United Community Banks, Inc.UCBNYSE
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Operator: Good morning, and welcome to United Community Banks, Inc.'s Third Quarter 2025 Earnings Call. Hosting our call today are Chairman and Chief Executive Officer, Lynn Harton; Chief Financial Officer, Jefferson Harralson; President and Chief Banking Officer, Rich Bradshaw; and Chief Risk Officer, Rob Edwards. United's presentation today includes references to operating earnings, pretax, 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 first quarter's earnings release and investor were filed this morning on Form 8-Ks with the SEC. 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 United Community Banks, Inc. Any forward-looking statements should be considered in light of risks and uncertainties described on Pages 5 and 6 of the company's 2024 Form 10-Ks 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. Good morning and thank you for joining our call today.
Lynn Harton: The third quarter was a strong one for United Community Banks, Inc. Revenue grew more than $16 million compared to the second quarter, driven by an eight basis point improvement in our margin and 5.4% annualized loan growth. Our provision for credit losses declined by approximately $4 million compared to last quarter, supported by continued strong credit results and the release of $2.6 million from our Hurricane Helene special reserve. Expenses grew by only $2.9 million over last quarter or $4.3 million on an operating basis, largely due to increased incentive accruals. Taken together for the quarter, we recorded earnings per share on an operating basis of $0.75 per share, a 32% year-over-year improvement, a return on assets of 1.33%, and return on tangible common equity of 13.6%. I was pleased to see great balanced performance and teamwork across the company this quarter. All of our states delivered positive loan growth this quarter. Our treasury team and our frontline bankers have worked together with better analytics and improved communication to reduce deposit costs while continuing to grow customer deposits. As our capital continues to grow, we have taken the opportunity to both increase our dividend and redeem our costly preferred stock. Our tangible book value reached $21.59, a 10% year-over-year growth. Credit losses were only 16 basis points for the quarter and only five basis points in the core bank excluding Navitas. Other credit risk metrics such as past dues, non-accruals, and special mention all remained in very good ranges. Clearly, there have been announcements of a few cracks in the broader credit environment over the last several weeks. I believe these announcements are isolated events somewhat tied to private credit. Given the very rapid growth in private credit and the number of new entrants, it would not be surprising to see additional defaults in that sector that should have limited impact on most banks. Our own strategy has been to be very cautious and selective in considering lending to any non-depository financial institution. And accordingly, we have very little exposure there. Jefferson, why don't you cover the quarter in more detail?
Jefferson Harralson: Thank you, Lynn, and good morning to everyone. I will start on page five of the deck. We were very pleased with our deposit performance in the third quarter. Excluding the seasonal public outflows, we grew deposits by $137 million or 2.6% annualized, with DDA comprising a good portion of the growth. Looking ahead to the fourth quarter, we expect about $400 million of public funds deposit inflow that will serve to make our balance sheet larger as we plan to hold the funds in cash and short-term investments. We were also able to push down our cost of deposits in the quarter to 1.97% to achieve a 37% total deposit beta so far. We have been saying we thought we could get to a high 30% range total deposit beta through the cycle, but on these first five cuts, I now believe we can get to the 40% range. In September, we averaged a 1.92% cost of deposits, so we are expecting more improvement in the fourth quarter. On page six, we turn to the loan portfolio, where our growth continued at a 5.4% annualized pace. Excluding the impact of senior care runoff, we grew loans at a 6.2% annualized pace. Our growth came primarily in the C&I, Equipment Finance, and HELOC categories. Turning to page seven, 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 have no wholesale borrowings and very limited brokered deposits. Our loan-to-deposit ratio remained low, increased for the second quarter in a row, and is now at 80%. Our CET1 ratio was relatively flat at 13.4% and remains a source of strength for the bank. On Page eight, we look at capital in more detail. As I mentioned, our CET1 ratio was 13.4%. You'll notice the impact at the end of the quarter, we redeemed the remaining $88 million of our preferred issue. All things equal, this lowered our Tier one total capital and leverage ratio towards peer levels. Our TCE ratio was up 26 basis points in the third quarter as the balance sheet stayed relatively flat. We have been fairly active in managing our capital. Since the beginning of 2024, we have now paid down $100 million of senior debt, $68 million in Tier two capital, repurchased $14 million of common shares, and now we have redeemed the $88 million of preferred. Moving on to spread income on page nine. We grew spread income 14% annualized in the quarter. Our net interest margin increased eight basis points to 3.58%, mainly driven by lower cost of funds and a mix change towards loans. We remain slightly asset sensitive, and because of this, in the fourth quarter, I would expect our net interest margin to be flat to down two basis points. A key will be how we are able to reprice the $1.8 billion of CDs maturing in the fourth quarter at 3.6%. We also have the medium-term benefit of our back book of loans and securities that will mature at low rates. In the next year, using just maturities, we have about $1.4 billion of assets paying down in the 4.93% range.
Rich Bradshaw: Moving to page 10, on an operating basis, non-interest income was $43.2 million, up $8.5 million from last quarter. We had a $1.5 million BOLI gain that we do not expect to repeat and an MSR write-up of $800,000. On the slide, we mentioned that unrealized gains on equity investments swung up $2.1 million. This moved from a $500,000 loss last quarter to a $1.6 million gain as this category will bounce up and down. Besides these items, we had strong across-the-board increases in most of our fee categories. We feel good about our progress in the quarter. Operating expenses on page 11 were up $4.3 million in the quarter. This $4.3 million increase was primarily driven by higher variable compensation. With strong revenue growth in the quarter, our efficiency ratio improved to 53.1%. Moving to credit quality on Page 12. Net charge-offs were 16 basis points in the quarter, improved compared to last quarter and last year. NPAs and past dues moved a little higher off a low base as credit quality remained strong. I will finish on Page 13, with the allowance for credit losses. Our loan loss provision was $7.9 million in the quarter as compared to our $7.7 million in net charge-offs. The $7.9 million provision included a $2.6 million release of our Hurricane Helene reserve, which now stands at just $1.9 million remaining. Net-net, our allowance coverage of credit losses moved down slightly to 1.19%. With that, I'll pass it back to Lynn.
Lynn Harton: Thank you, Jefferson. As we move into Q4, the optimism we mentioned last quarter for the remainder of the year seems well-founded. And as we close, I'd like to recognize our leaders throughout the footprint. We recently completed our regular employee survey and the overall results reflected very well on your care for your teams, your communication of our strategies, and the exhibition of our values. You ranked in the 92nd percentile for employee engagement compared to over 2,000 companies that did the same survey. Becoming a legendary bank begins with being a great place to work for great people. I want to thank you for what you're doing to make that a reality. Now I'd like to open the floor to questions.
Operator: Yes. Thank you. We will now begin the question and answer session. And today's first question comes from Stephen Scouten with Piper Sandler.
Stephen Scouten: Hey, good morning guys. Appreciate the time. I guess maybe if we could start on loan growth trends. Seemed like a really nice quarter here from a loan growth perspective. I'm wondering kind of what you're seeing within your pipelines and then also if you could talk about maybe what kind of inning we're in, in terms of the senior care runoff. And lastly, that HELOC product in growth, if there's anything unique to that product or just something you guys have been marketing a little bit more or customers unlocking existing equity, that sort of thing? Appreciate it.
Rich Bradshaw: Hi, good morning Stephen. This is Rich. I'll address the loan growth. We feel we do feel very good about the loan growth. Florida led with South Carolina, North Carolina as the geography is right behind that. As Lynn mentioned earlier, this is our most balanced quarter since I've been here with all the geographies contributing. So that felt really good. I also like the heavy emphasis on C&I. We worked really hard on hiring people, strategy, pricing to really drive C&I. So that feels key. So we're very in terms of the pipelines and how that looks for Q4, we feel very it'd be a very similar type quarter, maybe slightly better. The activity is strong. The pipelines are strong and that's all been confirmed with my credit partners. So the credit teams are validating that they're seeing a lot of activity. In terms of the HELOC, we that's not by accident. We've spent a lot of time. We did a reorg in January with the one of the purposes of that reorg was a bigger emphasis on retail. And we're proud to tell you that 100% of our branch managers are now lending. That wasn't the case before and really good about that. And we've also ran a campaign throughout the year on HELOC. I'm trying to think did I answer all the questions?
Stephen Scouten: Senior Care, yes. Senior Care, great point. We have about $230 million left. We had 35 runoffs roughly this quarter expect something similar feel next quarter. And then next year, we do not plan on running off the whole portfolio because some of that are long-term customers that we've been in business with a long time. But the non-part of that we do expect most of that to go away next year. Perfect. Thanks for all that color. And then, Jefferson on the deposit beta guide, anything you said you think that could get into the 40% range now. What's what leads you to believe that could get better? I tend to think about deposit betas waning as we get incremental cuts and rates get lower. So is it just a cliff of the short duration CDs that you have that gives you more confidence there or any color there would be great?
Jefferson Harralson: Yes. Lot of it thanks, Stephen. A lot of it is really already been done. The some rate cuts that we've made later in the quarter. We were unsure of what we're going to see with competition. And we've been able to cut rates by a little more than we thought. We've seen CD growth even though we've customer rates it's not really so much, I think this will come to an end if we don't get any more rate cuts. But just believe that the success that we've had the last two quarters, you'll see that kind of flow through in the full quarter in the fourth.
Stephen Scouten: Okay, perfect. And then just lastly for me, I think you said, let's see, fixed rate loans four ninety-three, repricing over twelve months and the CD book, I think was three sixty. Can you give me a feel for where you think at least as of today, CD yields and new loan yields would be coming on at relative to those numbers?
Jefferson Harralson: Yes. The new loan yields would be in the 7% range. New CDs 3%, that's a little some variable to it. So maybe three twenty, three thirty.
Stephen Scouten: Great. Appreciate all the color. Congrats on a great quarter.
Lynn Harton: Thank you.
Operator: Thank you. And the next question comes from Gary Tanner with D. A. Davidson.
Gary Tanner: Thanks. Good morning. I wanted just to ask about capital Jefferson, you flood kind of how active you all have been since early 2024. With some of the stuff behind you including the preferred redemption, how are you thinking about capital deployment via buyback here or are you wanting to push Tier one a little higher just through earnings for a quarter? Before you can consider that?
Jefferson Harralson: Thanks, Gary. So just to list out our capital priorities, Number one is organic growth. We are as Rich mentioned feeling better about where our loan growth is going. Number two and priority is the dividend. We just raised that by 4%. M and A, there's some possible opportunities out there and maybe even ones you could put some cash into and use capital that way. Buyback is on the list. We have authorization. We'll be opportunistic. But we have these the other three priorities or above it. We have used buyback in the past. We may do it in the future. But I put in the order of organic growth dividend M and A. And then buyback.
Gary Tanner: Got it. Thanks. And then just on the fee side, one of the line items that I think had a notable jump was service charge income this quarter went from what 10.1% to 11.4%, if I recall correctly. Anything unusual there? Any change in the fee structure or anything you could point out to?
Jefferson Harralson: Yes, nothing unusual, just some better volume there. So I cannot point to anything specifically there.
Gary Tanner: All right. Thank you.
Operator: Thank you. And the next question comes from Michael Rose of Raymond James.
Michael Rose: Hey, good morning guys. Thanks for taking my questions. Just wanted to ask on expenses. I know you guys have talked about some hiring efforts in the back half of the year. I know some of it was incentive comp related, but just wanted to see how much of the sequential increase was related to those efforts and then what that could look like, particularly in light of some of the M and A discussion that we have going on, how opportunistic you plan to be as we move forward? Thanks.
Jefferson Harralson: Yes. I'll start maybe with the expense piece and maybe talk to pass to Rich on the hiring. For the medium to longer-term expense run rate, think of us being in the 3% to 4% range. We did mention the higher variable comp this quarter. So I think that would not necessarily repeat next quarter. So I think flat is a good guide for the fourth quarter and then in general 3% to 4% growth is how you should think about where we are. Pass to Rich on how we think about hiring or Sure. Good morning, Michael. We continue to be opportunistic about hiring throughout the footprint. So we're always after top talent that's going on. I'd say the other just kind of interesting note is in the recruiting compensation incentive program usually is on the conversations and now it's kind of turned to culture. Culture tends to be first and I truthfully think that gives us an advantage.
Michael Rose: Perfect. Maybe just a follow-up Gary's question. Just as it relates to M and A, I think you guys have been pretty sour on M and A prospects just given I think some pricing concerns. I want to put words in your mouth, but it does seem like you're a little bit more open than you've been kind of in the past two or three quarters at least. I assume some of that has to do with the regulatory backdrop, but are you seeing more opportunities? Meaning, are more people raising their hands at this point? And is there a better opportunity set than, say, two or three quarters ago? Just want to make sure I understand what you guys are trying to communicate. Thanks.
Lynn Harton: Yes. Thank you, Michael. This is Lynn. Yes, from a regulatory perspective, we've always been really confident with the size deals that we do. So I haven't really wouldn't put the change into that category. But I would say that we are seeing more people raise their hands, to today than two to three quarters ago. So gives us a little more optimism. I mean, still early. You still got to see what develops out of that. But I think there is we are seeing more interest on the part of sellers than we have seen.
Michael Rose: Okay. Very helpful. I'll step back. Thanks for taking my questions.
Operator: Thank you. The next question comes from Russell Gunther of Stephens.
Russell Gunther: Hey, good morning guys.
Jefferson Harralson: Good morning, Russell.
Russell Gunther: Wanted to ask morning Jefferson. From a balance sheet growth perspective, how should we think about average earning assets going forward? Would you guys expect securities, the investment portfolio to continue to decline from here or kind of trend water as a percentage of average earning assets?
Jefferson Harralson: That's a great question. I mentioned we have a seasonal piece to our balance sheet which in the fourth quarter will be seasonally strong. Mentioned $400 million likely of public funds coming in on an average basis. That's probably $300 million for the fourth quarter. Would expect to see securities portfolio is going to be more of a derivative of how strong the deposit growth is. But I could see it being flat to slightly down in the near term. But over if you think about 2026, I would expect deposit growth there and then the securities book to flatten out.
Russell Gunther: Okay. Excellent. Thank you. For that. And then just last one for me. With regard to your capital deployment. Priority list. And sort of adjacent to the securities portfolio. But how are you guys thinking, if at all, in terms of any action from a restructuring perspective with regard to the investment portfolio?
Jefferson Harralson: That's a it's a great question and that is, something that we have talked about at the board level. I do not see anything imminent there but it is a conversation that we've had over the last six months and probably continue to.
Russell Gunther: Okay, great. Very good. Thank you guys. That's it for me.
Operator: Thank you. The next question comes from Catherine Mealor with KBW.
Catherine Mealor: Thanks. Good morning. Catherine? First on credit, maybe first and I know your level of NPAs are still low, but just any kind of color on to the increase in C&I NPLs? And then just any kind of update or color you can give us on the Navitas book. It feels like the loss have normalized from the long haul trucking piece and other exposures really low. But just curious any trends that you're seeing within that book as well? Thanks.
Rob Edwards: Yes. Thanks, Catherine. Good morning. This is Rob. Good morning.
Catherine Mealor: Hey, Rob.
Rob Edwards: Hey. On the NPA side, on the commercial side, we exited three of our top non-performing C&I credits. One was in the service business, one was in the light manufacturing business, one was in the distribution business. So we added one that was in the service business and added one two in the service business I guess and one in the light manufacturing business. So it kind of just feels like the normal cycle of movement of in and out. We are able to exit credits successfully and we'll continue to do that. So we had some come in and some go out during the quarter. Not feeling like there's any trend to be noticed there. And like you said, still from year end, we've come down from 64 basis points to 51 basis points if you look at year end till now. So we feel like it's just kind of the normal ebb and flow on the commercial NPA side. On Navitas, they've been pretty stable. I've been impressed from we acquired them seven years ago and I've been impressed at their forecasting, the complexity of how they forecast losses. And they're really right on track for how their forecast looked at the beginning of the year. And expect it to we've always said we expect loss in a normal environment to be around 1%. Of course, the long haul has taken them over that a little bit. But if you take that out, you can see that it really is just staying pretty close. We're at 92 basis points this quarter and feel like that kind of a normal range for them longer term.
Catherine Mealor: Okay. Great. Very helpful. And then maybe just a bigger picture question. It feels like the NIM has seen some nice recovery over the past year and growth is improving. As we look to 2026, is this a year that you think you will still have perhaps profitability improvement and positive operating leverage? Are there any kind of investments within expenses or staff that you think that we should expect to see kind of before we get to that really big ramp in profitability? Thanks.
Jefferson Harralson: Thanks, Catherine. I would think yes for 2026 and operating leverage. We're in the budget season now. I cannot imagine coming out of a budget season without strategizing operating leverage in there. And the powerful driver is going to be the margin. If you think about our loan yield at 6.21% and if you think about putting on new loans at seven, and back book coming off. You can see a nice medium-term opportunity in the margin. So I think the combination of those things is yes, we think we will continue to have operating leverage in 2026.
Catherine Mealor: Great. Thank you.
Operator: Thank you. And the next question comes from Kyle Guerman with the AbbVie Group.
Kyle Guerman: Hey guys, good morning.
Jefferson Harralson: Good morning.
Kyle Guerman: Good morning. I'm shifting shift to the revenue side, I was wondering if I can get a bit more color on the core fee income and what are your expectations for the next quarter?
Jefferson Harralson: Yes. I'll give that a shot. And I would say we laid a lot of that out on that fee page. If you look at the $43 million, we laid out the MSR. We do not think the BOLI that we do not think repeat. We also have the unrealized equity gains that again bounces around been a little bit negative, little bit positive, so hard to know. Think if you take those three items out, you're at a pretty good fee income run rate.
Kyle Guerman: Awesome. Thank you.
Jefferson Harralson: That's helpful.
Kyle Guerman: Thank you.
Operator: And that concludes our question and answer session. So I would like to turn the floor to Lynn Harton for any closing comments.
Lynn Harton: Great. Well, once again, thank you all for joining the call. And as always, if you have any additional questions, please feel free to reach out to Jefferson or myself. And we look forward to seeing you soon and talking to you soon. Thank you so much.
Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation, and now disconnect your lines.