United Community Banks, Inc.

Good morning and welcome to United Community Bank's second quarter 2025 earnings call. Hosting our call today are Chairman and Chief Executive Officer Lynn Harton, Chief Financial Officer Jefferson Harrelson, President and Chief Banking Officer Rich Bradshaw, and Chief Risk Officer Rob Edwards. United's presentation today includes references to operating earnings, pretax, precredit 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 first quarter's earnings release and investor presentation were filed this morning on Form 8K with the SEC, and a replay of this call will be available in the investor relations section of the company's website at UCBI.com. 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 2024 Form 10K as well as other information provided by the company and its filings with the SEC and included on its website. At this time, I'll turn the call over to Lynn Harton.

Good morning and thank you all for joining our call today. We continue to enjoy solid growth and earnings. Operating earnings per share for the quarter was 66 cents, an increase of 14 percent year over year. One cause of that growth was an expansion of our net interest margin to 350 basis points, an improvement of 14 basis points over last quarter. Jefferson will give more details, but the quarter saw continued stabilization of our -interest-sparing balances as well as success in lowering interest-bearing deposit rates. Seasonal outflows of public funds were within our expected ranges and our customer deposits excluding merger activity grew 1.3 percent annualized. Loan growth was 4.2 percent annualized and pipelines remained strong as we head into the third quarter. Credit continues to perform well. Net charge-offs were 18 basis points for the quarter. In the quarter, we had a total of 8 basis points. Both non-accruals and past dues already at low levels improved during the quarter. Expense growth was well controlled and helped us reach an efficiency ratio of 54.8 percent, an improvement of 222 basis points compared to last year. I'd like to congratulate and thank our teams throughout the bank for these great results. I'm also grateful for all the work that our existing teams and our new teammates from American National Bank did this quarter to close the acquisition and convert systems and branding. American National is a -year-old institution in Fort Lauderdale that fits perfectly with our South Florida footprint. I'm very excited to welcome their talented and passionate team to United. Jefferson, why don't you cover the quarter in more detail

now? Thank you, Lynn, and good morning to everyone. I'll start on page 5. We were very pleased with our deposit performance this quarter. Our $205 million increase in deposits had the benefit of the American National deal that closed on May 1. In the second quarter, we also saw our usual public funds deposits outflows of $233 million, excluding the deal and the public fund seasonality our deposits grew by $64 million or by 1.2 percent annualized. We were also able to push down the cost of our deposits in the quarter to 2.01 percent to achieve a 34 percent total deposit beta so far. We continue to believe that we are on pace for a high 30 percent deposit beta range through this cycle. We also continue to have some opportunity to reprice our cb book lower. The third quarter, we have about $1.4 billion of cds or 38 percent of our cd book maturing at 3.72 percent that should be able to move down by 10 to 20 basis points. On page 6, we turn to the loan portfolio where our growth continued at a 4.2 percent annualized pace, excluding American National. Turning to page 7, where we highlight some of our balance sheet. We have no wholesale borrowings and very limited brokered deposits. Using some of our balance sheet flexibility, we redeemed $100 million in senior notes in June, where the cost was about to adjust to the 9 percent range from its existing 5 percent rate. Our loan to deposit ratio remained low but increased slightly to 79 percent with the acquisition and solid loan growth. In addition, our CET1 ratio remained at 13.3 percent and remains a source of strength for the bank. On page 8, we look at capital in more detail. Our TCE ratio was up 27 basis points and our regulatory capital ratios were stable at high levels. Our TCE and all of our capital ratios remain above peers, which we believe will allow us to continue to be opportunistic. We were able to be opportunistic this quarter and we purchased 507,000 shares or about $14 million of UCB stock. We have been fairly active in managing our capital since the beginning of 2024. We have now paid down $100 million in senior debt, $68 million in tier 2 capital, and now have repurchased $14 million of common shares. Moving on to spread income on page 9, we grew spread income at a 21 percent annualized pace, excluding American National compared to last quarter. Our net interest margin increased 14 basis points to 3.50 percent, mainly driven by lower cost of funds and a mixed change towards loans. Moving to page 10, on an operating basis, non-interest income was down $1 million from last quarter. This was mostly driven by a negative swing in the MSR mark, which was at a $300,000 and negative fees due to a write down of our remaining deferred costs that came when we redeemed the senior debt I mentioned earlier. Excluding the MSR swing and the cost to extinguish the senior debt, the income was slightly higher than Q1. We resumed selling the VEDA loans in the quarter, which drove the increase in loan sale gains as compared to last quarter. Operating expenses on page 11 were only up $2.1 million in the quarter, excluding American National. This $2.1 million increase was primarily driven by $1.8 million in merit increases. The expense base was relatively flat, excluding American National and the merit increase. Moving to credit quality on page 12, net charge-offs were 18 basis points in the quarter. Improved compared to last quarter and last year. We also saw nice improvements in NPAs and past dues as credit quality remained strong. I will finish on page 14 with the allowance for credit losses. Our loan loss provision was $11.8 million in the quarter and more than covered for $8.2 million in charge-offs. The $11.8 million provision also included a $2.5 million provision or double dip to set aside a reserve for the American National non-PCD book. This double dip was more than upset by a $2.8 million release of our hurricane-related special reserve. Specifically, we reduced our net net coverage to $1.21. With that, I will pass it back to Len.

Thank you, Jefferson. While we acknowledge that there are uncertainties in the environment, particularly relative to tariff effects and the direction of the yield curve, we feel very optimistic about our outlook for the rest of the year. With that, I would like to open the floor for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star then two. At this time, we will pause momentarily to assemble our questions. Today's first question comes from Michael Rose with Raymond James. Please proceed.

Good morning, everyone. Thanks for taking my questions. I just wanted to delve into the loan growth .2% annualized this quarter. Was there any sort of paydowns? Then just more broadly, can you talk about some of your hiring initiatives? I know M&A is kind of off the table right now. We have some updates there, just given the resurgence we have seen in some activity here recently. I know you previously talked about not a ton of acquisition candidates at this point that would fit your thresholds and what you are looking for. Just on the loan growth front, some of the hiring efforts and if there were any impacts of paydowns, ask the A&B deal this quarter.

Good morning, Michael. This is Rich. Yes, there were some paydowns. We feel good about the growth in Q2. We expect Q3 to be more similar to Q1, which is around the 6% mark. Q2 did have some slippage in closing, so that's helping the pipeline going into Q3, so we feel really good about the activity. In terms of recruiting, we continue to focus on top talent and have conversations going on throughout the footprint, so we expect that we will be adding additional lenders during the year. I do want to announce that David Nass, our Alabama Florida state president, has announced his retirement. We thank him for all of his leadership pre and post acquisition on Progress Bank, which was about two and a half years ago. We have hired Jason Philippi. Jason joins us from 25 years of C&I experience, both as a lender and a leader in the Huntsville Alabama market, so we're very excited about that. Since we have hired him, we have brought on two additional CRMs in the northern Alabama market, so we feel good about the trajectory there and feel really good about the second half of the year.

Michael, on the M&A side, our strategy remains the same. We continue to look for small, high-performing institutions that would be additive to our footprint and continue to have conversations. Certainly, I think the outlook is better now. If you look three, four months ago, where prices were in the industry, it just wasn't attractive for those banks to have conversations with anyone. It's still, frankly, kind of difficult to make the numbers work, but I'm optimistic that as the rest of the industry, and particularly us, continue to perform well, get the stock prices where they ought to be, and then there will be some more opportunities for us.

Perfect. I appreciate the color. Maybe one for Jefferson. It looks like the core margin was up about 12 basis points. Q on Q, I think, is a little bit better than the 5 to 10 basis points you talked about last quarter. Just heard Rich talk about a little bit better loan growth in the third quarter. I think you mentioned beta is kind of in the high 30% range. If I caught that, I think that's a little bit higher than what you'd expected previously. As we put all that together, it seems like there should be continued core margin expansion as we think about the next quarter or two. Can you just walk us through some puts and takes? Jefferson, thanks.

Thanks for the question, Michael. We do think there is an opportunity for some more margin expansion for us in the third quarter, specifically targeting about five basis points of margin expansion. A big piece of it and the most important piece of it for us to execute on would be the cost of deposits. We were just under 2% for an average in the month of June. That high 30% range deposit beta would take us relatively close to 195. We think we can make some progress towards that in the third quarter. You're also going to see a continuation of one of the drivers of this quarter, which would be mixed change towards loans. We're not buying a lot of securities right now. You're going to see this loan to deposit ratio and this kind of loan to average earning asset ratio move higher. That should help as well in addition to the strong loan growth that we're expecting that Rich talked about. Even if we get a rate cut in September, we're a little bit asset sensitive, I do think we'll have about five basis points of margin expansion.

All right. Just a reminder, Jefferson, is there any other debt maturities we should be considering in the coming quarters?

No significant ones that I'm thinking about.

Okay. Great. I'll step back. Thanks for taking my questions.

Our next question comes from Katherine Mealer with KBW. Please proceed.

Thanks. Good morning.

Morning, Katherine.

We're active in the buyback this quarter. Just curious your openness to continue, even as the stock has improved from levels where you were buying back.

Yeah, that's a great question. At this price range, the earn back is longer than what we are targeting in that seven to eight year range. We're not buying back shares currently, but we still have the authorization. We have $86 million left. At lower prices, we would be optimistic and step in. At this point, we are not active in the buyback.

I'll look on Novita's growth and how you weigh keeping that on balance sheet versus selling in the secondary market.

I'll talk about the growth part and then you can talk about balance sheet, Jefferson. They had a great quarter and we expect a similar Q3 out of Novita's.

Yes, we're seeing some really strong activity out of the Vita's. We did start selling loans again this quarter, $14 million. We're right at .4% of the Vita's loans, the total loans. We had talked about a limit of 10%, so we're getting relatively close to this 10% limit. We like the asset class, but we also like diversification. I think you should expect us to keep the sales at this level or higher for the rest of the year.

Okay, great. Thank you.

The next question comes from Russell Gunther with Stevens. Please proceed.

Hey, good morning, guys. Good morning. Morning, Lynn and Jefferson. I wanted to follow up on the loan growth conversation quickly. Just if we could put a finer point on where commercial pipelines stand today versus linked quarter and bigger picture any sentiment shift you're getting from your commercial borrow.

Russell, hi. This is Rich. I'd say, as I mentioned earlier, that the pipeline is bigger than last quarter. It's similar to Q1, maybe even perhaps a little bit better. I'd say our customers feel optimistic, and we feel optimistic with them. Again, we're continuing those hiring discussions throughout the footprint, and we feel good about those as well. When you put all that together, we're pretty optimistic.

Yeah, I would agree. I've had several meetings with clients over the last weeks and months. While they were originally, everybody was worried about tariffs, everybody's gotten more comfortable with that and comfortable with the negotiating strategy that appears to be developing, so that has fallen off. Frankly, they're all very excited about things like bonus depreciation, extension of current tax rates, et cetera, in the bill that was just passed. I would say mood is pretty positive with all the clients I'm talking to.

Great.

Then maybe just, you touched on it broadly, but in terms of where the recruitment pipeline stands, and then within your footprint, are there any markets in particular you'd like to get a little denser?

The hiring pipeline, I would say, looks good. It differs a little bit by markets and states what our needs are. We're continually analyzing where our next needs are and where the talent is. Those two things got to come together for it to work, and we're continually doing that and putting through continuing analysis. Again, we feel good about where we're at. Staying within the footprint is a priority for us.

Very helpful. Thank you. Then just switching gears for me on the capital discussion, obviously, well above peers, we touched on buyback appetite, M&A appetite, but where does your appetite stand for securities restructuring? In particular, we saw an HTM trade this week. Is that on your guys' radar in terms of use of excess capital?

I would say, and then hop in here, but we have significant excess capital. We do have an HTM book that is under earning that is coming back to us over time as we have a little tailwind to the margin, but it also generates a current ROA that's lower than we know that it's possible. It's something that we look at. We did see the transaction. We like running with these high capital ratios. We haven't made a decision on this, but it is something that we look at from time to time.

I would just say our priorities continue to be organic growth, M&A, dividends, buybacks, but we do look at all options and we are aware that, particularly with the environment, I think getting more stable. We've got more capital than we need to have, and so we're evaluating all those options.

I understand. Okay, guys. Great. That's it for me. Thanks for taking my questions.

The next question comes from Christopher Marinac with Jenny Montgomery Scott. Please proceed.

Hey, thanks. Good morning. Jefferson, just wanted to circle back on the VEDAs from the standpoint of kind of the gain on sale there. Is there a scenario that margin would get better or worse as interest rates play out?

Yes. So, great question, Chris. Thank you. So, the margin is mostly dependent upon the treasury yield in that three, four-year range. So, generally, if rates go up, you see that margin tighten a little bit, and if rates go down, you'll see it widen out. And we have had some time since rates have risen to increase rates at VEDAs, and we're seeing that translate into higher gain on sale margins. But from here, you will see that same thing play out. If you get a little higher, it really depends on that treasury yield. But lower treasuries would definitely translate into higher yields for a higher gain on sale for the VEDAs loan.

Got it. Great. And a follow-up question just for Rob. I'm just curious at how you look at the Cecil modeling and how things may shape up in the future. Is there any possibility for the model to give you some relief incrementally?

So, a lot of things go into that, but it is possible that the model gives relief and that the required allowance comes down. That is certainly a possibility. But loan growth plays a role in that, obviously, as well as economic predictions and forecasts and some of the indexes that are part of that modeling also play a role.

Got it. And Rob, just a quick one on the sort of puts and takes on the criticized moves this quarter. I know neither were substantial. Just curious kind of what you're seeing in the pipeline there.

The pipeline for, you're saying, special mention and classified assets? Is that the question?

Correct. Yes, correct.

So, things feel stable. We continue to run stress test exercises around changing interest rates. And certainly as it relates to the Cree book, we continue to run stress tests and get results from that and close to our customers. But I don't see anything on the horizon that would be different than where we've been recently.

Sounds good, Rob. Thank you and thank you, Jefferson. Appreciate it.

Thanks,

Chris. The next question is from Steven with Piper Sandler. Please proceed.

Hey, guys. Good morning. I just wanted to follow back around on kind of some of the thoughts around hiring. You put that slide, slide 19, I think it is where you show kind of your deposit market share and some of the fastest growing MSAs in the southeast. So, isn't it fair to think about the names, the cities that are higher ranked on that list and maybe where you guys have a lower deposit share currently as being areas of greater focus for you guys? Or is it more about, hey, continue to get density where we already are to leverage the franchise you have in this market?

I would say the answer is yes and yes because we're looking at our markets that we don't have as many commercial lenders in that we see that we have further opportunity to grow. And then we're looking at the markets in the area that we're not in that have the greatest opportunity for us for growth. And also, but part of that has to be the talent has to be there. And so to be clear, we're really hiring, really wanting to hire top talent. And so that's really the focus.

That's helpful. I appreciate that, Rich. And then maybe just kind of follow up to that would be, you know, there's a lot more MA chatter in and around the markets and to the degree dislocation provides maybe a greater opportunity set than perceived. How aggressive would you guys think about being in terms of the balance of near-term expense build and recruiting that high-end talent?

Yeah, well, I think we would have room to be very assertive if, you know, who knows what happens. There's always disruption. And to Rich's point, we really want to just take advantage of what's there in the market, relationships we have with lenders. So we don't ever target any specific bank. We really go to our bankers in the market, the relationships they have. And if those people get unhappy for whatever reason, then that's the opportunity to bring them over. But we're constantly running numbers, and Rich has got a free hand to spend as much as he wants to, bringing in the right kind of talent.

Perfect. Very helpful. And thank you guys so much. Appreciate it.

Thanks,

Steve.

And this concludes today's question and answer session. At this time, I would like to turn the conference back over to Lynn Hartn for any closing remarks.

Well, great. Once again, thank you all for joining. It was great speaking with you once again. Look forward to seeing you soon, hopefully, at a conference. In the meantime, if you have any follow-up questions, don't hesitate to reach out. And I hope you have a great day. Thank you.

The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.