Bradshaw, and Chief Risk Officer Rob Edwards. United's presentation today includes references to operating earnings, pre-tax, 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 presentation. 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-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 statement should be considered in light of risks and uncertainties described on page 5 and 6 of the company's 2025 Form 10-K, 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 eight 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. Deuce were very low at only 11 basis points, and special mention and substance use were at the lowest level in several quarters at only 2.5%. Loan growth reached 6.8% annualized for the quarter. more importantly, organic loan growth, excluding Novitas, was the strongest it has been in some time, reaching 6.4% annual. 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 Novitas, we spent time developing a playbook and strategy to put the same effort and attention we have paid to integrating merged teams. We began executing that plan in the third quarter of last year, 17%, and 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 costs, and are new to be excited about bringing Peach State into the United Family, a positive market share in one of the fastest-growing counties in the southeast. Everything is on track for a close early in the third quarter. 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'll now turn to Jefferson to cover our second quarter performance in more detail.
Thank you, Lynn, and good morning to everyone for and talk about some of the details of the quarter. We recorded gap results of 95 cents per share that benefited from a large non-operating item. We released our Navitas Loan Loss Reserve as we reclassified those loans to the help added 25 cents to our gap earnings in the quarter. On page four, we also highlight a $4.5 million notable operating expense that we do not expect to recur. In the second quarter, we settled with the state of California to obtain a lender's license for DeVitas. DeVitas had previously held a California license after we bought them in 2018 because we believed it was no longer required to have one under United Ownership as a bank subsidiary. We've settled with the California Department of Financial Protection and Innovation, the DFPI, and the $4.5 million represents our cost. 5% of the $4.5 million notable item was not tax deductible. Including the associated legal fees and adjusting for the tax impact, we estimate that notable items negatively impacted Q2 by three and a half cents. on page six to talk about the deposit results. On an end-of-period basis, our customer deposits declined by $295 million, with two-thirds of the decline coming from expected seasonal public funds outflows. On an average basis, our deposits grew $169 million, or 3.3% annualized. We were also very pleased that our cost of deposits remained relatively flat at one basis point in the second quarter. On page seven, we turned to the loan portfolio, where our loan growth accelerated to a 6.8% annualized pace. Including Navitas, we grew at a 6.4% annualized pace. 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, we 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 Nevitas, 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, 10% annualized due to the combination of 6.8% loan growth, average earning asset growth, and the benefit of the extra day. Income grew 7% on a year-over-year basis. Our net interest margin increased three basis points to 3.68 and was up 18 basis points. Second quarter is the sixth quarter in a row of moving to page 11, $4 million dollars in the quarter. We flat as compared to last quarter when Q1 is adjusted for the 5.2 million dollar gain on an interest rate cap that we sold last. We're 159.9 million dollars in the second quarter. Excluding the California lender license issue that I described earlier, non-interest expenses grew by 2.9 million dollars as compared to the first quarter. Annual merit increase contributed $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 September 30th of 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 that 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 nine basis points on a bank-only basis. With essentially flat MPAs and nice improvements in past dues, special mention, in 2015, we show the allowance for credit $1.8 million net reserve release, included a $38.5 million Navitas reserve release. As we reclassified those loans, as a result of the pending sale of the bank-only basis, we had an $8.7 million provision, which more than covered our $4.2 million in bank net charge-off. With the Navitas release, our allowance for credit losses moved down to 1.04% of loans.
Thank you, Jefferson. Given that this will be the last quarterly call before the sale is completed, I'd like to take this opportunity to thank the Navitas team for being a valuable part of United for the past eight years. It's a pleasure working with all of you, and you've 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'd like to now open the call to questions.
Operator
At this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touchtone telephone. To withdraw your questions, you may press star and two. 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 star and then one to join the question queue. Our first question today comes from Stephen Scouten from Piper Sandler. Please go ahead with your question.
Yeah, thanks. Good morning, everyone. I guess maybe first question, I hope I didn't miss it in your comments, Jefferson, but obviously six consecutive quarters and then expansion. Do you feel like we can get to seven here, or is the deposit cost kind of stabilizing here? Does that negate that ability moving forward?
Hey, Stephen. That's a great question. Talk about the go-forward-with-the-margin, and I'll throw a 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. will end up being higher than that 4.25%. We still have the rise some tailwind, and we also will be paying down with the proceeds of Navitas, and that shrinks the balance sheet a little bit. 2.3 is difficult because it hinges on the timing of the Navitas sale, but I believe assuming the third quarter Navitas sale is down maybe 20 to 25 basis points, if you assume 30 basis points down on a static basis, and that underlying widening margin should offset that over two quarters, 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 deposits specifically, I think in the deck you noted three-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. One is that 30% is down from the 50% maturities that we've been having. So we've 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, a little stronger for deposits. Now, we will have something that will help us, which is a lot of cash and a 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.
