United Community Banks, Inc. Q4 FY2025 earnings call

• Fourth quarter was a solid end to a great year with 11% revenue growth, 4.4% loan growth, and operating earnings per share up 13% y-o-y. - For the year, revenue topped $1 billion with 12% y-o-y growth, retail and small business lending and Navitas equipment finance crossed $1 billion in production. - Increased dividend in third quarter to annualized $1 per share, repurchased 1 million shares in fourth quarter. - Recognized for retail client satisfaction, being one of top banks to work for, and Community Commitment Award. - Reduced securities duration, upgraded talent and systems for interest rate risk and deposit pricing. - Converted American National Bank, opened new offices, expanded Florida private banking model, expanded product set and treasury management, added talent and risk management.

Revenue had 11% year-over-year growth in the fourth quarter, led by margin expansion and 4.4% annualized loan growth. Operating earnings per share for the quarter was $0.71, a 13% year-over-year improvement. For the year, operating earnings per share grew 18% from $2.30 to $2.71. Deposits grew 1% for the year, with a $293 million increase in the fourth quarter and a 21 basis points improvement in cost of deposits. Loan portfolio grew at 4.4% annualized pace, primarily in C&I and HELOC. Net interest margin increased 4 basis points to 3.62% in the quarter. Noninterest income was $40.5 million, down $2.8 million from the prior quarter. Operating expenses were $151.4 million, an increase of $4 million. Net charge-offs were 34 basis points in the quarter, with $9 million increase due to charge-offs on 2 C&I loans. Allowance for credit losses had a loan loss provision of $13.7 million, including release of $1.9 million of Hurricane Helene special reserve, and ROL coverage of credit losses moved down slightly to 1.16%.

• Expect balance sheet growth to be dependent on deposit growth, with loan-to-deposit ratio expected to continue increasing in 2026. - Anticipate NIM to be up between 2 and 4 basis points in first quarter of 2026 due to assets paying down in 4.90% range. - Intend to be more assertive on share buybacks in 2026 as capital build is strong and M&A opportunities are light. - Budgeting for operating leverage improvement in 2026 with expectation of efficiency ratio improvement.

• Competition in markets, though not overly focused on, is a factor. - Uncertainty around M&A opportunities as few quality targets are available. - Potential impact of tariffs on credit quality, but currently not seeing any impact on asset quality.

Q: Starting on the balance sheet, if I could. We got a favorable average earning asset remix this quarter out of securities and into loans. How should we think about the overall balance sheet growth in '26? Should we expect this dynamic to continue? Or just on the investment portfolio front, could that flatten out or grow going forward?

A: All right. Thanks, Russell. I'll take that one. The -- I would expect our balance sheet growth to be really dependent upon our deposit growth. Generally, we're modeling that it would be a couple of hundred basis points below our loan growth for both deposit growth and the balance sheet growth. So yes, I would expect this continuation towards a higher loan-to-deposit ratio throughout 2026.

Q: Yes. Obviously, really nice opportunistic trade on the share repurchase in the quarter. I'm wondering if there's any kind of mindset change at all around that opportunistic nature of the repurchase moving forward? Or if you could be a little more aggressive given capital looks like it will continue to build pretty aggressively based on the strong earnings.

A: Yes. I would say we would intend to be more assertive on buybacks as we look into '26. As you mentioned, capital build is there. Credit quality is great. So no really reason to hold anything there. M&A opportunities are light. We've kind of built the foundations of the footprint that we want. And so we're very satisfied with what we've got. So that really puts buybacks in the crosshairs. And frankly, we think there continue to be at a good value and a good earnback as we sit. So yes, I would expect to see more.

Q: Just wanted to get a sense from you guys. I think Rich mentioned just some of the efforts on the hiring front. Can you just talk about the competitive landscape? We've had some deals in and around your markets closed here recently. It feels like it's more competitive, both on the loan and deposit side. Can you just kind of walk us through that? And I think last quarter, maybe you talked about kind of a 3% to 4% expense growth rate, but I've heard some other banks talk about maybe accelerating that just given some of the hiring opportunities. Can you just kind of walk us through the puts and takes to the hiring and the expense outlook and then just the competitive aspect, as I mentioned earlier.

A: Yes. Sure, Michael. This is Lynn. I'll start on the competitive side and then turn it over to Rich for further details. But I mean, look, we're in fantastic markets, as you know. And so it is a very competitive environment, and there's always deals going on. So I don't view the current deals as being anything unusual or change in the competitive dynamic. I just think we're in a great place to be. And so what matters is how our brand plays in the market. And that's why we're really focus on client service. We really focus on J.D. Power. We got an extra focus on Greenwich this year. We won 5 awards last year for commercial service. We'd like to win 10 this year and the employee culture. So we're having opportunities to hire not from the deals that are coming up, but just from people who want to be with a bank that's focused on the community where they feel like they can make a difference and be in this environment with a balance sheet that's big enough to take care of their clients. So competition is going to always be there. We don't overly focus on it. We just focus on what we can do to be the kind of bank that attracts the right people here. And Rich, what would you add to that? Yes, on the competitive front, I would say that in the last 2 quarters, it probably has gotten a little more competitive. The good news only on interest rate, not on structure. So that feels pretty good. And then along the lines of Lynn's comments on the industry and hiring, what I would say is more than ever, as I've been here almost 12 years, it's never -- culture has never mattered more. It comes up in every discussion. I'm talking with when you're hiring a senior lender. And so that's -- I think that plays in our favor, and that's what we're working towards.

Q: I just wanted to ask a follow-up on the expense question. I know you mentioned Jefferson targeting 3% to 3.5% growth. Obviously, expenses were a bit higher this quarter, and I think with the kind of the bigger delta between expectations and where you came in. Can you give us some thoughts on the first quarter kind of as a jumping off point from the expense levels you might expect?

A: Yes. Great. Thanks for the question. Gary, number one, we put in the deck that the main driver was the -- a bit of a catch-up on the group health of $1.5 million. I don't expect that to be at that level next quarter. The other delta there was the impact of what Rich was talking about, the biggest record loan production in our history that moves our incentives up by about $1 million versus last quarter. We also had some assorted year-end things. In some cases, it was a little bit unusual with some small write-ups. And I would say that our run rate of expenses is a little less than we printed in the fourth quarter. That said, Q1 has some seasonality in there, things hitting like the FICA restart at $1.5 million. And if you put all that together, I think that our expenses should be flat in Q1.

Q: Just curious, we got some calls inbound lately about catching up in terms of the impact of tariffs on credit quality. Are you starting to see any of that bleed into the borrower financial statements sort of impacting them negatively in terms of debt service coverage, et cetera? Any sort of problems you're seeing starting to emanate around the edges there on credit quality from tariffs?

A: Yes. David, this is Rob. Really, the short answer is that we're not seeing any impact from tariffs in terms of asset quality. We continue to have discussions with customers around the impact of tariffs and people seem to be finding a way to work through that, whether it's passing it on, reducing margins. But we're not -- there isn't anything we're looking at in the problem loan workout area or -- and through the annual review process that would indicate that there's something that's pushing back to singly this tariff concern.

Q: I wanted to ask Rob a few points on just charge-offs in general. We saw higher charge-offs in Q4, particularly on the commercial side. Is any of that just related to year-end cleanup? And does the outlook change at all for what you see in the next few quarters?

A: Yes. So the outlook really, I would just go back to the previous comment. The outlook for 2026 is stable and consistent with what we saw on the bank side for 2024 and 2025. So not really seeing any change there. We did have higher charge-offs in the fourth quarter and lower charge-offs in the third quarter. I think you got to look at the overall mix as sort of an annual thing versus a quarter-to-quarter thing. We did see nonaccruals come down $4.5 million in the quarter. We were able to exit 2 substandard credits during the quarter that were really we thought problematic, and so we were pleased with that. So overall, we continue to feel good about the shape of the portfolio and performance going forward.

Q: I just had a quick follow-up. Just as it relates to loan growth, Jefferson, you kind of mentioned expecting solid loan growth in your answer to the question about the efficiency ratio and operating leverage. So you were right at 5% this year, excluding the Florida deal. Does that kind of translate to more -- kind of more of a 5% plus or 5% to 7% number, do you think in 2026? Or would you anchor expectations closer to that 5% mid-single-digit type of number?

A: Gary, this is Rich. I'll take that one. For Q1, we kind of expect similar result as to Q4, probably because of seasonality, there'll be a little less production, but there'll also be less payoff headwinds. So we figure that's about the same. And then I covered a lot of areas in terms of momentum going into 2026. I think it's still too early to call, but we feel very positive, very optimistic because of all the momentum we have rolling into 2026.