United Community Banks, Inc. 2026 Q3 Earnings Call

Good morning, and thank you for joining us today. Many of you joined our call on September 8th, where we discussed the completion of several important initiatives that put United in a stronger financial position and made the franchise more resilient. Our goals were to de-risk the balance sheet, to enhance our profitability, and to position the company for future growth. We're glad to be able to give you details today on the preliminary results of those actions and let you see more clearly the improvements we anticipate as we head into the fourth quarter in 2027. For the quarter, our operating earnings reached $0.77 a share, a significant improvement from the $0.71 recorded in the second quarter. One of the drivers included strong core loan growth of 10% annualized, of which nearly 40% was driven by our new hires discussed on September 8th.

For comparison, our core loan growth, ex-Navitas, was 6% in the second quarter and 4% for the year of 2025. We also had solid core deposit growth of 8% annualized. Non-interest-bearing deposits were stable as a percentage of the total, and deposit cost increased very modestly despite the upward rate environment. Even without Navitas and their higher yielding loan portfolio for the last month of the quarter, our margin was stable at 3.68%, and net interest revenue increased by $10 million over the second quarter. Credit continues to be very strong, and net charge-offs were only nine basis points, consistent with the nine basis points in the core bank last quarter. The sale of Navitas significantly de-risked the company from a credit perspective. Looking forward, we're well positioned to grow our earnings and returns. Our loan-to-deposit ratio is 77%, providing liquidity to deploy into customer relationship lending opportunities.

Our capital ratios remain strong, giving us flexibility to support growth from new hires, as well as optionality to return capital to shareholders and welcome additional quality in-footprint banks into the company when appropriate and available. I'd like to now turn it over to Tom Speir, our new CFO, for more detail on the quarter.

Thank you, Lynn. I'm honored to have the opportunity to join this outstanding team at an important point in United's evolution. The third quarter was an important one for United as the strategic actions that were executed over the past few months position us very well to generate sustainable and profitable growth moving forward. Starting with loan growth on page 6, we were pleased this quarter with the strong core loan growth delivered by the bank. Excluding the sale of Navitas and the addition of Peach State, core loan growth was 10% annualized, the strongest we've seen since 2022. Production was robust, exceeding $1 billion for the second quarter, reflecting the continued benefits from our investments in hiring revenue producers. Production from new hires within the last year increased to approximately $170 million in the third quarter, contributing 40% of United's funded loan growth for the quarter.

Following the Peach State acquisition, which was effective August 1st, and the Navitas sale, effective September 1st, we wanted to provide an update on the go-forward loan portfolio. The quarterly reported loan yield was 6.06%. That compares to a loan yield of 5.83% in September, which provides a good baseline heading into the fourth quarter. Approximately half of the loan portfolio is floating rate, including the impact of swaps. Higher short-term rates and the continued benefit from fixed asset repricing will serve to support loan yields. Turning to deposits, we generated deposit growth of $1.2 billion in the quarter, which includes the acquisition of Peach State. Excluding the impact of Peach State, deposit growth was solid at $473 million, or 8% annualized. Growth was particularly strong in money market, which was up to $366 million excluding acquired balances.

Core DDA growth was solid as well at $111 million, or 6.9% annualized. Time deposits remained relatively flat, with an increase of $13 million or 1.4% annualized. Public funds ended the quarter at $2.8 billion stable versus the second quarter. Public funds typically have seasonal inflows in the fourth quarter of approximately $325 million-$375 million, with meaningful outflows beginning late in the first quarter and returning to normalized levels by the end of the second quarter. For the quarter, average total deposit costs were 1.69%, and interest-bearing costs were 2.31%, up three and four basis points respectively. As of the end of September, total deposit costs were 1.71%. Approximately 15% of total deposits are indexed and have already realized the impact of the Fed rate hike in September.

United's quarter-end loan to core deposit ratio was 77%, which gives us strategic flexibility as we grow both sides of the balance sheet and allows us to be more deliberate with respect to deposit pricing in the current environment. Moving to the investment portfolio. Following the restructuring executed in the third quarter, we have added information related to our securities portfolio on slide 8. More details related to the Navitas sale and restructuring are available in the presentations published on June 12th and September 8th. As a reminder, last month we reclassified $2.2 billion in held-to-maturity securities to available-for-sale designation. We then sold $2.5 billion of long-dated securities that were yielding approximately 2.2%. At that time, we were expecting to redeploy over $3 billion into securities yielding approximately 4.5% with a duration of around two years.

With the increase in rates in September, our average reinvestment rate was over 4.6%, with the same expected duration of approximately two years. The securities yield for the quarter was 3.34%, up 37 basis points from the prior quarter. At the end of the quarter, the portfolio was yielding approximately 4.2%, which represents a good launch point for forward projections. Our portfolio is highly liquid and well-positioned for a higher for longer rate environment. Quarterly cash flows are expected to average around $340 million in 2027, up more than 40% from pre-restructuring levels. Floating rate securities account for approximately 45% of the total portfolio. Moving to slide 9, net interest revenue increased $10.3 million from the second quarter, primarily driven by the Peach State acquisition, core growth, the net effect of the portfolio restructuring, higher interest rates, and day count, partially offset by the impact of the Navitas sale.

Our net interest margin of 3.68% was stable in the third quarter as higher securities yields following the repositioning largely offset lower loan yields following the Navitas sale. Following the securities repositioning and Navitas sale, United's asset sensitivity has meaningfully increased. We are well positioned for a higher for longer rate environment as approximately half of our loans and securities are floating rate. Additionally, repricing of our back book of fixed rate assets will continue to be a tailwind over time. Moving to page 10, GAAP non-interest income decreased by $302 million from the second quarter, reflecting the impact of both the gain on the sale of Navitas and the loss on the investment portfolio repositioning. On an operating basis, non-interest income was $40.7 million for the quarter, up slightly from prior quarters, primarily driven by higher BOLI gains and service charges.

Mortgage fees increased largely driven by an increase in MSR valuation, which was mostly offset and hedged included in the other non-interest income line item. On page 11, we highlight non-interest expense for the quarter. The quarter included two months of expense related to Peach State and two months of expense related to Navitas. Expenses in the fourth quarter will include a full quarter with Peach State and without Navitas. We were pleased that the bank's operating efficiency ratio improved to 53.1% in the quarter and was stable year-over-year. Moving to page 12, credit quality for the quarter was very strong. Net charge-offs benefited from the sale of Navitas, which has historically contributed approximately half of the bank's net charge-offs. Net charge-offs for the quarter were $4 million or nine basis points of average loans improved from $7.9 million in the second quarter.

Non-performing assets and past dues were both down quarter-over-quarter and remained at benign levels. On slide 13, the allowance for credit losses increased to $200 million, up from $188 million in the prior quarter, primarily driven by robust loan growth in the third quarter. The provision also included approximately $800,000 to establish the Peach State initial unfunded reserve. The ACL coverage ratio, inclusive of unfunded commitments, was 1.05%. Moving to page 14, United's liquidity and capital positions remain robust following the strategic actions taken in the third quarter. Our solid CET1 and TCE ratios provide us with strategic flexibility moving forward. Our TCE ratio is 9% and our CET1 ratio is 13%, both down from the second quarter, primarily due to recent strategic actions, but remain strong relative to peers.

Our relatively low loan to deposit ratio is also a continued source of strength, allowing capacity for future organic growth. On slide 15, we note the previously announced repurchase of approximately $50 million of common shares in the third quarter, which effectively converted the Peach State deal into an all-cash transaction. Additionally, in the third quarter, United's board authorized a $100 million increase to our existing share repurchase authorization through year end 2027, bringing the total outstanding authorization to $113 million. Also in the third quarter, we increased our common dividend to $0.26 per share, a 4% increase year-over-year. Tangible book value came in largely as expected, reflecting the impacts of the various strategic actions taken in the quarter as well as higher interest rates. Moving to the outlook for the fourth quarter on page 16.