United Community Banks, Inc. Q1 FY2026 earnings call

• Quarterly earnings update: Net income over 84 million, EPS 69 cents, operating EPS 70 cents (19% increase YOY). Annualized loan growth 4.5%, net interest margin up 3 basis points. Credit performance strong. - Acquisition of Peach State Bank: Began de novo in Gainesville, GA in 2005, combined bank will have number one deposit share in Hall County. Deal value about $100 million, 50-50 cash stock mix, estimated 40% cost savings, 9 cents accretive in 2027 with planned buybacks making it $0.12 accretive. - Deposit results: Customer deposits grew $237 million (4% annualized), cost of deposits down 9 basis points, cumulative total deposit beta 39% in down cycle. - Loan portfolio: Growth at 4.5% annualized pace, primarily in HELOC and CNI. - Balance sheet: Good position from liquidity and capital standpoint, loan to deposit ratio 82%, CET1 ratio 13.4%, TCE 9.92%. - Spread income: Down in Q1 due to fewer days, but year-over-year up 10%, net interest margin increased 3 basis points, fifth quarter of margin expansion. - Non-interest income: $43.7 million, included cap gain, benefited from strong mortgage quarter. - Expenses: Gap expenses $157.3 million, operating expenses $151.6 million, had non-operating expenses. - Credit quality: Net charge-offs 22 basis points, NPAs and past dues relatively flat, allowance for credit losses $10.9 million. - Deposit competition: Competition slowed down, not getting a lot of special pricing requests, normalized. - Loan growth: Q1 loan growth strong, led by Middle Market, ABL, Navitas, Helox. Paydowns in hospitality, loan growth expected 5%-6% range. - Hiring: Net increase of 10 revenue producers in Q1, aiming for 10% annual growth in 2026, early start by Rich is good. - AI: AI investments have strong payback, fraud losses dropped 50% over two years, contact center and programming benefiting from AI, possibilities for agentic AI in mundane processes.

For the first quarter, net income was a little over 84 million, EPS was 69 cents. Operating EPS was 70 cents, a 19% increase from Q1 2025. Annualized loan growth was 4.5%, net interest margin expanded by three basis points. Credit performance was strong: total charge-offs 22 basis points (10 basis points excluding Navitas), non-performing assets as % of loans 50 basis points (down 1 basis point from Q1 2025), special mention in substandard loans 2.9% of total loans (down 2 basis points from Q1 2025). Operating return on assets was 122 basis points (18 basis point improvement YOY), operating return on tangible common equity was 13.1%. Customer deposits grew by $237 million (4% annualized), cost of deposits moved down 9 basis points to 1.67%, cumulative total deposit beta 39% in down cycle. Loan portfolio growth at 4.5% annualized pace, primarily in HELOC and CNI. Balance sheet in good position from liquidity and capital standpoint, loan to deposit ratio 82% unchanged. CET1 ratio flat at 13.4%, TCE flat at 9.92%. Spread income down in Q1 mainly due to fewer days, but year-over-year up 10%. Net interest margin increased 3 basis points to 3.65% (up 29 basis points YOY), fifth quarter of margin expansion. Non-interest income $43.7 million, included $5.2 million gain on interest rate cap, non-interest income benefited from strong mortgage quarter offset by seasonally lower service charges. Gap expenses $157.3 million, operating expenses $151.6 million, had some non-operating expenses including release of FDIC special assessment and payroll transition charge. Loan loss provision $10.9 million, allowance coverage of credit losses moved down slightly to 1.15%.

• Loan growth: Expect loan growth to be in the 5% to 6% range providing nothing else goes on unusual. - Margin: Expect three to five basis points of margin expansion in the second quarter, back book repricing story continues, mixed change towards loans away from securities. - Buybacks: Plan to buy back $50 million by year end, creating about $30 million of excess capital every quarter, but depends on price and other factors. - Accretion: Deal estimated 9 cents accretive in 2027 and $0.12 accretive with planned buybacks. - Fee outlook: Expect modest growth rate in fee income, treasury services, wealth area, mortgage business have growth potential, seasonal strength in mortgage in second and third quarters. - NIM: Anticipate incremental upside on loan repricing, $1.4 billion of fixed rate assets paying down in 4.63% range contributing to margin.

• Deposit cost pressure: Competition in the market could put pressure on deposit costs. - Interest rate risk: Uncertainty in interest rate movements could impact margin and other financial metrics. - Credit risk: Although credit performance was strong, economic volatility could affect credit quality. - Regulatory risk: Changes in regulatory environment could impact operations and financials. - M&A execution risk: Challenges in integrating the acquired Peach State Bank could affect expected benefits.

Q: How would you expect deposit costs to trend from here in an interest rate scenario where the Fed remains on pause on a standalone basis and including Peach State?

A: Expect deposit cost to be relatively flat, have tailwind from CDE maturities but seeing competition, want to grow deposits this year so relatively flat deposit costs a good start.

Q: Do you have the spot cost of deposits at the end of the quarter? And can you talk to the competition that you were seeing in your market? And where is it most aggressive, which specific product? And also competitor-wise, if you could talk to that.

A: Spot cost is relatively close to the quarterly average, competition has slowed down, not getting a lot of special pricing requests, normalized, in six states with no single dominant competitor.

Q: Are we getting towards the end of the kind of more accelerated paydowns here in construction? Because it seems to me, just given the growth that you've had and the momentum you've had in both C&I and CRE, that loan growth could actually accelerate from here. And then if you can talk to some of the competition, just given all the dislocation in and around your markets from the deal activity that we've seen.

A: Saw biggest paydowns in hospitality, don't see big pickup in paydowns, loan growth expected 5%-6% range, in terms of competition, in six states with no single dominant competitor.

Q: You guys have talked about being pretty focused in markets, small banks. Obviously, Peach State fits the bill there. Given the environment we're in, do you see a pipeline of activity where you could potentially – you know, sort of announce another deal in lockstep with this one? Any reason to think that this would take you out of the market for any period of time?

A: If see right deal with similar metrics and conditions to Peach State, would be happy to do another deal, no issue with doing another deal while Peach State is active.

Q: This is a follow-up on the buyback activity. You've bought back around 30 million shares in the past two quarters. And with the merger announcement, you mentioned that repurchasing shares could offset the dilution. I was just wondering if you could talk a little bit about the timing and the amount of buybacks we can expect moving forward from here.

A: Will buy back $50 million by year end, creating about $30 million of excess capital every quarter, but depends on price and other factors, not an every quarter thing.

Q: Lynn, you said this was kind of like the exact type of deal you guys would look for given culture and deposits and so forth. How about like from a size perspective? I mean, would you guys lean towards the smaller types of deals moving forward still, or would you like to do something a little more sizable if that were available? What would be your preference there?

A: Typically done deals 10% or less of size, but if larger deal with similar metrics and conditions, would be interested, this deal in Hall County was unique.

Q: On the hiring target, I think, if I heard correctly, you guys might actually kind of hit your stated target for the year by the end of 2Q. So would you anticipate ramping up that plan further, or would it more be, hey, let's let these people – ramp up over that five to six month timeline before we add incremental expenses on continual hiring?

A: Would be opportunistic if see right people with right experience and portfolio, seasonality matters with bonuses, first and second quarters strong, third slows, fourth difficult.

Q: Kind of an overall NIM trajectory from here, maybe for Jefferson. I know you said – spot cost deposits was kind of the same as the quarterly average and maybe expect them to stay flat from here. So would you expect a little bit of incremental upside on the loan repricing? I think you called out $1.4 billion in fixed rate assets.

A: Expect three to five basis points of margin expansion in the second quarter, back book repricing story continues, mixed change towards loans away from securities.

Q: Would you only buy banks that have excess deposits? And that seems like an attractive feature of this transaction. And is that something that will guide your M&A interest going forward?

A: No, like that it had low loans and deposit ratio, can put deposits to work, also think can help out high loan-to-deposit ratio banks as well.

Q: For the new hires, is there a deposit mandate with these folks, and how will that play out as 27 comes into focus?

A: On the loan side, require depository relationship when do loan, hope new hires bring over deposits as they have existing clients.

Q: Just wanted to follow up back on fee income. Wanted to go into mortgage banking. Saw some nice trends there. I was wondering how sustainable that might be going forward and any initiatives in place to enhance that line item?

A: Rates dipped to 6% range at end of February helped mortgage, going into second and third quarters which are strong seasonal quarters for mortgage. On initiatives, have a few more shorter on-balance sheet products, continue looking at that.

Q: Saw a slight uptick in MPAs this quarter. I was wondering if you could provide some color on what drove that and then maybe just a broad view of the credit quality trends.

A: Asset quality expected to be stable, NPAs to fluctuate up and down, no one credit moved into NPA this quarter, just standard movement in and out of non-accrual.