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Date
Wednesday, July 23, 2025 at 1:00 p.m. ET
Call participants
Chairman & Chief Executive Officer — Lynn Harton
Chief Financial Officer — Jefferson Harralson
Chief Risk Officer — Rob Edwards
President, Community Banking — Rich Bradshaw
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Takeaways
Operating earnings per share-- Operating earnings per share was $0.66, up 14% from the same quarter last year.
Net interest margin-- Net interest margin was 3.50% in fiscal Q2 2025 (period ended June 30, 2025), an increase of 14 basis points sequentially from fiscal Q1 2025.
Non-interest-bearing deposit balances-- Deposit balances stabilized, while interest-bearing deposit rates were lowered during fiscal Q2 2025.
Annualized loan growth-- Loan growth was 4.2% annualized for fiscal Q2 2025, excluding the American National acquisition, with strong pipelines reported for fiscal Q3 2025.
Net charge-offs-- Net charge-offs were 18 basis points for the quarter; excluding Navitas, net charge-offs were 8 basis points annualized for fiscal Q2 2025, with both non-accruals and past-due loans improving.
Efficiency ratio-- Efficiency ratio was 54.8%, an improvement of 22 basis points compared to last year.
Deposit growth (excluding M&A and public fund outflows)-- Deposit growth was 1.2% annualized, totaling $64 million for fiscal Q2 2025.
Cost of deposits-- Cost of deposits was 2.01% for fiscal Q2 2025, with a cumulative deposit beta of 34%.
CD repricing opportunity-- In the third quarter, $1.4 billion is maturing at 3.72%. Management expects a decrease of 10-20 basis points in the cost of CDs maturing in fiscal Q3 2025.
Loan-to-deposit ratio-- The loan-to-deposit ratio increased slightly to 79% in fiscal Q2 2025 following the acquisition and loan growth.
CET1 ratio-- The CET1 ratio was 13.3% for fiscal Q2 2025, described as a continuing source of strength.
Tangible common equity (TCE) ratio-- The tangible common equity (TCE) ratio improved by 27 basis points in fiscal Q2 2025. All regulatory capital ratios remained stable and above peers for fiscal Q2 2025.
Share repurchases-- 507,000 shares were repurchased for $14 million in fiscal Q2 2025; $86 million in authorization remains, but no current buybacks in this price range.
Spread income growth (excluding acquisition)-- Spread income grew at a 21% annualized pace excluding American National in the quarter.
Non-interest income-- Non-interest income was down $1 million sequentially on an operating basis for fiscal Q2 2025, primarily due to a $700,000 fee write-down in fiscal Q2 2025 and a $400,000 loss in MSR mark in fiscal Q2 2025.
Navitas loan sales-- $14 million in Navitas loans were sold in fiscal Q2 2025. Navitas now represents 9.4% of total loans as of fiscal Q2 2025, nearing the 10% stated limit.
Operating expense growth-- Operating expenses increased by $2.1 million (excluding acquisition) in fiscal Q2 2025, driven by $1.8 million in merit increases in fiscal Q2 2025; base expenses were otherwise flat for fiscal Q2 2025.
Loan loss provision-- $11.8 million, covering $8.2 million in net charge-offs and including a $2.5 million special provision for the acquisition offset by a $2.8 million hurricane reserve release for fiscal Q2 2025.
Allowance coverage ratio-- Allowance coverage ratio remained flat in the quarter at 1.21%.
Senior debt redemption-- $100 million in senior notes, previously at 5%, redeemed in fiscal Q2 2025 ahead of a rate reset to 9%.
Capital redeployment-- Since the start of 2024, the company has reduced senior and Tier 2 debt by $168 million and repurchased $14 million in common shares in fiscal Q2 2025.
Buyback outlook-- Not active at current share price; plan is to step in opportunistically at lower price levels within existing authorization.
M&A outlook-- Acquisition strategy focused on "small high-performing institutions" that add to current footprint; management describes current pipeline as limited but outlook improving.
Loan growth pipeline-- Described as larger than the previous quarter and similar to Q1, positioning the bank for increased activity in the second half of the year.
Hiring and recruitment-- Several senior lending hires in the Alabama market including new state leadership; ongoing focus is to add high-quality lenders throughout the franchise.
Navitas loan sale gain sensitivity-- Gain on sale margin is most influenced by three- to four-year Treasury yield movements, per management.
Allowance modeling outlook-- Chief Risk Officer Edwards indicated the model could permit allowance relief if credit and forecast conditions stabilize, though loan growth also affects requirement.
Summary
United Community Banks(UCB 1.07%) reported a 14% year-over-year increase in operating earnings per share for fiscal Q2 2025, driven by sequential improvements in net interest margin and continued credit quality strength. Strategic actions taken during the quarter included the American National Bank acquisition, redeeming higher-cost senior notes, and selective share repurchases, while maintaining above-peer capital ratios. Expense growth was limited primarily to merit-based adjustments, and additional Navitas loan sale activity was completed in fiscal Q2 2025 as management approaches its internal concentration limit.
Chief Financial Officer Harralson stated, "We continue to believe that we are on pace for a high 30% deposit beta range through the cycle."
President Bradshaw emphasized ongoing recruitment, highlighting new senior hires in Alabama and communicating expectations for increased lender additions in coming quarters.
Management expects approximately five basis points of additional margin expansion in fiscal Q3 2025, largely due to anticipated further reductions in deposit costs and a continued mix shift toward loans.
Tangible common equity and CET1 ratios remain above peer averages for fiscal Q2 2025, which management views as strategic for flexibility and future capital deployment decisions.
No significant additional debt maturities are anticipated in near-term quarters, per Chief Financial Officer Harralson.
Discussions of potential securities portfolio restructuring remain ongoing as capital levels now exceed targeted requirements.
Industry glossary
Deposit beta: The percentage of Federal Reserve rate changes passed through to deposit costs, measuring sensitivity of deposit funding to market rate movements.
MSR mark: The periodic fair value adjustment ("mark-to-market") of mortgage servicing rights held on balance sheet, impacting non-interest income.
Tangible common equity (TCE): A regulatory capital metric measuring a bank's common equity capital as a percentage of tangible assets, excluding goodwill and other intangibles.
CET1 ratio: Common Equity Tier 1 ratio—a key regulatory capital standard representing core equity capital relative to risk-weighted assets.
Navitas: Subsidiary or loan platform of United Community Banks specializing in equipment finance; referenced as a distinct portfolio within the loan book.
Loan loss provision: Funds set aside by the bank during a period to cover potential credit losses in its loan portfolio, reflecting current and forecasted risks.
Full Conference Call Transcript
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 non-interest-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 remain 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. Excluding Navitas, charge-offs were eight basis points annualized. Both non-accruals 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 22 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: Thank you, Lynn, and good morning to everyone. I'll start on Page 5. We were very pleased with our deposit performance this quarter. Our $205 million increase in deposits had the benefit of the American National deal that closed on May 1. In the second quarter, we also saw our usual public funds deposits 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 so far.
We continue to believe that we are on pace for a high 30% deposit beta range through the cycle. We also continue to have some opportunity to reprice our CV book lower. In the third quarter, we have about $1.4 billion of CVs 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 6, return to the loan portfolio, where our growth continued at a 4.2% annualized pace excluding American National. Turning to Page 7, 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 8, 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 repurchased 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 9, we grew spread income at a 21% annualized pace excluding American National. Compared to last quarter, our net interest margin increased 14 basis points to 3.5%, mainly driven by lower cost of funds and a mix change towards the loans.
Moving to Page 10, on an operating basis, non-interest 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. This $2.1 million increase was primarily driven by $1.8 million in merit increases. The expense base was relatively flat excluding American National 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 non-PCD book. This double dip was more than offset by a $2.8 million release of our hurricane-related special reserve.
Lynn Harton: Specifically, we reduced our Hurricane Helane 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.
Lynn Harton: 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. Thank you.
Operator: We will now begin the question and answer session. At this time, we will pause momentarily to assemble our today's first question comes from Michael Rose with Raymond James. Please proceed.
Michael Rose: 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? And then 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. But I know you previously talked about not a ton of acquisition candidates at this point that would fit your thresholds and what you're looking for.
But just on the loan growth front, just some of the hiring efforts and then if there were any impact of pay downs ex the A and B deal this quarter? Thanks.
Rich Bradshaw: 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, so that's helping the pipeline going into Q3. So 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. So 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 Phillippe. Jason joins us from 25 years of C&I experience both as a lender and a leader in the Huntsville and Alabama markets. So we're very excited about that. And since we have hired him, we have brought on two additional CRMs in the Northern Alabama market. So we feel good about the trajectory there and feel really good about the second half of the year.
Lynn Harton: 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, but 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 and then there'll be some more opportunities for us.
Michael Rose: Perfect. I appreciate the color. And maybe one for Jefferson. It looks like the core margin was up about 12 basis points Q on Q, I think it was a little bit better than the five 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. So as we put all that together, seems like, you know, 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: Yes. For the question, Michael. So we do think there is an opportunity for some more margin expansion for us. In the third quarter specifically targeting about five basis points of margin expansion. 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. 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. So that should help as well in addition to the strong loan growth that we're expecting that Rich talked about. So even if we get a rate cut in September, we're a little bit asset sensitive. I do think we'll have about five basis points of margin expansion.
Michael Rose: All right. And just remind us, Jefferson, is there any other debt maturities we should be considering in coming quarters?
Jefferson Harralson: No significant ones that I'm thinking about.
Michael Rose: Okay. Great. I'll step back. Thanks for taking my questions.
Operator: Our next question comes from Catherine Mealor with KBW. Please proceed.
Catherine Mealor: Thanks. Good morning. Good morning, Catherine. We're active in the buyback this quarter. Just curious your openness to continue even though the stock has kind of pulled as improved from levels where you were buying back?
Jefferson Harralson: Yes, that's a great question. In this price range, the earn back is longer than what we are targeting in that seven to eight year range. So we're 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. But at this point, we are not active in the buyback.
Catherine Mealor: And then outlook on kind of Navitas growth, and how you weigh kind of keeping that on balance sheet versus selling in the secondary market?
Rich Bradshaw: I'll talk about the growth part and then you can talk about the balance sheet, Jefferson. But expect they had a great quarter and we expect a similar Q3 out of Navitas. 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 as 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. So I think you should expect us to keep the sales at this level or higher for the rest of the year.
Catherine Mealor: Okay, great. Thank you.
Operator: And the next question comes from Russell Gunther with Stephens. Please proceed.
Russell Gunther: Hey, good morning guys. Good morning. I wanted to good morning, Lynn and Jefferson. I wanted to follow-up on the loan growth conversation quickly. Just if we could put a finer point on sort of where commercial pipeline stand today versus linked quarter and bigger picture, any sentiment shift, you're getting from your commercial
Rich Bradshaw: Russell, hi, this is Rich. I'd say as I mentioned earlier, that the pipeline is bigger than last quarter. It's similar to Q1, maybe even perhaps a little bit better. So I'd say our customers feel optimistic and we feel optimistic with them. And again, we're continue those hiring discussions throughout the footprint and we feel good about those as well. So when you put all that together, we're pretty optimistic.
Lynn Harton: Yeah. I would agree. I had several meetings with clients over the last weeks and months. And 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. Frankly they're all very excited about things like bonus depreciation, extension of current tax rates, etcetera in the bill that was just passed. So I would say the mood is pretty positive. With all the clients we're I'm talking to.
Russell Gunther: Great. And then maybe just you touched on it broadly, but, in terms of where the recruitment pipe pipeline stands and then within your footprint, are there any markets in particular you'd like to get a little denser?
Rich Bradshaw: 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. So it's got to two things got to come together for it to work, and we're continually doing that. And putting through continuing analysis of that. So again, we feel good about where we're at. Staying within the footprint is a priority for us.
Russell Gunther: Very helpful. And then just switching gears for me on the capital discussion. Obviously, well above peers, we touched on buyback appetite, M&A appetite. But where does your appetite stand for securities restructuring? In particular, we saw an HTM trade this week. Is that kinda on your guys' radar in terms of use of excess capital?
Jefferson Harralson: So would say and let me hop in here, but we have significant excess capital. We do have an book that is under earning that is coming back to us over time as we have creates a little tailwind to the margin. But it also generates a current ROA that's lower than we know that is possible. So it's something that we look at. We did see the transaction.
Lynn Harton: We're we like running with these high capital ratios. We haven't a decision on this, but it is something that we look at from time to time. Yes. I would just say, our priorities continue to be organic growth, M&A, dividends, buybacks. But we do look at all options and we are aware that 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.
Russell Gunther: Understood. Okay, guys. Great. That's it for me. For taking my questions. Thanks, Ross. The next question comes from Christopher Marinac with Janney Montgomery Scott. Please proceed.
Christopher Marinac: Hey, thanks. Good morning. Jefferson, just wanted to circle back on Navitas from the standpoint of kind of the gain on sale there. Is there a scenario of that margin would get better or worse as interest rates play out?
Jefferson Harralson: Yes. So great question, Chris. Thank you. So the margin is mostly dependent upon the treasury yield in that three, four-year range. So if, generally, if rates go up, you see that margin tighten a little bit. And if rates go down, you'll see it widen out. And 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. But from here, you will see that same thing play out. If you get a little higher it really depends on that treasury yield. But lower treasuries would definitely translate into higher yields for higher gain on sale for Navitas loans.
Christopher Marinac: Got it. Great. And a question just for Rob. 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?
Rob Edwards: So, 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, but 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.
Christopher Marinac: Got it. And Rob, a quick one on, just 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?
Rob Edwards: The pipeline for, you're saying special mention and, classified assets, is that the question? Correct. Yes, correct. So things feel stable. 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. But I don't see anything on the horizon that would be different than where we've been recently.
Christopher Marinac: Sounds good, Rob. Thank you and thank you, Jefferson. Appreciate it. Thanks, Chris. And the next question is from Stephen Scouten with Piper Sandler. Please proceed.
Stephen Scouten: Hey guys, good morning. Just wanted to follow back around on kind of some of the thoughts around hiring. You know, you put that slide, slide 19, I think it is. Where you show kinda your deposit market share and some of the fast-growing MSAs in the Southeast. So is it fair to think about the cities that are higher ranked on that list and maybe where you guys have a lower deposit share currently as being areas of greater focus for you guys? Or is it more about hey, continue to get density where we already are? To leverage the franchise you have in this market?
Rich Bradshaw: 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. And then 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. And, also, a part of that has to be the talent has to be there. And so to be clear, we're really hiring really wanting to hire top talent. And so that's really the focus.
Stephen Scouten: That's helpful. I appreciate that, Rich. And then maybe 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, how aggressive would you guys think about being in terms of the balance of near-term expense build and require recruiting that high-end talent?
Lynn Harton: Yeah. Well, I think, 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 then that's the opportunity to bring them over. But 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.
Stephen Scouten: Perfect. Very helpful. And thank you guys so much. Appreciate it.
Jefferson Harralson: Thanks, Steve.
Operator: And this concludes today's question and answer session. At this time, I would like to turn the conference back over to Lynn Harton for any closing remarks.
Lynn Harton: Well, great. 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.
Operator: The conference is now concluded. Thank you for attending today's presentation. And you may now disconnect.