United Community Banks Inc (UCB) Q2 2026 Earnings Call Transcript

Good morning and welcome to United Community Bank's second quarter 2026 earnings call. Hosting the call today are Chairman and Chief Executive, Chief Financial Officer, 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 as at the end of the investor presentation. Both are included on the website at ucbi.com. 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 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 This is 2025, Form 10-K, as well, but he ended its filings with the SEC and included. I will turn the call over to Larry.

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, EPS of $0.71 per share was up 8%. Overvenue was up 7% and reached 3.68%, up 18 basis points from last quarter. With bank-only net charge-offs of 9 basis points and total net charge-only 11 basis points, we're at the lowest level in several. Loan growth reached 6.8% annualized for the quarter. More importantly, organic loan growth, excluding Nevitas, was the strongest it has been in 0.4% annualized, 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. Early last year, I'm developing a playbook and strategy to put the same effort. We began executing that plan, execution, and look forward to continuing strong growth as a result. Our operating return on assets was 122 basis points, That's essentially equal to last quarter, even with Elevate into the United Families in the Southeast. Levels remain high, and even though we had extended blackout periods resulting from the Navitas, and we continue to have repurchase authorization remaining to be issued for the acquisition of Peach State, which is our intention. Turn it to Jefferson to cover our second quarter performance in more detail and talk about some of the details of the quarter.

We recorded gap results of $0.95 per share that benefited from a large non-operating item. We released our Navitas loan loss reserve as we reclassified those loans to help for sale. Gap earnings in the quarter. We also highlight a $4.5 million notable operating expense that we do not expect California to obtain a lender's license for Navitas. We previously held a calendar after we bought them in 2018. We have one under United Ownership, California Department of Financial Protection and Innovation, the DFPI, and the $4.5 million of the $4.5 million notable item was not taxed. Associated legal fees and a general fee. We estimate that note by three and a half cents. We're on to page six to talk about the deposit results. The deposits declined by $295 million. with two-thirds of the decline coming from expected seasonal public funds outflows. On an average basis, $169 million, or 3.3% annualized. I'm very pleased that our cost of deposits remained relatively for one basis point. On page 7, we turned to the loan portfolio, where our loan growth accelerated to a 6.8% annualized pace. Including Nevitas, we grew at a 6.4% in C&I categories, which continue to be our focus. We've included a new section at the bottom of the page showing what our new loan mix is, ex-Nevitas. Some of the strengths of our balance sheet. We believe that our balance sheet is in good business standpoint to be ready for any economic volatility. That our loan-to-deposit ratio, excluding Nevitas, came in at 76%. 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, annualized average earning asset growth and the benefit of the extra day on a year-over-year basis. It increased three basis points and was up 18 basis points. One is adjusted for the $5.2 million gain on an interest rate cap that we sold last quarter, $59.9 million in the second quarter. Excluding the California lender license issue that I described earlier, non-interest expenses grew by $2.9 million. The annual merit increase contributed $1.8 million. The loss of new revenue producer hiring comprised the remaining $1 million of expenses. 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. We have net new producers, of which about half are commercial lenders. This increases our overall sales force. We're starting to see the balance sheet, 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, essentially flat MPAs substandard accruing. In 2015, we showed the allowance for credit $0.8 million net reserve release, included a $38.5 million Navitas reserve release. As we reclassified those loans to the pending sale of only basis, we had an $8.7 million provision, which more than covered our $4.2 million, and with the Navitas release, our allowance for credit went to 1.0. It affects the lower potential loss content and variability of losses with the sale of the Navitas portfolio.

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 whole part of United for the past eight years. We are working with all of you, and you have made a great contribution to our growth and continued success in your next chapter, and I look forward to remaining in touch. I'd like to now open the call to questions.

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 in next to Nevitas, selling Nevitas, and re-enter 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, that range, so our reinvestment will end up being higher than that 4.25%. 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, shrinks the balance sheet a little bit. 2.3 is difficult because it hinges on the timing of the Navita sale, assuming the third quarter Navita 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 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. The competition is 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 the pot is will drift slightly higher in the back half.

And maybe just last thing for me, curious, you know, we seem to be seeing an uptick in smaller bank M&A these days, you know, kind of sub $5 billion in asset banks. What's 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 in your appetite once you get beyond Peach State?

Yeah, I would say they're very active conversations in that smaller bank, call it billion and a half and less size. So activity once Peach State is completed.

Thanks for the call. I appreciate the time this morning, everyone.

Thanks, David. Thanks, Stephen.

Our next question comes from Jacob Morton from Stevens. Please go ahead with your question.

Hey, good morning. This is Jacob Morton on for Russell Gunther. I just want to start out with I hear you on the hiring. I'm 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'm 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 Rich. In terms of the experience that we're looking for in the hiring side, being funded would be where I would say that person is. You know, we're 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're using no recruiters in our hiring, and culture makes a big difference. In terms of the forecast, in terms of Q3, we're looking at the 7% range ex-Novitas. And then in terms of next year, I'm even more confident in obtaining an upper single digit next year, particularly based on the hiring that has occurred. And the pace is going to slow down the second half of the year, but we still have ongoing discussions. And in July, we've hired five more that are on payroll already. So we're 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 forma expense base, but given recent commercial lender hirings and related aspirations, in addition to the impact of the sale of Navitas and 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'll take that one. Thanks, Jacob. So we just did $154.5 million in expenses. On a late-peach date, it adds $4 million quarterly. And then we'll have $2 million roughly off of that $4 million next year. Setting that, you have Navitas has a $9 million quarterly run rate that will go away when the deal closes. $4 million expense base is growing at roughly. 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 Peace State. We will be hiring lenders in an opportunistic way, just as Rich mentioned. So Q3 has timing issues of when Navitas goes away, so it's hard.

But net-net in Q4, we should be looking at roughly $150 million base, maybe just a slight higher depending on the uh the lender hires and jacob to finish answering your question uh you had several on there just to answer in terms of what tie we're producing it's kind of probably look equal between cni and cree and uh it would be sped across all the geographies we're seeing really good equal production and the geographies are kind of fighting it out each uh each quarter on who's the top so we're starting to see really equal which is a good feeling

got it awesome i I appreciate all the color there, and that's it for me.

Thank you, guys. Thanks, Jacob.

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

Hi, this is Hannah Wynn stepping in for Catherine Mueller. 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 one that we are thinking about quite a bit because the four and a quarter, I think, is a realistic number to think about. But I don't know if we invest that all right away because I think some of that will be in cash. We're using that four and a quarter as a proxy. I think that's a relatively easy number to get to. But for the first one to three months, I think you'll see a portion of that at $375 in cash. Then again, that will be offset somewhat by using some of that cash for 6% plus loans. So we settled on the 4.5% as a good proxy, but I think it could be – or 4.25%. 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, and so we didn't see any, but just curious where you expect to go for the rest of the year.

That's great. Thanks. We have said publicly that we intend to buy back the other $50 million of the $100 million in total consideration that we're paying for Peachtate. We still expect to do that. We have $63 million in authorization. That may be for the rest of this year. However, in the bigger picture with Navitas, it will be roughly a 14.5% CET1 ratio. We haven't given capital targets, and we're not giving capital targets today, but if you think about just getting back to the 13% range, that's 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.

That's all for me. Thanks for taking my questions.

Our next question comes from Gary Tenner from DA Davidson. Please go ahead with your question.

Thanks. 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 a more base gain-on-sell number going forward?

I have the amount of Navitas gain on sale in front of me, I don't think. I think about 75% of the gain on sale this quarter was SBA, but let's talk to the exact number.

Okay, I appreciate that. And then just to follow up on the repurchases, My sense of things when you announced the sale of Navitas a couple 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 still remain, obviously, continuing to fund loan growth, which is accelerating opportunistic M&A. So think of things like Peach State. We're not looking at large deals. We're not looking at out-of-market deals. But as we mentioned earlier in the call, there continue to be some nice small banks at very high quality that we're interested in. So in my mind, doing some of those for cash is a more effective buyback in a way. Then we're looking at buybacks. We're looking at other balance sheet options as well. So nothing's changed. It's just continuing to evaluate all those options.

Okay, so maybe more a sense of not wanting to just kind of slow playing it a little bit to give you some more flexibility if other things arise. Is that the way to think about it?

That is a great way to think about it.

Okay. All right. 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 Rich, just wanted to go back to kind of the underlying strength in loan growth and the commentary about, you know, 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 paydowns 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've 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're spot on. So I agree with you. That's where we're headed. I feel that we've got a really good balance now with some strong C&I initiatives. I mean, for instance, the ABL group's really shown the last two quarters and provides another alternative for our lenders out there. So, you know, very positive.

Okay, and maybe as a follow-up, how should we think about kind of loan yields as we move forward, ex-Navidus? Just, you know, I know there's 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's going to be an increasing amount of pressure as we move forward, but we'd love to hear any thoughts.

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

All right, perfect.

And maybe just go ahead.

Michael, real quick, this is Jefferson. So the loan yield does come down with Navitas going away by about 30 basis points, and we are putting on loans, new loans. So we do get the initial impact on Navitas going away, but we should have an increasing loan yield off of that lower base.

Right. Appreciate it, Jefferson. And maybe just one last follow-up, 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.

We're actively recruiting. We've got some great candidates in. My ex probably sometime October, something like that, would be a good time frame.

All right. Thanks, guys.

Thanks, Michael.

Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Our next question comes from Christopher Maranek from Breen Capital. Please go ahead with your question.

Thanks. I wanted to ask you about the impact of the new hires on loans, and should we see that accelerate? I think Rich had touched on that earlier. I just wanted to quantify that.

The answer is yes, because we really started this. Q4 saw their impact in Q2 in the, call it the approximately $30 million funded, which for us is kind of like another state. It's kind of how we think of the net funding. 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, Rich. And then Jefferson, just a quick one on net charge-offs ex-Navidus. Is the number you told us in June still a good number to use?

Yes, this is Rob Edwards. When I look back over the last 10 years, it's really been between eight and 13 basis points net charge-offs for the bank, excluding Navidus. Last two years have been 12 basis points. So I'm not remembering what we stated recently, but I would say those are good ranges to think about going forward.

That's perfect. Thank you for that. I appreciate it. And then just a last one about M&A pricing. You know, 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've looked at possibilities this year?

Yeah, I would say, you know, each deal is a bit unique. You know, we target three-year earnback on an all-stock basis, so it really depends on overlap, the underlying momentum of the bank itself. You know, Peach Day was unusual, so I would say that was probably on the high side. But, yeah, each deal is priced individually.

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

Thank you.

And with that, ladies and gentlemen, in showing no additional questions, I'd like to turn the floor back over to Lynn for any closing comments.

Great. Well, once again, thanks to everyone for joining our call and for great questions. If you have any additional questions, don't hesitate to reach out. And we'll look forward to talking to you again soon. Have a great day.

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