Moderator: Good morning and welcome to United Community Bank's second quarter 2026 earnings call. Hosting the call today are Chairman and Chief Executive Officer Lynn Harton, Chief Financial Officer Jefferson Harralson, Chief Banking Officer Rich Bradshaw, and Chief Risk Officer Rob Edwards. Thank you for joining us. 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 8K 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 statements should be considered in light of risks and uncertainties described on page 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.
Lynn Harton: 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 had 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 71 cents per share was up 8% over last year. Total revenue was up 7% over last year. Our net interest margins 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 Novitus 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. Thank you, Lynn, and good morning to everyone.
Jefferson Harralson: I will start on page four and talk about some of the details of the quarter. We recorded gap 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 help 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 three 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 dollars or 3.3 percent 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 percent annualized pace. Excluding Navitas we grew at a 6.4 percent annualized pace. Similar to past quarters We saw strong growth in the HELOC and CNI categories, which continue 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-Navitus, which is still diversified and CNI heavy. Turning to page 8, 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 the VITAS, 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 9, 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 three basis points to 3.68% compared to last quarter and was up 18 basis points and the second quarter is the sixth quarter in a row of margin expansion. Moving to page 11, non-interest 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, non-interest 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 MPAs 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 help or 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 Len.
Lynn Harton: 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: 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 Scouten from Piper Sandler. Please go ahead with your question.
Steven Scouten: Yeah, thanks. Good morning, everyone. Maybe first question, I hope I didn't miss it in your comments, Jefferson, but obviously six consecutive quarters and then expansion. Do you feel like we can get to seven here, or is the deposit cost kind of stabilizing here? Does that negate that ability moving forward?
Jefferson Harralson: Hey, Stephen, that's a great question. Talk about the go forward with the margin, and I'll throw in there what might look like ex novitis. So on a static basis, selling the VITAS and reinvesting the proceeds at $4.25 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 NVIDA's 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 NVIDA sale. But I believe the fourth quarter, assuming the third quarter NVIDA 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 is somewhere in between that down 20 to 25 and where we are today.
Steven Scouten: Okay, got it. Yeah, that makes sense. And just around the time deposit specifically, I think in the deck you noted three months 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 Navitas and paying down other higher-cost funds, does that allow you to kind of manage that a little bit more than just those numbers would suggest?
Jefferson Harralson: 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 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 Scouten: 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: Hey, Steven, this is Len. Yeah, I would... Say they're very active conversations in that smaller bank, call it 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 Scouten: Great. Thanks for the call. I appreciate the time this morning, everyone.
Lynn Harton: Thanks, David. Thanks, Stephen.
Operator: Our next question comes from Jacob Morton from Stevens. Please go ahead with your question.
Jacob Morton: 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 the growth to come from and which geographies in your footprint do you expect to produce the most? Thank you.
Rich Bradshaw: 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. 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 difference. in terms of the forecast, in terms of Q3, we're looking at the 7% range ex novitis. And then in terms of next year, I'm even more confident in obtaining upper single digit next year, particularly based on the hiring that has occurred and those, you know, 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.
Steven Scouten: Got it.
Jacob Morton: 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 Harralson: All right, I'll take that one. Thanks, Jacob. So we just did $154.5 million in expenses on what I would call a run rate basis. Overlay Peach Date, 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 upsetting that, you have Navitas has a $9 million quarterly run rate that will go away when the deal closes. So think about a $154 million expense base is growing at roughly at 3.5% pace. Then you have $9 million of expenses going away with Navitas and $4 million coming on turning into two with cost saves next year of P-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 and Q4 are We should be looking at roughly a $150 million base, maybe just a slight higher depending on the lender hires.
Rich Bradshaw: And Jacob, to finish answering your question, you had several in there. Just to answer in terms of what type of, where are we producing, it's going to probably look equal between CNI and Cree, and it would be spread across all the geographies. We're seeing really good equal production, and the geographies are kind of, Thanks, Jacob. Our next question comes from Catherine Mueller from KBW. Please go ahead with your question.
Hannah Wynn: Hi, this is Hannah Wynn stepping in for Catherine Miller. 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 Harralson: That is a great question and one that we are thinking about quite a bit because the four and a quarter, 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: 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.
Jefferson Harralson: 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, it 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. and board meetings over the next year. So I think you could realistically see capital usage and perhaps buybacks increase significantly next year.
Hannah Wynn: Great. That's all for 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: Thanks. Good morning. I just wanted to ask in terms of the gain-on-sale scenario, 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 gain on sale this quarter was SBA, but let's talk
Jefferson Harralson: After this, and I'll get you the exact number.
Gary Tenner: Okay, I appreciate that. And then just to follow up on the repurchases, my sense of things when you announced the sale of Navitas a couple 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: Yeah, no, nothing's changed. We're just continuing to evaluate all the options. 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 and many other nice small banks that are very high quality that we're interested in. In my mind, doing some of those for cash is a more effective buyback in a way. Then we're looking at buybacks, we're looking at other balance sheet options as well. Nothing's changed, it's just we're continuing to evaluate all those options.
Gary Tenner: Okay, so maybe more a sense of not wanting to just kind of slow pulling it a little bit to give you some more flexibility if other things arise. Is that the way to think about it?
Lynn Harton: That is a great way to think about it.
Gary Tenner: Okay. All right. Thank you.
Operator: Our next question comes from Michael Rose from Raymond James. Please go ahead with your question.
Michael Rose: Hey, good morning, guys. Thanks for taking my questions. Maybe for Rich, just wanted to go back to 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 a 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: 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, you know, very positive.
Michael Rose: Okay. And maybe as a follow-up, how should we think about kind of loan yields as we move forward, etc.? ? and Navitas. 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, it just seems like there's going to be an increasing amount of pressure as we move forward, but we'd love to hear any thoughts.
Rich Bradshaw: 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 Cree come down over the last year. That is stabilized, and again, the structure is stabilized right now.
Jefferson Harralson: 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: 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 announcement for a new CFO. Thanks.
Lynn Harton: Yeah, so we're actively recruiting. We've got some great candidates in. My expectation would be probably sometime, let's call it September, October, something like that would be a good timeframe to expect that.
Michael Rose: All right. Thanks, guys.
Jefferson Harralson: 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 Breen Capital. Please go ahead with your question.
Christopher Marinak: 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. I just wanted to quantify that.
Rich Bradshaw: The answer is yes, because we really started this Q4, saw their impact in Q2 in the, 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 fundings 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: Great. Thank you for that, Rich. And then, Jefferson, just a quick one on net charge-offs ex-Navidus. Is the number you told us in June still a good number to use?
Rob Edwards: 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 Navidus. Last two years have been 12 basis points. I'm not remembering what we stated recently, but I would say those are good ranges to think about going forward.
Christopher Marinak: 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 the possibilities this year?
Lynn Harton: I would say each deal is a bit unique. We target three-year earn-back on an all-stock basis, so it really depends on overlap, the underlying momentum of the bank itself. Peach Day was unusual, so I would say that was probably on the high side. Each deal is priced individually, but it's based on those attributes.
Christopher Marinak: Sounds good, Lynn. Thank you all for taking our questions this morning.
Lynn Harton: All right. Thank you.
Operator: And with that, ladies and gentlemen, in showing no additional questions, I'd like to turn the floor back over to Lynn for any closing comments.
Lynn Harton: Great. Well, once again, thanks to everyone for joining our call and 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.
