United Community Banks, Inc. (UCB) Earnings

Management highlights

- Core Strategic Refresh & Growth Initiatives * Following the 2025 decision to sell Navitas and refocus on the core community banking franchise, management developed and began executing a hiring strategy for new revenue producers in Q3 2025. Since September 30 2025, the firm has added 37 net new producers (half commercial lenders), expanding the total sales force by 17%, which drove the acceleration in organic loan growth. The firm uses in-house hiring (no external recruiters) targeting experienced bankers with existing market relationships, targeting 20+ year experienced producers capable of originating over $100 million in loan production per year, with a $30 million funded loan target per fully ramped new hire. * Loan growth is focused on the Commercial and Industrial (CNI) and HELOC categories, with a diversified ex-Navitas loan mix that remains CNI-heavy, growth is expected to be split evenly between CNI and CRE across all operating geographies in the bank's footprint. - Strategic Transactions * The pending acquisition of Peach State remains on track to close in early Q3 2026; the acquisition will give United the top deposit market share in one of the fastest growing counties in the U.S. Southeast. * The pending sale of Navitas is proceeding as planned, with Navitas loans reclassified to held-for-sale, resulting in a $38.5 million release of Navitas-specific loan loss reserves in Q2 2026. Management thanked the Navitas team for their 8 years of contribution to the firm. * The firm settled a California lender licensing dispute for Navitas with the California Department of Financial Protection and Innovation for $4.5 million, a one-time non-recurring cost that negatively impacted Q2 EPS by 3.5 cents after tax. - Capital Management * Capital levels remain strong. The firm has remaining share repurchase authorization sufficient to retire all shares issued for the Peach State acquisition, which is management's stated intention. Extended blackout periods related to the Navitas sale and Peach State acquisition paused repurchases in Q2. - Credit Quality * Credit quality remained strong and stable in Q2, with improvements in past-due, special mention, and substandard accruing loan levels. Bank-only net charge-offs remain in the historically stable range of 8-13 basis points.

Guidance

- Loan growth: Ex-Navitas loan growth is expected to reach ~7% annualized in Q3 2026, with upper single-digit annual growth expected in 2027, driven by recent new producer hiring. The firm has transitioned from mid-single-digit to mid-to-upper single-digit expected long-term loan growth. - Net interest margin: A static 30 basis point NIM decline is expected from the Navitas sale, but underlying core margin expansion from new higher-yield loan growth, paydown of higher-cost borrowings, and reinvestment tailwinds from existing back-book loans will offset this decline over two quarters. Q3 2026 NIM is expected to be 20-25 basis points below current levels, with full offset expected by Q4 2026. - Cost of deposits: Cost of deposits is expected to drift slightly higher in the second half of 2026 due to modest competition for deposits and a strategy of extending CD maturities. - Expense base: After the Navitas sale and Peach State acquisition close, the run-rate quarterly core expense base is expected to reach ~$150 million in Q4 2026, with a long-term core annual expense growth rate of ~3.5%. Net of $2 million in annual cost saves from the Peach State acquisition, the transaction adds $2 million in quarterly run-rate expenses, while Navitas removes $9 million in quarterly run-rate expenses. - Capital return: After closing the Navitas sale, the CET1 ratio will reach ~14.5%, generating approximately $300 million in excess capital to return to the 13% CET1 target range. Significant increases in share repurchases are expected in 2027, after the Peach State acquisition is completed and near-term strategic flexibility is preserved. - M&A: Increased activity in small-bank M&A (targeting institutions under $1.5 billion in assets) is expected for the remainder of 2026 after the Peach State close. The firm only targets high-quality in-market small transactions, not large or out-of-market deals.

Segment performance

United Community Bank is a single-segment community banking firm, so product segment breakdown is not provided. Aggregate Q2 2026 financial performance: GAAP EPS was $0.95, including a 25 cent benefit from the release of the Navitas loan loss reserve; operating EPS (excluding the non-operating reserve release and one-time regulatory settlement cost) was 71 cents per share, up 8% year-over-year. Total revenue grew 7% year-over-year. Net interest margin (NIM) reached 3.68%, up 18 basis points year-over-year and 3 basis points quarter-over-quarter, marking the sixth consecutive quarter of margin expansion. Spread income grew 7% year-over-year and 14% annualized quarter-over-quarter. Non-interest income was $38.4 million, flat quarter-over-quarter when adjusting for the prior quarter's $5.2 million gain on an interest rate cap sale. Total operating expenses were $159.9 million; excluding the $4.5 million one-time California licensing settlement cost, non-interest expenses increased $2.9 million from Q1 2026, driven by $1.8 million in annual merit increases and $1 million in costs for new revenue producer hiring. The adjusted efficiency ratio improved slightly to ~55%. End-of-period customer deposits declined $295 million, two-thirds of which came from expected seasonal public fund outflows; average customer deposits excluding public funds grew $169 million (3.3% annualized), and cost of deposits improved 1 basis point quarter-over-quarter. Total loan growth accelerated to 6.8% annualized; organic loan growth excluding Navitas was 6.4% annualized, up from 4.3% for full-year 2025 and 3.9% annualized in Q1 2026. Net charge-offs were 16 basis points total, 9 basis points on a bank-only (ex-Navitas) basis. Past-due loans were 11 basis points, and special mention/substandard accruing loans fell to 2.5%, the lowest level in several quarters. Common Equity Tier 1 (CET1) ratio was 13.5%, flat quarter-over-quarter, and tangible common equity (TCE) ratio was just under 10%, also flat. The loan-to-deposit ratio excluding Navitas was 76%, up from 74% in the prior quarter.

Risks & headwinds

- Deposit competition: Intensifying competition for deposits creates modest upward pressure on cost of deposits in the second half of 2026. - Near-term margin volatility: Q3 2026 net interest margin will be volatile depending on the timing of the Navitas sale closing and the pace of reinvestment of sale proceeds. - Pricing pressure: While lending pricing and structure have stabilized recently, competitive dynamics could create pressure on loan yields going forward. - Regulatory compliance risk: Navitas had an expired California lender license that resulted in an unexpected $4.5 million one-time settlement cost, 75% of which was non-tax-deductible.

Analyst Q&A

• Q: After six consecutive quarters of NIM expansion, can expansion continue, or will stabilizing deposit costs end this trend? What is the impact of the Navitas sale on NIM?

  A: Selling Navitas will cause a static 30 basis point NIM decline on an immediate basis. Underlying core NIM will continue to widen, driven by faster growth of higher-yielding new loans, back-book tailwinds, and paydown of higher-cost borrowings with Navitas sale proceeds. The static decline will be offset over two quarters, with Q3 NIM between current levels and a 20-25 basis point decline, and full offset expected by Q4.

• Q: What is the appetite for small bank M&A after the Peach State acquisition closes, and are sellers more receptive now?

  A: Conversations with potential small sellers (under $1.5 billion in assets) are very active. More M&A activity is expected for the remainder of 2026 after Peach State closes. The firm only targets high-quality in-market small deals, not large or out-of-market transactions. M&A for cash is viewed as an efficient alternative to direct share buybacks for deploying excess capital.

• Q: What is the expected contribution of new lender hires to loan growth, and what is the conviction around long-term growth targets?

  A: The firm targets 20+ year experienced producers who can originate over $100 million in annual production, with a $30 million funded target per fully ramped new hire. Ex-Navitas growth is expected to hit ~7% annualized in Q3, with upper single-digit growth expected for 2027. Growth will be split evenly between CNI and CRE across all geographies in the footprint, and five additional hires were already made in July, supporting continued momentum. The firm has shifted from a mid-single-digit to a mid-to-high single-digit long-term growth profile.

• Q: What is the plan for reinvesting Navitas sale proceeds and the timing of securities purchases? Will share repurchases resume after the Q2 blackout period?

  A: The firm will not deploy all proceeds immediately, with a portion held in lower-yield cash for the first 1-3 months, and a 4.25% average yield on reinvestment used as a long-term proxy. Some proceeds will fund new 6%+ yielding loans, pushing average reinvestment yield above 4.25% over time. Management intends to repurchase all shares issued for the Peach State acquisition, with $63 million in remaining authorization for 2026. After the Navitas sale closes, ~$300 million in excess capital will be available, and significantly larger repurchases are expected in 2027, after preserving flexibility for opportunistic M&A.