United Community Banks, Inc. Status update

Good morning, and thank you for joining us today. Our message today is straightforward. We have completed several important initiatives that put United in a stronger financial position and make the franchise more resilient. As I said in my annual letter, coming out of COVID, we had more fixed rate exposure on the balance sheet than we would have liked. As a result, our returns moved from top quartile to average. We were clear then, and we are clear now. Average performance is not where we intend to stay. Over the past several quarters, we have been taking action to close that gap, and today we want to walk through a few key milestones. First, Navitas. Navitas has been a solid success for us. It helped support loan growth as we integrated multiple bank acquisitions and built out our footprint.

Over time, though, Navitas became more complex with multiple product lines across all 50 states, growth that reached our concentration limit, and it required a growing amount of management time and attention. With strong market interest and high-quality platforms, and with our focus on core banking, we decided this was the right time to sell Navitas. That transaction closed last week. We received $2 billion of cash proceeds at a 7% premium with a $68 million pre-tax gain to be recognized this quarter. As previously announced, we also recognized a $38 million benefit from the Navitas reserve release last quarter. That leads to the second part of the story, which is investing in and growing our core franchise. We were comfortable making this move with Navitas because we now have the scale and platform to attract strong commercial bankers and other revenue producers to the company.

Late last year, we rolled out a more consistent program to recruit and onboard high-quality revenue producers into our processes and culture. That effort has produced 42 net new additions through the end of August, and we're starting to see that momentum contribute to growth. We're also continuing to build density in our existing footprint through small tuck-in acquisitions. Peach State, which closed on August 1, is a good example. It moved us to the number one deposit share in a high growth market, and the integration is going very well. We've remained active on stock repurchases. Quarter to date, we've completed $50 million of open market repurchases, and our board has approved an additional $100 million authorization through 2027. Finally, we've made some significant changes to how we manage the balance sheet.

We strengthened our balance sheet management team and processes, including bringing in Kevin Brown as Treasurer about 18 months ago and adding additional talent across treasury and asset liability management. These teams have materially reduced our interest rate risk, especially our exposure to a higher rate environment. We also concluded that getting the balance sheet where we wanted it would require additional action. Last week, we moved all securities to available for sale, recognized the embedded HTM losses through AOCI, and then realized a large portion of those losses by selling many of the low-yielding, long-duration securities, creating the most pressure. We'll use these proceeds to reinvest in shorter duration, higher yielding securities, and over time, loans. This restructure will improve our returns and initially will replace much of the earnings lost from the Navitas sale, but with significantly lower volatility and credit risk.

Our capital ratios post-restructure remain strong, allowing us to continue to support growth as well as continuing stock repurchases. Stepping back, these actions tell a clear story. We've simplified the business by exiting Navitas. We're investing in the core franchise, strengthening organic growth and staying disciplined around tuck-in acquisitions and capital deployment. We've repositioned the balance sheet to create a more resilient capital and earnings profile. With these actions, we believe United is positioned for strong and sustainable earnings and high-quality growth with strong capital and ample liquidity. With that, I'll turn it over to Jefferson to walk through the details.

Thank you, Lynn. I will start my comments on Page 4. As Lynn mentioned, our strategy with the Navitas sale and the portfolio restructure is to reduce risk and volatility, and then reinvest the funds into our more valuable core business and to set our core business up for growth, as well as set the stage in the form of balance sheet capacity for profitability improvement. Starting on Page 4, in the first column, we highlight two major de-risking actions.

Sale of the Navitas portfolio and the portfolio restructure that collectively generated about $4.2 billion in cash. In the second column, we highlight that we are deploying this capital and liquidity primarily into securities with shorter duration and higher yields, while also paying down debt and continuing to repurchase our own shares. Most importantly, in column three, we highlight that these actions in total, including the significant hiring of producers over the last 12 months, translate into a higher organic growth rate moving forward with a high single-digit loan growth in 2027. These strategies in total set us up to support this growth with a balance sheet that has great capital and liquidity with over a 13% CET1 ratio and approximately 75% loan-to-deposit ratio, and essentially no short-term borrowings.

Moving to page five, I will talk on some of the specifics of the Navitas transaction, which closed on September 1st, de-risking our balance sheet and providing $2 billion of cash and 145 basis points of CET1. Selling Navitas is one part of our strategy to reallocate our capital to focus on our most valuable asset, the core banking franchise. Selling Navitas creates capacity in our funding and liquidity, which can then be invested in people and markets to drive a higher growth rate and a more valuable bank. Next, on page six, I will go into some of the details of the bond transaction. The bond transaction is designed primarily to reduce risk, as our portfolio had a larger portion of long-dated securities than we would like. The transaction is designed to shorten duration to provide more balanced exposure to movements in interest rates.

The first step of this process was to reclassify our held-to-maturity portfolio to the available for sale designation. These losses were being realized economically and moving them to AFS gives us the ability to hedge and otherwise reduce risk in the event of higher rates. As I mentioned earlier, a good portion of our portfolio had longer durations than we would like. Because of this, next, we decided to further reduce our risk by selling $2.6 billion in book value of securities. This is creating a $300 million pre-tax loss inclusive of the Navitas gain that is also happening this quarter. The securities sold had a yield of 2.2% and a five-and-a-half year duration, and a weighted average life of about six-and-a-half years.

Moving on to the topic of reinvestment, we had $2 billion of cash that came in from the Navitas sale and another $2.2 billion of cash created from the security sale I just described. This adds to an inflow of $4.2 billion in total cash to the bank. Of the $4.2 billion in cash coming in, we already have or expect to shortly put about $3 billion of that cash to work in the securities portfolio. These securities will be invested in the 4.5% range at a duration of around two years or less. We expect that our overall securities portfolio will end up in the $7 billion range at quarter end. The total securities portfolio yield will increase around 90 basis points to approximately 4%, and the duration will move from 3.2 years in Q2 to about two at the end of Q3.

With the remaining $1 billion of cash inflow, we paid off short-term borrowings at a cost of about 3.8%. While done mostly for risk reduction purposes, the bond trade in itself adds about $40 million in annualized pre-tax spread income and will increase as the securities fund a portion of our expected loan growth in the future. Moving to page 7, we bring the elements of the whole strategy together and give you a picture of the changes. on the top of the page, we also give you some thoughts on the puts and takes of our earnings run rate. We are using a Q2 $0.74 number as a run rate proxy, which is our Q2 operating EPS, adjusted for notable items that we identified last quarter related to regulatory remediation.

On top of that, selling Navitas and reinvesting the proceeds we previously mentioned takes about $0.07 of quarterly earnings. Offsetting the impact of Navitas, the portfolio restructure of $2.6 billion of book value of bonds at 2.2% and reinvesting around 4.5% adds about $0.06 of earnings per quarter. Next, we highlight that Peach State closed on August 1st. Peach State's full cost savings aren't realized until after next year's Q1 planned conversion. That said, we do think we will get $0.02 of the total expected $0.03 of quarterly accretion in the near term. Finally, the core bank is growing at a healthy rate in both loans and deposits. As an inter-quarter update, we were up about $150 million of loans through the end of August, which gives us optimism for strong loan growth given that most of our loan growth generally comes in at quarter end.