United Community Banks Q2 2025 Earnings Call - Margin Up, Credit Quiet, Capital Gives Optionality

Conference Operator: Good morning and welcome to United Community Banks’ second quarter 2025 earnings call. Hosting our call today are Chairman and Chief Executive Officer H. Lynn Harton, Chief Financial Officer Jefferson Harralson, 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 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 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 statements 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’ll turn the call over to Lynn.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: Good morning and thank you all for joining our call today. We continue to enjoy solid growth in earnings. Operating earnings per share for the quarter was $0.66, an increase of 14% 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 noninterest-bearing 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% annualized. Loan growth was 4.2% 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 including Navitas. Ex Navitas, net charge-offs were 8 basis points annualized.

Both nonaccruals 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%, 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 40-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?

Jefferson Harralson, Chief Financial Officer, United Community Banks: Thank you Lynn and good morning to everyone. I’ll start on page five. We were very pleased with our deposit performance this quarter. Our $205 million increase in deposits had the benefit of the American National Bank deal that closed on May 1. In the second quarter, we also saw our usual public fund outflows of $233 million. Excluding the deal and the public fund seasonality, our deposits grew by $64 million or by 1.2% annualized. We were also able to push down the cost of our deposits in the quarter to 2.01% to achieve a 34% total deposit beta. We continue to believe that we are on pace for a high 30% deposit beta range through the cycle. We also continued to have some opportunity to reprice our CD book lower in the third quarter.

We have about $1.4 billion of CDs or 38% of our CD book maturing at 3.72% that should be able to move down by 10 to 20 basis points. On page six, we turn to the loan portfolio where our growth continued at a 4.2% annualized pace excluding American National Bank. Turning to page seven, where we highlight some of the strengths 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% range from its existing 5% rate. Our loan to deposit ratio remained low but increased slightly to 79% with the acquisition and solid loan growth. In addition, our CET1 ratio remained at 13.3% and remains a source of strength for the bank.

On page eight, 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 repurchase 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 nine, we grew spread income at a 21% annualized pace excluding American National Bank compared to last quarter.

Our net interest margin increased 14 basis points to 3.50%, mainly driven by lower cost of funds and a mix change towards loans. Moving to page 10 on an operating basis, noninterest 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 gain in Q1 and a $400,000 loss in Q2. In addition, we had $700,000 in 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, fee income was slightly higher than Q1. We resumed selling Navitas 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 Bank. This $2.1 million increase was primarily driven by $1.8 million in merit increases. The expense base was relatively flat excluding American National Bank 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 our $8.2 million in net 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 Bank non-PCD book.

This double dip was more than offset by a $2.8 million release of our hurricane-related special reserve. Specifically, we reduced our Hurricane Helene reserve by $2.8 million, and it now stands at $4.4 million. As we are feeling more comfortable with the potential loss content, net net, our allowance coverage remained flat in the quarter at 1.21%. With that, I’ll pass it back to Lynn.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: 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’d like to open the floor for questions.

Conference Operator: 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, and today’s first question comes from Michael Rose with Raymond James. Please proceed.

Jefferson Harralson, Chief Financial Officer, United Community Banks: Hey, good morning everyone.

Thanks for taking my questions. Just wanted to delve into the loan growth. 4.2% annualized this quarter. Was there any sort of pay downs? Just more broadly, can you talk about some of your hiring initiatives? I know M&A is kind of off the table right now. Would love some updates there just given the resurgence we’ve seen in some activity here recently. I know you’d previously talked about not a ton of acquisition candidates at this point that would fit your thresholds and what you’re looking for. Just on the loan growth front, just some of the hiring efforts and then if there were any impact of pay downs deal this quarter.

Thanks.

Rich Bradshaw, President and Chief Banking Officer, United Community Banks: Good morning, Michael. This is Rich. Yes, there were some pay downs. 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, that’s helping the pipeline going into Q3. 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. 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 his leadership pre and post acquisition on Progress Bank, which was about two and a half years ago. We have hired Jason Phillippi.

Jason joins us from 25 years of CNI experience both as a lender and a leader in the Huntsville and Alabama market. We’re very excited about that. Since we have hired him, we have brought on two additional CRMs in the northern Alabama market. We feel good about the trajectory there and feel really good about the second half of the year.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: 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. 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, there’ll be some more opportunities for us.

Perfect. I appreciate the color and maybe one for Jefferson. It looks like the core margin was up about 12 basis points quarter on quarter. I think that’s 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 of the puts and takes? Jefferson, thanks.

Jefferson Harralson, Chief Financial Officer, United Community Banks: Yeah, 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 5 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 1.95%. 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 mix 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, and 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 5 basis points of margin expansion.

All right, just remind us, Jefferson, is there any other debt maturities we should be considering in coming quarters?

No significant ones that I’m thinking about. Okay, great. I’ll step back.

Thanks for taking my questions.

Conference Operator: Our next question comes from Catherine Mealor with KBW. Please proceed.

Thanks.

Jefferson Harralson, Chief Financial Officer, United Community Banks: Good morning. Morning Catherine.

Conference Operator: were active in the buyback this quarter. Just curious your openness to continue even though the stock has kind of held as improved from levels where you were buying back.

Jefferson Harralson, Chief Financial Officer, United Community Banks: Yeah, that’s a great question. In this price range, the earn back is longer than what we are targeting in that 7, 8 year range. We are not buying back shares currently, but we still have the authorization. We have $86 million left, and at lower prices we would be opportunistic and step in. At this point we are not active in the buyback. Then outlook on kind of Navitas.

Conference Operator: Growth and how you weigh kind of keeping that on balance sheet versus selling in the secondary market.

Rich Bradshaw, President and Chief Banking Officer, United Community Banks: I’ll talk about the growth part, and then you can talk about the balance sheet, Jefferson. Expect they had a great quarter, and we expect a similar Q3 out of Navitas.

Jefferson Harralson, Chief Financial Officer, United Community Banks: Yes, we’re seeing some really strong activity out of Navitas. We did start selling loans again this quarter. $14 million. We’re right at 9.4% of Navitas 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.

Conference Operator: The next question comes from Russell Gunther with Stephens. Please proceed.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: Hey, good morning guys. Good morning Lynn and Jefferson.

Conference Operator: I wanted to follow up on the loan growth conversation quickly.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: Just if we could put a finer point on sort of where commercial pipelines stand today versus linked quarter and bigger picture, any sentiment shift you’re getting from your commercial borrowers?

Rich Bradshaw, President and Chief Banking Officer, United Community Banks: Russell, hi, this is Rich. I’d say as I mentioned earlier, the pipeline is bigger than last quarter. It’s similar to Q1, maybe even perhaps bigger.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: A little bit better.

Rich Bradshaw, President and Chief Banking Officer, United Community Banks: Our customers feel optimistic and we feel optimistic with them. 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.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: Yeah, I would agree. I had several meetings with clients over the last weeks and months and, you know, 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. That has fallen off, and 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 the mood is pretty positive with all the clients I’m talking to.

Jefferson Harralson, Chief Financial Officer, United Community Banks: Great.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: You touched on it broadly. In terms of where the recruitment pipeline stands within your footprint, are there any markets in particular you’d highlight?

Jefferson Harralson, Chief Financial Officer, United Community Banks: Like to get a little denser?

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: The.

Rich Bradshaw, President and Chief Banking Officer, United Community Banks: Hiring pipeline I would say looks good. It differs a little bit by markets and states and what our needs are, and we’re continually analyzing where our next needs are and where the talent is. Those two things have to come together for it to work, and we’re continually doing that and putting through continuing analysis. We feel good about where we’re at. Staying within the footprint is a priority for us.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: Very helpful, thank you. Just switching gears for me on the capital discussion, obviously well above peers, we touched on buyback appetite, M&A appetite. Where does your appetite stand for securities restructuring? In particular, we saw an HTM trade this week. Is that kind of on your guys’ radar in terms of use of excess capital?

Jefferson Harralson, Chief Financial Officer, United Community Banks: I would say we have significant excess capital. We do have an HTM book that is under earning that is coming back to us over time, which creates a little tailwind to the margin, but it also generates a current ROA that’s lower than we know is possible. It’s something that we look at. We did see the transaction, but 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.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: I would just say, you know, our priorities continue to be organic growth, M&A, dividends, buybacks. You know, we do look at all options and we are aware that, you know, 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.

Conference Operator: Understood.

Jefferson Harralson, Chief Financial Officer, United Community Banks: Okay, guys, great.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: That’s it for me. Thanks for taking my questions.

Jefferson Harralson, Chief Financial Officer, United Community Banks: Thanks, Russell.

Conference Operator: The next question comes from Christopher Marinac with Janney Montgomery Scott. Please proceed. Hey, thanks.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: Good morning, Jefferson.

Jefferson Harralson, Chief Financial Officer, United Community Banks: Just wanted to circle back on Navitas from the standpoint of the gain on sale there. Is there a scenario that margin would get better or worse as interest rates play out? Yeah. Great question, Chris.

Rich Bradshaw, President and Chief Banking Officer, United Community Banks: Thank you.

Jefferson Harralson, Chief Financial Officer, United Community Banks: The margin is mostly dependent upon the treasury yield in that three, four year range. Generally, if rates go up, you see that margin tighten a little bit, and if rates go down, you’ll see it widen out. We have had some time since rates have risen to increase rates at Navitas, and we’re seeing that translate into higher gain on sale margins. From here, you will see that same thing play out if you get a little higher. It really depends on that treasury yield. Lower treasuries would definitely translate into higher yields for higher gain on sale for Navitas loans. Got it.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: Great.

Jefferson Harralson, Chief Financial Officer, United Community Banks: have a follow-up question just for Rob. I’m just curious at how you look at the CECL modeling and how things may shape up in the future.

Is there any possibility for the model?

To give you some relief incrementally?

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: 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. 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.

Jefferson Harralson, Chief Financial Officer, United Community Banks: Got it. 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.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: The pipeline for, you’re saying, special mention and classified assets. Is that the question?

Jefferson Harralson, Chief Financial Officer, United Community Banks: Correct? Yes, correct.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: Things feel stable. We continue to run stress test exercises around changing interest rates and certainly as it relates to the CRE book, we continue to run stress tests and get results from that and close to our customers. I don’t see anything on the horizon that would be different than where we’ve been recently.

Jefferson Harralson, Chief Financial Officer, United Community Banks: Sounds good, Rob. Thank you. Thank you, Jefferson. Appreciate it. Thanks, Chris.

Conference Operator: The next question is from Steven Skelton with Piper Sandler. Please proceed.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: Hey guys, good morning. I just wanted to follow back around on kind of some of the thoughts around hiring. You know, you put that slide, slide.

Jefferson Harralson, Chief Financial Officer, United Community Banks: 19, I think it is where you.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: Show your deposit market share in some of the fastest growing MSAs in the Southeast. Is it fair to think about the names, those cities that are higher ranked on that list and maybe.

Jefferson Harralson, Chief Financial Officer, United Community Banks: Where you guys have a lower deposit share currently, are those being areas of greater focus for you guys?

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: Is it more about continuing to get density where we already are?

To leverage the franchise you have in those markets?

Rich Bradshaw, President and Chief Banking Officer, United Community Banks: I would say the answer is yes and yes, because we’re looking. There are markets that we don’t have as many commercial lenders in that we see that we have further opportunity to grow. We’re really looking at the major metro markets in the area that we’re not in that have the greatest opportunity for us for growth. Part of that has to be the talent has to be there. To be clear, we’re really hiring, really wanting to hire top talent, and that’s really the focus.

Jefferson Harralson, Chief Financial Officer, United Community Banks: That’S helpful.

I appreciate that, Rich.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: Maybe just kind of follow up to that would be, you know, there’s a lot more M&A chatter in and around the markets, and to the degree dislocation provides maybe a greater opportunity set than perceived.

Jefferson Harralson, Chief Financial Officer, United Community Banks: How aggressive would you guys think about?

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: In terms of the balance of near term expense build and recruiting that high end talent, I think we would have room to be very assertive if 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, that’s the opportunity to bring them over. 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.

Jefferson Harralson, Chief Financial Officer, United Community Banks: Appreciate it. Thanks, Stephen.

Conference Operator: This concludes today’s question and answer session. At this time I would like to turn the conference back over to H. Lynn Harton for any closing remarks.

Jefferson Harralson, Chief Financial Officer, United Community Banks: Well, great.

H. Lynn Harton, Chairman and Chief Executive Officer, United Community Banks: Once again, thank you all for joining. It’s 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.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation, and you may now disconnect.