United Community Banks (NYSE:UCB) released second-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.
This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.
Access the full call at https://event.choruscall.com/mediaframe/webcast.html?webcastid=k0esagkH
Summary
United Community Banks reported a strong quarter with operating earnings per share of $0.71, an 8% increase over the previous year, and total revenue growth of 7%.
The company achieved a net interest margin of 3.68%, up 18 basis points year-over-year, and saw a loan growth rate of 6.8% annualized, driven by strategic hiring of new producers.
United Community Banks is on track to close its acquisition of Peach State in early Q3, which is expected to enhance market share and operational synergies.
The sale of Navitas is expected to close soon, leading to a significant reserve release and impacting future earnings, but is compensated by strategic redeployment of proceeds.
Management indicated an ongoing focus on strategic hiring and potential small bank acquisitions, with a strong capital position supporting future growth initiatives.
Full Transcript
OPERATOR
Good morning and welcome to United Community Banks' second quarter 2026 earnings call. Hosting the call today are Chairman and Chief Executive Officer Lynn Harton, Chief Financial Officer Jefferson Harrelson, 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 second 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 statement should be considered in light of risks and uncertainties described on pages 5 and 6 of the company's 2025 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 Harton, Chairman and CEO
Good morning and thank you for joining our call today. This was a great quarter with solid results and progress on our strategic goals. We have a large non-operating item from the Navitas reserve release this quarter which Jefferson will cover in more detail later. For now, leaving that aside, I will focus on our operating results. On that basis, EPS of $0.71 per share was up 8% over last year. Total revenue was up 7% over last year. Our net interest margin reached 3.68%, up 18 basis points over last year and up 3 basis points from last quarter.
Credit results were solid with bank-only net charge-offs of 9 basis points and total net charge-offs of only 16 basis points. Past dues were very low at only 11 basis points and special mention and substandard accruing loans were at the lowest level in several quarters at only 2.5%. Loan growth reached 6.8% annualized for the quarter. More importantly, organic loan growth excluding Navitas was the strongest it has been in some time, reaching 6.4% annualized for the quarter.
For comparison, it was 4.3% for the year of 2025 and 3.9% annualized for the first quarter of this year. This is due to our investment in hiring new producers. When we decided early last year that it was time to sell Navitas and refocus on our core franchise, we spent time developing a playbook and strategy to put the same effort and attention we have paid to integrating merged teammates into hiring new revenue producers. We began executing that plan in the third quarter of last year and have seen net expansion of 17% in producers since that time.
We're pleased with this execution and look forward to continuing strong growth as a result. Our operating return on assets was 122 basis points and our operating return on tangible common equity was 13%, both essentially equal to last quarter. Even with elevated hiring costs and a notable one-time expense item, we continue to be excited about bringing Peach State into the United family. When we put the two teams together, we will have the best bankers and the top deposit market share in one of the fastest-growing counties in the Southeast.
Everything is on track for a close early in the third quarter as planned. Capital levels remain high and even though we had extended blackout periods resulting from the Navitas and Peach State announcements, we continue to have repurchase authorization remaining. That is sufficient to retire the shares to be issued for the acquisition of Peach State, which is our intention. I'll now turn it to Jefferson to cover our second quarter performance in more detail.
Jefferson Harrelson, CFO
Thank you, Lynn, and good morning to everyone. I will start on page four and talk about some of the details of the quarter. We recorded GAAP results of $0.95 per share that benefited from a large non-operating item. Specifically, we released our Navitas loan loss reserve as we reclassified those loans to held for sale. This added 25 cents to our GAAP earnings in the quarter. On page four we also highlight a $4.5 million notable operating expense that we do not expect to recur in the second quarter.
We settled with the State of California to obtain a lender's license for Navitas. Navitas had previously held a California license but let it expire after we bought them in 2018 because we believed it was no longer required to have one under United ownership as a bank subsidiary. That said, we settled with the California Department of Financial Protection and Innovation, the DFPI, and the $4.5 million represents our cost. About 75% of the $4.5 million notable item was not tax deductible, including the associated legal fees and adjusting for the tax impact, we estimate that notable items negatively impacted Q2 by 3 and a half cents.
I will move on to page six to talk about the deposit results. On an end of period basis, our customer deposits declined by $295 million, with two-thirds of the decline coming from expected seasonal public funds outflows. On an average basis excluding public funds, our customer deposits grew $169 million, or 3.3% annualized. We were also very pleased that our cost of deposits remained relatively flat, improving by one basis point in the second quarter.
On page seven we turn to the loan portfolio where our loan growth accelerated to a 6.8% annualized pace. Excluding Navitas, we grew at a 6.4% annualized pace. Similar to past quarters, we saw strong growth in the HELOC and C&I categories which continued to be our focus for growth. We have included a new section at the bottom of the page showing what our new loan mix is ex-Navitas, which is still diversified and C&I heavy. Turning to page eight 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 show that our loan-to-deposit ratio excluding Navitas came in at 76%, up from 74%. Our CET1 ratio was relatively flat at 13.5% and remains a source of strength for the bank. On page nine we look at capital in more detail. As I mentioned, our CET1 ratio was 13.5% and our TCE was also flat at just under 10%. Moving on to spread income on page 10, spread income grew 14% annualized due to the combination of 6.8% loan growth, 6% average earning asset growth and the benefit of the extra day.
Spread income grew 7% on a year-over-year basis. Our net interest margin increased 3 basis points to 3.68% compared to last quarter and was up 18 basis points compared to last year, and the second quarter is the sixth quarter in a row of margin expansion. Moving to page 11, noninterest income was $38.4 million in the quarter, which was relatively flat as compared to last quarter when Q1 is adjusted for the $5.2 million gain on an interest rate cap that we sold last quarter.
Our operating expenses were $159.9 million in the second quarter. Excluding the California lender license issue that I described earlier, noninterest expenses grew by $2.9 million as compared to the first quarter, of which our annual merit increase contributed $1.8 million. The cost of new revenue producer hiring comprised the remaining $1 million of expense growth excluding the license issue. Our efficiency ratio improved slightly to around 55%.
We added a new page on page 13 where we talk about our significant hiring since September 30th of 2025. Since then we have added 37 net new producers, of which about half are commercial lenders. This increases our overall sales force by about 17%. We are encouraged that we are starting to see the balance sheet growth from this initiative and this was a factor in our increased loan growth this quarter. Moving to credit quality on page 14, net charge-offs were only 16 basis points in the quarter and only 9 basis points on a bank-only basis.
Credit was stable with essentially flat NPAs and nice improvements in past dues, special mention and substandard accruing loans. On page 15 we show the allowance for credit losses. Our $29.8 million net reserve release included a $38.5 million Navitas reserve release as we reclassified those loans to held for sale. As a result of the pending sale of Navitas, on a bank-only basis, we had an $8.7 million provision which more than covered our $4.2 million in bank net charge-offs.
With the Navitas release, our allowance for credit losses moved down to 1.04% of loans. This decrease reflects the lower potential loss content and variability of losses with the sale of the Navitas portfolio. With that, I'll pass it back to Lynn.
Lynn Harton, Chairman and CEO
Thank you, Jefferson. Given that this will be the last quarterly call before the sale is completed, I'd like to take this opportunity to thank the Navitas team for being a valuable part of United for the past eight years. It has been a pleasure working with all of you and you have made a great contribution to our growth and success. I wish you continued success in your next chapter and I look forward to remaining in touch. I'd like to now open the call to questions.
OPERATOR
At this time we'll begin the question-and-answer session. To ask a question, you may press star and then one using a touchtone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. Our first question today comes from Steven Skouton from Piper Sandler.
Please go ahead with your question.
Steven Skouton, Analyst at Piper Sandler
Yeah, thanks. Good morning everyone. I guess maybe first question. I hope I didn't miss it in your comments, Jefferson, but obviously six consecutive quarters in NIM expansion. Do you feel like we can get to seven here or is the, you know, the deposit cost kind of stabilizing here. Does that negate that ability moving forward?
Jefferson Harrelson, CFO
Hey Stephen, that's a great question. Talk about the go forward with the margin and I'll throw in there what we might look like ex Navitas. So on a static basis, selling Navitas and reinvesting the proceeds at 4 and a quarter moves our margin down by about 30 basis points. But dynamically, and I think where your question was going, the underlying margin should be widening because we will be adding loans at an increasing pace in the 6% range. So our reinvestment will end up being higher than that 4.25%.
We still have the back book of loans and securities that should provide some tailwind. And we also will be paying down with the proceeds of Navitas borrowings. And that shrinks the balance sheet a little bit and helps the margin. So Q3 is difficult because it hinges on the timing of the Navitas sale. But I believe the fourth quarter, assuming the third quarter Navitas sale is down maybe 20 to 25 basis points. If you assume 30 basis points down on a static basis and that underlying widening margin should offset that over two quarters and the third quarter somewhere in between that down 20 to 25 and where we are today.
Steven Skouton, Analyst at Piper Sandler
Okay, got it. Yeah, that makes sense. And just around the time deposits specifically, I think in the deck you noted three-month repricings maybe coming off at 3.09%. And I think new CDs were coming on at 3.2. So could we see CD costs going higher from here or is the liquidity from — and paying down other higher-cost funds — does that allow you to kind of, you know, manage that a little bit more than just those numbers would suggest?
Jefferson Harrelson, CFO
We have a few strategies in the CD book. One is that 30% is down from the 50% maturities that we've been having. So we've been extending this book a little bit which has the effect of raising the CDs a little bit. We do think we will have stronger loan growth in the second half. The competition is a little stronger for deposits. Now we will have something that will help us, which is a lot of cash and a lot of big securities portfolio to fund some of our loan growth. But if you add all that together, I think our cost of deposits will drift slightly higher in the back half.
Steven Skouton, Analyst at Piper Sandler
Okay, great. And maybe just last thing for me, curious, you know, we seem to be seeing an uptick in smaller bank M&A these days, you know, kind of sub $5 billion in asset banks. What's kind of the conversation dynamics like? Do you feel like some of these potential smaller bank sellers are more receptive and just kind of any feel for what conversations are looking like and your appetite, you know, once you get beyond Peach State.
Lynn Harton, Chairman and CEO
Hey, Stephen, this is Lynn. Yeah, I would say there are very active conversations in that smaller bank, call it a billion and a half and less size. So yeah, I would expect to see more activity once Peach State is completed for the rest of the year.
Steven Skouton, Analyst at Piper Sandler
Great. Thanks for the color. Appreciate the time this morning, everyone.
OPERATOR
Thanks, David. Thanks, Steven. Our next question comes from Jacob Morton from Stephens. Please go ahead with your question.
Jacob Morton, Analyst at Stephens
Hey, good morning, this is Jacob Morton on for Russell Gunther. I just want to start out with—I hear you on the hiring. I'm wondering, historically, how much incremental annual loan production does an experienced banker contribute once fully ramped up? And as a follow-up to that, what is your level of conviction on loan growth? I hear you on the 6%, but I'm wondering what specific asset classes are you expecting growth to come from and which geographies in your footprint do you expect to produce the most?
Thank you.
Rich Bradshaw, President and Chief Banking Officer
Good morning, Jacob. This is Rich. In terms of the experience that we're looking for in the hiring side, $30 million funded would be where I would say that person is. You know, we're going after the 20 years’ experience where we want them to have a portfolio that they produce greater than $100 million. We know them in the marketplace. Just to be clear, we're using no recruiters in our hiring and culture makes a big difference in terms of the forecast.
In terms of Q3, we're looking at the 7% range ex Navitas. And then in terms of next year, I'm even more confident obtaining upper single-digit next year, particularly based on the hiring that has occurred. And the pace is going to slow down the second half of the year, but we still have ongoing discussions, and in July we've hired five more that are on payroll already. So we're feeling pretty good.
Jacob Morton, Analyst at Stephens
Got it. Thank you. And then I guess on the expense side now, a bit of a bigger-picture question, trying to get the pro forma expense base. But given recent commercial lender hirings and related aspirations, in addition to the impact of the sale of Navitas and 3Q close of the deal, when all is said and done and deal cost saves are achieved, where do you see the expense base shaking out and longer term, what is a good core expense growth rate to consider?
Jefferson Harrelson, CFO
All right, I'll take that one. Thanks, Jacob. So we just did $154.5 million in expenses on what I would call run-rate basis. Overlay Peach State, it adds $4 million quarterly. And then we'll have $2 million roughly of cost savings off of that $4 million next year. We expect that to close August 1st. So think about that of $2.5 million hitting this quarter. Now, offsetting that, you have Navitas has a $9 million quarterly run rate that will go away when the deal closes.
So think about $154 million. Expense base is growing at roughly a 3.5% pace. Then you have $9 million of expenses going away with Navitas and $4 million coming on, turning into $2 million with cost saves next year at Peach State, with an asterisk that we will be hiring lenders in an opportunistic way, just as Rich mentioned. So Q3 has timing issues of when Navitas goes away. So it's hard. But net-net, in Q4 we should be looking at roughly $150 million base, maybe just slightly higher depending on the lender hires.
Rich Bradshaw, President and Chief Banking Officer
Jacob, to finish answering your question—you had several in there—just to answer: In terms of what type of loans we’re producing, it's going to probably look equal between C&I and CRE, and it would be spread across all the geographies. We're seeing really good equal production, and the geographies are kind of fighting it out each quarter on who's the top. So we're starting to see really equal, which is a good feeling.
Jacob Morton, Analyst at Stephens
Got it. Awesome. I appreciate all the color there. And that's it for me. Thank you, guys.
Lynn Harton, Chairman and CEO
Thanks, Jacob.
OPERATOR
Our next question comes from Kathryn Mueller from KBW. Please go ahead with your question.
Hannah Wynn, Analyst at KBW
Hi, this is Hannah Wynn stepping in for Kathryn Mueller. I wanted to start off on the reinvestment side as Navitas comes out next quarter and you redeploy the proceeds. How are you thinking about the timing and pace of the securities purchases throughout the rest of the year?
Jefferson Harrelson, CFO
That is a great question and one that we are thinking about quite a bit because the 4.25% I think is a realistic number to think about. But I don't know if we invest that all right away because I think some of that will be in cash. So we're using that 4.25% as a proxy. I think that's a relatively easy number to get to. But for the first one to three months, I think you'll see a portion of that at 3.75% in cash. Then again, that will be offset somewhat by using some of that cash for 6% plus loans.
So we settled on the 4.5% as a good proxy, but I think it could be—or 4.25%. I think it could start slightly slower than that or slightly lower than that and then move up towards 4.25% and beyond over time.
Hannah Wynn, Analyst at KBW
Great, thank you. And then my other question is, I know you mentioned in your prepared remarks about repurchases, if you could just give a little more detail there on your mentality moving through the rest of the year. I know you were in the blackout period for this quarter and so we didn't see any. But just curious where you expect to go for the rest of the year.
Lynn Harton, Chairman and CEO
That's great, thanks. We have said publicly that we intend to buy back the other $50 million of the $100 million in total consideration that we're paying for Peach State. We still expect to do that. We have $63 million in authorization as well. So think about that maybe for the rest of this year. However, in the bigger picture, with Navitas sold, we will be roughly a 14.5% CET1 ratio. We haven't given capital targets and we're not giving capital targets today.
But if you think about just getting back to the 13% range, that's about $300 million of excess capital. So I think that is something that we will be talking about in board meetings over the next year. So I think you could realistically see capital usage and perhaps buybacks increase significantly next year.
Hannah Wynn, Analyst at KBW
Great. That's all from me. Thanks for taking my questions.
OPERATOR
Our next question comes from Gary Tenner from DA Davidson. Please go ahead with your question.
Gary Tenner, Analyst at DA Davidson
Thanks. Good morning. Just wanted to ask, in terms of the gain on sale piece, you know, kind of the relative impact of the equipment finance sales versus SBA, just to kind of drill down to a more base gain on sale number going forward.
Jefferson Harrelson, CFO
Yeah, so I don't have the amount of Navitas gain on sale in front of me. I don't think—let's talk after, but I think about 75% of the gains on sale this quarter was SBA. But let's talk after this and I'll get you the exact number.
Gary Tenner, Analyst at DA Davidson
Okay, appreciate that. And then just to follow up on the repurchases, my sense of things when you announced the sale of Navitas a couple of months ago was a little more definitive, maybe around buyback and maybe sooner than just thinking about 2027. Did anything change? Is it timing of the deal closing or anything that pushes that out at all versus maybe front-loading it a bit more.
Lynn Harton, Chairman and CEO
Yeah, no, nothing's changed. We're just continuing to evaluate all the options. You know, our priorities still remain, obviously continuing to fund loan growth, which is accelerating, then opportunistic M&A—so think of things like Peach State. We're not looking at large deals, we're not looking at out-of-market deals. But as we mentioned earlier in the call, there continue to be some nice small banks that are very high quality that we're interested in.
So in my mind, you know, doing some of those for cash is a more effective buyback in a way. You know, then we're looking at buybacks, we're looking at other balance sheet options as well. So nothing's changed. It's just we're continuing to evaluate all those options.
Gary Tenner, Analyst at DA Davidson
Okay, so maybe more a sense of not wanting to just kind of—slow playing it a little bit to give you some more flexibility if other things arise. Is that the way to think about it?
Lynn Harton, Chairman and CEO
That is a great way to think about it.
Gary Tenner, Analyst at DA Davidson
Okay. All right, thank you.
OPERATOR
Our next question comes from Michael Rose from Raymond James. Please go ahead with your question.
Michael Rose, Analyst at Raymond James
Hey, good morning, guys. Thanks for taking my questions. Maybe for Rich, just wanted to go back to kind of the underlying strength in loan growth and the commentary about stronger growth in the back half of the year. Just as we think about the lending hires that you made, once you continue the addition of Peach State and probably paydowns waning, which I suspect has been a headwind for you like it has been for others, I mean, should we begin to think about UCB as kind of a mid- to high-single-digit grower versus a mid-single-digit grower which you've laid out previously?
It just seems like you guys have some real momentum here in building out some other verticals and markets. Thanks.
Rich Bradshaw, President and Chief Banking Officer
Well, Michael, I think you're spot on. So I agree with you. That's where we're headed. I feel that we've got a really good balance now with some strong C&I initiatives. I mean, for instance, the ABL group's really shown the last two quarters and provides another alternative for our lenders out there. So very positive.
Michael Rose, Analyst at Raymond James
Okay, maybe as a follow-up, how should we think about kind of loan yields as we move forward, ex Navitas? Just—you know, I know there's going to be a lot of moving parts in the third quarter for sure, but just on a go-forward basis, just given the competitive dynamics, and it just seems like there's going to be an increasing amount of pressure as we move forward. But would love to hear any thoughts.
Rich Bradshaw, President and Chief Banking Officer
I can talk about it from a market perspective and competition perspective. Right now we're seeing for the first time in a while that pricing and structure have both kind of leveled off. So you did see particularly CRE come down over the last year—that has stabilized, and again, structure stabilized right now. I'll throw it in. Perfect. And maybe just. Got it.
Jefferson Harrelson, CFO
Michael, real quick, this is Jefferson. So the loan yield does come down with Navitas going away by about 30 basis points. And we are putting on new loans at a higher rate than that. So we do get the initial impact of Navitas going away, but we should have an increasing loan yield off of that lower base.
Michael Rose, Analyst at Raymond James
Perfect. Appreciate it, Jefferson. And maybe just one last follow-up. And congratulations on your upcoming retirement, Jefferson. But just trying to get a sense of when we could expect to see the announce for a new CFO. Thanks.
Lynn Harton, Chairman and CEO
Yeah, so we're actively recruiting. We've got some great candidates, and my expectation would be probably sometime—let's call it September, October, something like that would be a good time frame to expect that.
Michael Rose, Analyst at Raymond James
All right, thanks, guys.
Lynn Harton, Chairman and CEO
Thanks, Michael.
OPERATOR
Once again, if you would like to ask a question, please press star and then one. To withdraw your questions you may press star and two. Our next question comes from Christopher Marinak from Bring Capital. Please go ahead with your question.
Christopher Marinak, Analyst
Thanks. Good morning. I wanted to ask about the impact of the new hires on loans and should we see that accelerate? I think Rich had touched on that earlier, just wanted to quantify that.
Rich Bradshaw, President and Chief Banking Officer
The answer is yes because we really started this Q4, saw their impact in Q2, and they call it the approximately $30 million funded, which for us is kind of like another state. That's kind of how we think of the net funding when we look at that. So going forward, we expect to see that continue to accelerate in the rest of the year and obviously feel very good and optimistic about next year.
Christopher Marinak, Analyst
Great. Thank you for that, Rich. And then, Jefferson, just a quick one on net charge-offs ex Navitas: is the number you told us in June still a good number to use?
Rob Edwards, Chief Risk Officer
So. Hey Chris, this is Rob Edwards. When I look back over the last 10 years, it's really been between 8 and 13 basis points. Net charge-offs for the bank excluding Navitas the last two years have been 12 basis points. So I'm not remembering what we stated recently, but I would say those are good ranges to think about going forward.
Christopher Marinak, Analyst
That's perfect. Thank you for that. I appreciate it. And then just a last one about M&A pricing. As you think about possibilities in the future, is the pricing kind of similar to what you did with Peach State a few months ago? Is it any different as you've looked at possibilities this year?
Lynn Harton, Chairman and CEO
Yeah, I would say, you know, each deal is a bit unique. You know, we target three-year earn-back on an all-stock basis. So it really depends on overlap, the underlying momentum of the bank itself. You know, Peach State was unusual, so I would say that was probably on the high side. But yeah, each deal is priced individually, but it's based on those attributes.
Christopher Marinak, Analyst
Sounds good, Lynn. Thank you all for taking our questions this morning.
Lynn Harton, Chairman and CEO
All right, thank you.
OPERATOR
And with that, ladies and gentlemen, seeing no additional questions, I'd like to turn the floor back over to Lynn for any closing comments.
Lynn Harton, Chairman and CEO
Great. Well, once again, thanks to everyone for joining our call, for great questions. If you have any additional questions, don't hesitate to reach out, and we'll look forward to talking to you again soon. Have a great day.
OPERATOR
And with that, ladies and gentlemen, we'll conclude today's presentation. We do thank you for joining. You may now disconnect your lines.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
Login to comment