United Community Banks, Inc.

United Community Bank's third quarter 2025 earnings call. Hosting our call today are Chairman and Chief Executive Officer Lynn Harten, 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, 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 highlight 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 statement should be considered in light of risks and uncertainties described on pages 5 and 6 of the company's 2024 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 Harten.

Good morning and thank you for joining our call today. The third quarter was a strong one for United. Revenue grew more than $16 million compared to the second quarter, driven by an eight basis point improvement in our margin and 5.4% annualized loan growth. Our provision for credit losses declined by approximately $4 million compared to last quarter, supported by continued strong credit results, and the release of $2.6 million from our Hurricane Helene Special Reserve. Expenses grew by only $2.9 million over last quarter, or $4.3 million on an operating basis, largely due to increased incentive accruals. Taken together for the quarter, we recorded earnings per share on an operating basis of $0.75 per share, a 32% year-over-year improvement, a return on assets of 1.33%, and a return on tangible common equity of 13.6%. I was pleased to see great balance, performance, and teamwork across the company this quarter. All of our states delivered positive loan growth this quarter. Our treasury team and our frontline bankers have worked together with better analytics and improved communication to reduce deposit costs while continuing to grow customer deposits. As our capital continues to grow, we have taken the opportunity to both increase our dividend and redeem our costly preferred stock. Our tangible book value reached $21.59, a 10% year-over-year growth. Credit losses were only 16 basis points for the quarter and only five basis points in the core bank, excluding Navitas. Other credit risk metrics, such as past dues, non-accruals, and special mention, all remained in very good ranges. Clearly, there have been announcements of a few cracks in the broader credit environment over the last several weeks. I believe these announcements are isolated events somewhat tied to private credit. Given the very rapid growth in private credit and the number of new entrants, it would not be surprising to see additional defaults in that sector, but that should have limited impact on most banks. Our own strategy has been to be very cautious and selective in considering lending to any non-depository financial institution. And accordingly, we have very little exposure there. Jefferson, why don't you cover the quarter in more detail?

Thank you, Lynn, and good morning to everyone. I will start on page five of the deck. We were very pleased with our deposit performance in the third quarter. Excluding the seasonal public outflows, we grew deposits by $137 million, or 2.6% annualized. with DDA comprising a good portion of the growth. Looking ahead to the fourth quarter, we expect about $400 million of public funds deposit inflow that will serve to make our balance sheet larger as we plan to hold the funds in cash and short-term investments. We were also able to push down our cost of deposits in the quarter to 1.97% to achieve a 37% total deposit beta so far. We have been saying we thought we could get to a high 30% range total deposit beta through the cycle, but on these first five cuts, I now believe we can get to the 40% range. In September, we averaged a 1.92% cost of deposits. So we are expecting more improvement in the fourth quarter. On page six, we turn to the loan portfolio where our growth continued at a 5.4% annualized pace. Excluding the impact of senior care runoff, we grew loans at a 6.2% annualized pace. Our growth came primarily in the C&I, equipment finance, and HGLAC categories. Turning to page 7, 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 have no wholesale borrowings and very limited brokered deposits. Our loan-to-deposit ratio remained low but increased for the second quarter in a row and is now at 80%. Our CET1 ratio was relatively flat at 13.4% and remains a source of strength for the bank. On page 8, we look at capital in more detail. As I mentioned, our CET1 ratio was 13.4%, but you'll notice the impact at the end of the quarter we redeemed the remaining $88 million of our preferred issue. All things equal, this lowered our Tier 1 total capital and leverage ratio towards peer levels. Our TCE ratio was up 26 basis points in the third quarter as the balance sheet stayed relatively flat. We have been fairly active in managing our capital. Since the beginning of 2024, we have now paid down $100 million of senior debt, $68 million in Tier 2 capital, We purchased $14 million of common shares. Now we have redeemed the $88 million of preferred. Moving on to spread income on page nine, we grew spread income 14% annualized in the quarter. Our net interest margin increased eight basis points to 3.58%, mainly driven by lower cost of funds and a mixed change towards loans. We remain slightly asset sensitive, And because of this, in the fourth quarter, I would expect our net interest margin to be flat to down two basis points. A key will be how we are able to reprice the $1.8 billion of CDs we have maturing in the fourth quarter at 3.60%. We also have the medium-term benefit of our back book of loans and securities that will mature at low rates. In the next year, using just maturities, we have about $1.4 billion of assets paying down in the 4.93% range. Moving to page 10, on an operating basis, non-interest income was $43.2 million, up $8.5 million from last quarter. Up to $43.2 million, we had a $1.5 million BOLI gain that we don't expect to repeat and an MSR write-up of $800,000. On the slide, we mentioned that unrealized gains on equity investments swung up $2.1 million. This moved from a half million dollar loss last quarter to a $1.6 million gain as this category will bounce up and down. Besides these items, we had strong across the board increases in most of our fee categories, and we feel good about our progress in the quarter. Operating expenses on page 11, were up $4.3 million in the quarter. This $4.3 million increase was primarily driven by higher variable compensation. With strong revenue growth in the quarter, our efficiency ratio improved to 53.1%. Moving to credit quality on page 12, net charge-offs were 16 basis points in the quarter, improved compared to last quarter and last year. NPAs and past dues moved a little higher off a low base as credit quality remained strong. We'll finish on page 13 with the allowance for credit losses. Our loan loss provision was $7.9 million in the quarter as compared to our $7.7 million in net charge-offs. The $7.9 million provision included a $2.6 million release of our Hurricane Helene Reserve, which now stands at just $1.9 million remaining. Net-net, our allowance coverage of credit losses moved down slightly to 1.19%. With that, I'll pass it back to Lynn.

Thank you, Jefferson. As we move into Q4, the optimism we mentioned last quarter for the remainder of the year seems well-founded. And as we close, I'd like to recognize our leaders throughout the footprint. We recently completed our regular employee survey, and the overall results reflected very well on your care for your teams, your communication of our strategies, and the exhibition of our values. You ranked in the 92nd percentile for employee engagement compared to over 2,000 companies that did the same survey. Becoming a legendary bank begins with being a great place to work for great people. I want to thank you for what you're doing to make that a reality. And now I'd like to open the floor to questions.

Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If any time your question has been addressed and you would like to withdraw it, please press star, then 2. At this time, we will pause momentarily to assemble the roster. And today's first question comes from Steven Scooten with Piper Standler.

Hey, good morning, guys. Appreciate the time. Steven? I guess maybe if we could start on loan growth trends. Seemed like a really nice quarter here from a loan growth perspective. I'm wondering kind of what you're seeing within your pipelines. And then also if you could talk about maybe what kind of inning we're in in terms of the senior care runoff. And lastly, that HELOC product and growth, if there's anything unique to that product or just something you guys have been marketing a little bit more or customers unlocking existing equity, that sort of thing. Appreciate it.

All right. Good morning, Steven. This is Rich. I'll address the loan growth. We do feel very good about the loan growth. Florida led with South Carolina and North Carolina as the geographies right behind that. As Lynn mentioned earlier, this is our most balanced quarter since I've been here with all the geographies contributing. So that felt really good. I also like the heavy emphasis on C&I. We've worked really hard on hiring people, strategy, pricing to really drive C&I. So that feels key. So in terms of the pipelines and how that looks for Q4, we feel it would be a very similar type quarter, maybe slightly better. The activity is strong, the pipelines are strong, and that's all been confirmed with my credit partners. So the credit teams are validating that they're seeing a lot of activity. In terms of the HELOC, that's not by accident. We've spent a lot of time, effort. We did a reorg in January. One of the purposes of that reorg was a bigger emphasis on retail. And we're proud to tell you that 100% of our branch managers are now lending. That wasn't the case before, and we're really good about that. We've also ran a campaign throughout the year on HELOC. I'm trying to think. Did I answer all the questions? Senior care. Senior care, yes. Senior care, great point. We have about $230 million left. We had 35 runoff roughly this quarter. Expect something similar feel next quarter. And then next year, we do not plan on running off the whole portfolio because we Some of that are long-term customers that we've been in business with a long time. But the non part of that, we do expect most of that to go away next year.

Perfect. Thanks for all that color. And then, Jefferson, on the deposit beta guide, I think you said you think that could get into the 40% range now. Yes. What leads you to believe that could get better? I tend to think about deposit beta as waning as we get incremental cuts and rates get lower. So is it just the cliff of the short-duration CDs that you have that gives you more confidence there or any color there would be great?

Yeah, a lot of it. Thanks, Stephen. A lot of it has really already been done. Some rate cuts that we've made later in the quarter, we were unsure what we were going to see with competition. And we've been able to cut rates by a little more than we thought. We've seen CD growth, even though we've cut some rates. So it's not really so much. I think this will come to an end if we don't get any more rate cuts. But I just believe that the success that we've had through the last two quarters, you'll see that kind of flow through in the full quarter in the fourth.

Okay, perfect. And then just lastly for me, I think you said, let's see. Fixed rate loans, 493, repricing over 12 months, and the CD book, I think, was 360. Can you give me a feel for where you think, at least as of today, new CD yields and new loan yields would be coming on at relative to those numbers?

Yes, the new loan yields would be in the 7% range. New CDs, three, that's a little, some variable to it. So maybe 320, 330.

Great. Appreciate all the color. Congrats on a great quarter.

Thank you. Thank you. And the next question comes from Gary Tanner with DA Davidson.

Thanks. Good morning. I wanted just to ask about capital. Jefferson, you flood kind of how active you all have been since early 2024. With some of the stuff behind you, including the preferred redemption, how are you thinking about capital deployment via buyback here? Or are you wanting to push tier one a little further? higher just through earnings for a quarter before you can consider that.

Thanks, Gary. So just to list out our capital priorities, number one is organic growth. We are, as Rich mentioned, feeling better about where our loan growth is going. Number two in priority is the dividend. We just raised that by 4%. M&A, there's some Possible opportunities out there, and maybe even ones you could put some cash into and use capital that way. Buyback is on the list. We have authorization, will be opportunistic, but we have the other three priorities or above it. We have used buyback in the past. We may do it in the future, but I'd put it in the order of organic growth, dividend, M&A, and then buyback.

Got it. Thanks. And then just on the fee side, one of the line items that I think had a notable jump was service charge income this quarter, one from, what, 10.1 to 11.4, if I recall correctly. Anything unusual there? Any change in the fee structure or anything you could point out, too?

Yeah, nothing unusual, just some better volume there. So I can't point to anything specifically there.

All right. Thank you.

Thank you. And the next question comes from Michael Rose with Raymond James.

Hey, good morning, guys. Thanks for taking my questions. Just wanted to ask on expenses. I know you guys have talked about some hiring efforts in the back half of the year. I know some of it was incentive comp related, but just wanted to see how much of the sequential increase was related to those efforts and then what that could look like, particularly in light of some of the M&A discussion that we have going on, how opportunistic you plan to be as we move forward. Thanks.

Yeah, I'll start maybe with the expenses piece and maybe talk to Pastor Rich on the The hiring, you know, for the kind of medium to longer-term expense run rate, think of us being in the 3% to 4% range. You know, we did mention the higher variable comp this quarter, so I think that would not necessarily repeat next quarter. So I think flat is a good guide for the fourth quarter, and then in general, 3% to 4% growth is how you should think about where we are. Now, past Rich on how we think about hiring or

Sure, and good morning, Michael. We continue to be opportunistic about hiring throughout the footprint, so we're always after top talent. That's going on. I'd say the other just kind of an interesting note is in the recruiting compensation incentive program usually is first on the conversations, and now it's kind of turned to culture. Culture tends to be first, and I truthfully think that gives us an advantage.

Perfect. Maybe just a follow-up to Gary's question. Just as it relates to M&A, I think you guys have been pretty sour on M&A prospects, just given, I think, some pricing concerns. I don't want to put words in your mouth, but it does seem like you're a little bit more open than you've been in the past two or three quarters, at least. I assume some of that has to do with the regulatory backdrop, but Are you seeing more opportunities, meaning are more people raising their hands at this point, and is there a better opportunity set than, say, two or three questions? I just want to make sure I understand what you guys are trying to communicate. Thanks.

Yeah, thank you, Michael. This is Len. So, yeah, from a regulatory perspective, we've always been really confident with the size deals that we do, so I haven't really put the change into that category, but I would say that we are – seeing more people raise their hands today than two to three quarters ago. So that gives us a little more optimism. I mean, it's still early. You still got to see what develops out of that. But I think there is, we are seeing more interest on the part of sellers than we have seen.

Okay, very helpful. I'll step back. Thanks for taking my questions.

Thank you. And the next question comes from Russell Gunther of Stevens.

Hey, good morning, guys. Good morning, Russell. I wanted to ask, good morning, Jefferson. From a balance sheet growth perspective, how should we think about average earning assets going forward? Would you guys expect securities, the investment portfolio to continue to decline from here or kind of tread water as a percentage of average earning assets?

That's a great question. I mentioned we have a seasonal piece to our balance sheet, which in the fourth quarter will be seasonally strong. I mentioned $400 million likely of public funds coming in on an average basis. That's probably $300 million for the fourth quarter. I would expect to see the securities portfolio is going to be more of a derivative of how strong the deposit growth is. But I could see it being flat to slightly down in the near term. But over... If you think about 2026, I would expect deposit growth there and then the securities book to flatten out. Okay.

Excellent. Thank you for that. And then just last one for me with regard to your capital deployment priority list and sort of adjacent to the securities portfolio. But how are you guys thinking, if at all, in terms of any action from a restructuring perspective with regard to the investment portfolios?

That's a great question, and that is something that we have talked about at the board level. I don't see anything imminent there, but it is a conversation that we've had over the last six months and probably continue to.

Okay, great. Very good. Thank you, guys. That's it for me.

Thank you. And the next question comes from Catherine Mueller with KBW.

Thanks. Good morning.

Catherine.

Question on credit. Maybe first, and I know your level of MPAs are so low, but just any kind of color onto the increase in CNI MPLs. And then secondly, just any kind of update or color you can give us on the Navitas book. It feels like the losses have normalized from the long-haul trucking piece, and now the exposure is really low. But just curious any trends that you're seeing within that book as well. Thanks.

Thanks, Catherine. Good morning. This is Rob.

Good morning. Hey, Rob.

So, on the NPA side, on the commercial side, we exited three of our top non-performing C&I credits. One was in the service business. One was in the light manufacturing business. One was in the distribution business. So we added one that was in the service business and added one, two in the service business, I guess, and one in the light manufacturing business. So it kind of just feels like the normal cycle of movement of in and out. We are able to exit credits successfully, and we'll continue to do that. So we had some come in and some go out during the quarter, not feeling like there's any trend there. to be noticed there. And like you said, still, you know, from year end, we've come down from 64 basis points to 51 basis points, if you look at year end till now. So we feel like it's just kind of the normal ebb and flow on the commercial NPA side. On Navitas, They've been pretty stable. I've been impressed from, we acquired them seven years ago, and I've been impressed at their forecasting, the complexity of how they forecast losses. And they're really right on track for how their forecast looked at the beginning of the year. And expect it, you know, we've always said we expect losses in a normal environment to be around 1%. Of course, the long haul has taken them over that a little bit. But if you take that out, you can see that it really is just staying pretty close. You know, we're at 92 basis points this quarter and feel like that's kind of a normal range for them longer term.

Great. Very helpful. And then maybe just a bigger picture question. It feels like the NIM has seen some nice recovery over the past year and growth is improving. As we look to 26, is this a year that you think you will still have perhaps profitability improvement and positive operating leverage. Are there any kind of investments within expenses or your staff that you think that we should expect to see before we get to that really big ramp in profitability? Thanks.

Thanks, Catherine. I would think yes for 2026 and operating leverage. We're in the budget season now. I can't imagine coming out of a budget season without strategizing operating leverage in there. And a powerful driver is going to be the margin. If you think about our loan yield at 621, and if you think about putting on new loans at 7, and back book coming off, you can see a nice medium-term opportunity in the margin. So I think the combination of those things is, yes, we think we will continue to have operating leverage in 2026.

Great. Thank you.

Thank you. And the next question comes from Kyle Geerman with the Abdi Group.

Hey, guys. Good morning. Good morning. Shifting to the revenue side, I was wondering if I can get a bit more color on the core fee income and what are your expectations for the next quarter?

Yes, I'll give that a shot. And I would say we laid a lot of that out on that If you look at the $43 million, we laid out the MSR. We don't think the BOLI that we don't think will repeat. We also have the unrealized equity gains that, again, bounces around. It's been a little bit negative, a little bit positive, so hard to know. I think if you take those three items out, you're at a pretty good fee income run rate.

Awesome. Thank you. That's helpful.

Thank you. And that concludes our question and answer session, so I'd like to turn it forward to Lynn Harmon for any closing comments.

Well, great. Well, once again, thank you all for joining the call. And as always, if you have any additional questions, please feel free to reach out to Jefferson or myself. And we look forward to seeing you soon and talking to you soon. Thank you so much. Thank you.

The conference is now concluded. Thank you for attending today's presentation.

You may now disconnect.