UCB

Good morning, and Welcome to United Community Banks' First Quarter 2026 Earnings Call. Hosting the 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, pre-tax, pre-provision income, 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 presentation were filed this morning on Form 8-K 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 statement 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.

Good morning, and thank you for joining our call today. We've got a lot to cover. I'm going to start with our quarterly earnings update, and then we'll close with the details of our acquisition of Peach State Bank, headquartered in Gainesville, Georgia. We had a great start to 2026. For the first quarter, we realized net income of a little over $84 million, translating into EPS of $0.69. On an operating basis, our EPS was $0.70, representing a 19% increase from the first quarter of 2025. Annualized loan growth of 4.5% for the quarter and an expansion of our net interest margin of three basis points helped to drive these results. Credit also performed very well this quarter, with total charge-offs of 22 basis points, only 10 basis points excluding Navitas.

Non-performing assets as a percentage of loans were 50 basis points, down one basis point from Q1 2025, and special mention and substandard loans totaled only 2.9% of total loans, down two basis points from Q1 of 2025. Our operating return on assets was 122 basis points, an 18 basis point improvement year over year, and our operating return on tangible common equity was 13.1%. Given our high capital levels, we continued to return capital to shareholders, both via a $0.25 quarterly dividend and the repurchase of 37 million of our common stock. We also announced the intention to redeem our remaining $100 million in sub-debt in the second quarter, only 20% of which qualified as Tier 2 capital. Even with the dilution from our repurchase activity, tangible book value per share grew at an annualized rate of nearly 6% for the quarter and by 10% year over year.

We were also excited to have been recognized by J.D. Power as the top-ranked bank for retail client satisfaction in the Southeast during the quarter. This is the 12th time the United Team has received this recognition. I'm very proud of the dedication and genuine care that our teams across the footprint demonstrate every day. It's because of them that we are the most recognized bank for customer satisfaction in the Southeast. I'll now turn it over to Jefferson to cover our first quarter's performance in more detail.

Thank you, Lynn, and good morning to everyone. I will start on page five and talk about our deposit results. On an end-of-period basis, our customer deposits grew by $237 million or 4% annualized, mostly driven by DDA growth in the quarter. We were also very pleased that our cost of deposits moved down nine basis points to 1.67%, and that our cumulative total deposit beta stands at 39% in this down cycle, which exceeded our goal. On page six, we turn to the loan portfolio, where our growth continued at a 4.5% annualized pace. Our growth came primarily in the HELOC and C&I categories, which are two of our current areas of focus for growth.

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 very limited broker deposits and very limited wholesale borrowings of any kind. Our loan-to-deposit ratio remained low and was unchanged at 82% this quarter with a solid end-of-period deposit growth. Our CET1 ratio was 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%, and our TCE was also flat at 9.92%. We were active in our buyback again in the first quarter, buying back $37 million in shares, which equated to 1.1 million shares in the quarter or just under 1% of our shares outstanding.

Moving on to spread income on page nine. Spread income was down in Q1, mainly due to having two less days in the quarter. On a year-over-year basis, our spread income was up 10%. Our net interest margin increased 3 basis points in the quarter to 3.65% and up 29 basis points compared to last year. The first quarter is the fifth quarter in a row of margin expansion. We continue to experience a margin tailwind from our back book repricing and from the mix change towards loans away from securities. In the next year, using just maturities, we have about $1.4 billion of assets paying down in the 4.63% range. Because of this continued impact, I would expect the margin to be up between 3 and 5 basis points in the second quarter.

Moving to page 10, non-interest income was $43.7 million in the quarter. This included a $5.2 million gain on an interest rate cap that was hedging a sub-debt issuance that we intend to redeem on April 30th. Excluding the cap gain, non-interest income benefited from a strong mortgage quarter and was offset by seasonally lower service charges. We opted to sell less Navitas loans than usual. Last quarter, we sold $41.6 million in Navitas loans compared to $8.3 million this quarter. Our GAAP expenses were $157.3 million in the first quarter, and our operating expenses were $151.6 million. We had a small amount of our normal merger charges, but we had two more unusual and offsetting non-operating expenses.

First, we had fully accrued for the FDIC special assessment that came after the Silicon Valley Bank failures. That said, the FDIC refilled its fund faster than expected and is not asking for the full assessment. We had taken the original assessment as a non-operating loss, and so the release of the assessment of $1.9 million comes through non-operating as well. We also had another non-operating charge in the first quarter related to a change in our payroll process necessitated by changes in the legislation. We had paid our employees on a current basis, and we changed this to paying our employees in arrears. As a result of the transition in payroll timing, some of our employees would have gone nearly a month without a paycheck, so we paid an additional check to bridge the gap.

Aside from the one-timers, expenses were $151.6 million, relatively flat compared to the fourth quarter. Moving to credit quality on page 12. Net charge-offs were 22 basis points in the quarter, improved from last quarter and flat to last year. We also saw relatively flat NPAs and a nice improvement in past dues as credit quality remained strong. I will finish on the quarterly results on page 13 with the allowance for credit losses. Our loan loss provision was $10.9 million in the quarter, which was in line with our net charge-offs. With the loan growth, our allowance coverage of credit losses moved down slightly to 1.15%. With that, I'll pass it back to Lynn.

Thank you, Jefferson. Now let's move into a discussion of our Peach State Bank announcement, and I'll start with a bit of history. United began de novo in Gainesville, part of Hall County, in 2005. Over the past 20 years, we've enjoyed strong organic growth there with now $827 million of deposits in the county. Peach State was founded that same year, 2005, and has also enjoyed strong organic growth. Total assets for the company are $788 million as of the end of the first quarter, with $713 million in deposits. Hall County is a rapidly growing part of the overall Atlanta MSA, and after this transaction, the combined bank will have the number one deposit share in the county. Culturally, we fit well together. We know each other personally. We work in the community together. We go to school together.

We go to church together. Peach State shares the same passion for customer service as United. There's a tremendous amount of mutual respect between the two teams, and I'm very excited to see them come together and continue to win in this market. Jefferson, let me turn it back over to you now to cover the financial aspects of the transaction.

Okay. Well, first, Peach State has approximately $800 million in assets or about 3% of our assets. The deal value is about $100 million and will be a 50/50 cash stock mix. We are paying 1.9x tangible book value and 6x cost savings earnings. Given our overlap, we are estimating 40% cost savings. While the deal is 50/50 stock and cash, we plan on repurchasing the $50 million in shares issued by year-end. As structured, we estimate the deal to be $0.09 accretive in 2027, and with the planned buybacks, we estimate the deal to be $0.12 accretive. With that, I'll pass it back to Lynn to conclude.

Thank you, Jefferson. This is a great example of what we want to do in the M&A space. It is in-market, manageable size, a history of strong performance, great upside potential, and an attractive way to leverage capital and continue to grow our business and our brand. I'd like to now open the call to questions.

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to ask a question. Our first question today comes from Russell Gunther from Stephens. Please go ahead with your question.

Hi, this is Jake Morton on for Russell Gunther. My first question is on deposit costs. How would you expect them to trend from here in an interest rate scenario where the Fed remains on pause on a standalone basis and including Peach State? Is there room for you to bring these down further, or should we expect some pressure going forward?

I'll take that one. Thanks for the question. I would expect our deposit costs to be relatively flat. We have some tailwind from CD maturities, but we are seeing competition out there, and we do want to grow our deposits this year. I think if you layer in relatively flat deposit costs, that's a good place to start. The deal being only 3% of our assets doesn't change those numbers meaningfully.

Got it. Thank you. I appreciate the color there. My second question is, do you have the spot cost of deposits at the end of the quarter? And also, can you talk to the competition that you were seeing in your market, and where is it most aggressive, which specific product, and also competitor-wise, if you could talk to that? Thank you.

Yep. Thanks. Great question. The spot cost is relatively close to the quarterly average, so not a major difference in spot versus quarterly average. I may pass to Rich to talk about deposit competition on what we're seeing.

Yeah. Good morning, Jake. In terms of competition, in terms of past quarters, I would say it's slowed down a little bit. We're not getting a lot of special requests on pricing from the market. I'd say it's kind of normalized, and we really don't have it. We're in six states, so we have a lot of different competitors. No single one.

Awesome. Thank you. That's it for me. I'll step back.

Thank you.

Our next question comes from Michael Rose from Raymond James. Please go ahead with your question.

Hey, good morning, guys. Thanks for taking my questions. Just wanted to start on loan growth. Obviously really strong results in both C&I and commercial real estate. You did have some continued pay down on the construction side. I guess my question is, are we getting towards the end of the more accelerated pay downs here? Because it seems to me, just given the growth that you've had and the momentum you've had in both C&I and CRE, that loan growth could actually accelerate from here. Just wanted to just better understand that, and then if you can talk to some of the competition, just given all the dislocation in and around your markets from the deal activity that we've seen. Thanks.

Sure. I'm writing these down. Let's start with, yeah, we were pleased with Q1 loan growth. It's usually a seasonally low quarter for us. We're very pleased. In terms of the geography, South Florida led with Matt Bruno and South Carolina, Coastal Georgia were second, with North Florida in third. In terms of the commercial lines of business that led the way, it was middle market, ABL, and Navitas. Then lastly, on the retail side was HELOCs. In terms of pay downs, we actually saw the biggest amount of pay downs in hospitality, which we think is a good thing. We don't see a big pickup. We do a lot of construction pre-lending, so it's just kind of the normal flow. I don't see a material change there. In terms of loan growth going forward, we remain optimistic.

We think it'll be in the 5%-6% range, providing nothing else goes on unusual in Iran. Then lastly, on hiring, we talk about that because that's influencing things. In Q1, we saw a net increase of 10 revenue producers, and we're aiming for 10% annual growth on that in 2026. We have nine more to hit the goal, and we think we'll get there or get close by the end of Q2.

All right. Really helpful. Maybe just as a follow-up, just on expenses. If I exclude all the moving parts, looks like you guys had really good expense control. Maybe you can just talk about some of the hiring efforts that you guys might have in place as we contemplate the next couple of quarters, and then if you could just touch on maybe some early investments on AI and what you guys are doing and what we could expect there from an expense build. Thanks.

All right. Great. Rich just spoke about the numbers of the new hires that we're very excited about. I think if you think about our expense growth, we're targeting this 3.5% range. Now we have these hires that you might add on to that. I think the hires could add about $1 million-$1.2 million a quarter. We're not factoring in the better growth that could happen later in the year, but that should happen sometime late 2026, early 2027. We're excited about our ability to grow our producers, and it could have some effect on expenses in the near term.

Yeah, I would agree with that in terms of you see a little bit of a lag with the new hires. You kind of expect it to start kicking in in five months-six months reasonably when you hire them. We're expecting to see late in Q2 some help from Q4, which is also a good hiring quarter.

Michael, you mentioned AI. So far I would say our AI investments have been very good and have a strong payback. For example, most of our AI at this time is coming in through vendors. On the fraud side, all of our vendors are heavy users of AI, and our fraud losses have actually dropped by 50% over the last two years and partially because of that. That's not even counting the benefits to our clients, which would be on top of that. Our contact center where we have chat bots and other AI-enabled tools we're seeing the ability to take more calls with the same number of agents. The same in our programming. We're doing more programming work today without adding programmers as they're using AI.

As we think about the next steps in agentic AI, I think there are clearly possibilities for some of our kind of more mundane processes, for example, flood and other things where we could get some benefit from AI. That's at just the conversational stage now. So far I would say, our history is any expense build we come out of that, we more than have realized savings on.

Great. I appreciate you guys taking my questions and all the color.

Our next question comes from Gary Tenner from D.A. Davidson. Please go ahead with your question.

Thanks. Good morning. Just wanted to touch on M&A for a second. You guys have talked about being pretty focused in markets, small banks. Obviously, Peach State fits the bill there. Given the environment we're in, do you see a pipeline of activity where you could potentially sort of announce another deal in lockstep with this one? Any reason to think that this would take you out of the market for any period of time?

Great. Thank you. Great question. No, we would not have any issue, I don't believe, in doing another deal while Peach State is active. Certainly given the size, given the regulatory environment, given our history. If we saw the right deal, which would have similar metrics and conditions to Peach State, I'd be more than happy to move forward with that.

Just the comment around the accretion in 2027 kind of adjusted for share repurchase. I guess it's sort of semantics, but the repurchased shares, presumably that would be over and above what you would plan to do anyway, right? How do you kind of balance that? If that question makes sense.

Yeah. Well, I guess I'll start with that. The reason we presented it that way with showing the effect of repurchase, our original intent was to do the entire deal, all cash. In our view, and I understand it's different than a share repurchase, but at the same time, if I'm evaluating a share repurchase at 11, 12x earnings versus buying a bank at 6, hey, why not buy the bank at 6x earnings? I guess that was in our mind, and that's kind of the way we presented it.

I think that's well said. I don't have a lot to add to that, but I will say we have $63 million left on our authorization. We have been active in the buyback already with $67 million over the last two quarters. It's a great question, but I think Lynn hit it on how we're thinking about the deal as a use of capital.

Makes sense. Thank you.

Our next question comes from Catherine Mealor from KBW. Please go ahead with your question.

Hi, this is Hannah Wynn stepping in for Catherine Mealor. Thanks for taking my question and congratulations on the acquisition.

Thanks.

Thanks, Hannah.

My first question is kind of a follow-up on the buyback activity. You've bought back around 30 million shares in the past two quarters, and with the merger announcement, you mentioned that repurchasing shares could offset the dilution. I was just wondering if you could talk a little bit about the timing and the amount of buybacks we can expect moving forward from here.

That's a great question, and I do think we will buy back the $50 million by year-end. We are somewhat price sensitive, so I don't want to guarantee that we're buying back shares in any given quarter. I don't know if I would put that in the model for Q2, but I do think we are creating about $30 million of excess capital every quarter. That is the amount that we will be contemplating purchasing on a given quarter. It depends on the price and some other things we might have going on. It might not be an every quarter thing. Can't help you so much on the modeling there, but I think by year-end we will get the 50 in.

That's great. Thank you. My other question is about your fee outlook. Your fees came in strong this quarter, and I was kind of wondering where you expect these to go from here.

Right. I expect a modest growth rate in our fee income. We have some nice growth businesses within here. Our treasury services has been growing well. We've made relatively significant investments in our wealth area that we're very excited about. Our mortgage business has been going really strongly. We also have seasonal strength coming in mortgage and Navitas as we go into the second quarter and SBA. I think you will see a nice growth rate off of this seasonally low first quarter.

Great. Thank you so much.

Our next question comes from Stephen Scouten from Piper Sandler. Please go ahead with your question.

Hey, everyone. Thanks for the time. Couple of follow-ups maybe to some conversations that have already been covered to some degree. Lynn, you said this was kind of like the exact type of deal you guys would look for given culture and deposits and so forth. How about from a size perspective? Would you guys lean towards these smaller types of deals moving forward still, or would you like to do something a little more sizable if that were available? What would be your preference there?

Yeah, we have typically done deals 10%, probably at the most 15% or less of our size. We just find that the institutions of that size, they tend to align with us better on employee experience, client experience, community involvement, and we can be more additive. Yes, if Peach State had been twice as large, would we be excited about it? Absolutely. There's just limited number of those larger, call them $2.5 billion-$3.5 billion banks. Certainly we would be interested in those as well. This one is, I think, really unique, again, given the history of the two companies together, the growth in Hall County. I mean, it's really rapidly growing county, number one job creating county, I believe, in Georgia.

To be able to have that kind of team together and the share together made it really attractive.

Makes sense. I appreciate that. On the hiring target, I think if I heard Rich correctly, you guys might actually kind of hit your stated target for the year by the end of 2Q. Would you anticipate ramping up that plan further or would it more be, "Hey, let's let these people ramp up over that five month-six month timeline before we add incremental expenses on continual hiring?

Steve, that's a great question. Certainly we want to hit goal, but we would be opportunistic if we saw the right people out there with the right experience and the right size portfolio. We would certainly look to do that.

Yeah, I would just say, too, the seasonality as you get in the year, just with bonuses, those kinds of things. First quarter, second quarter are strong. It starts to slow down in the third and fourth quarter. It's more difficult. I think Rich getting out to an early start has been a great thing.

Yeah, that cadence makes a lot of sense. Okay, and then maybe just last thing for me would be kind of overall NIM trajectory from here maybe for Jefferson. I know you said spot cost deposits was kind of the same as the quarterly average and maybe expect them to stay flat from here. Would you expect a little bit of incremental upside on the loan repricing? I think you called out $1.4 billion in fixed rate assets.

Yeah, I do. I had mentioned that I think we'll get 3-5 basis points of margin expansion in the second quarter. I think that we are slightly asset sensitive and the outlook for no rate cuts doesn't really hurt us. We're relatively flat but slightly asset sensitive. I think this backbone repricing story continues. I think this mix change towards loans away from securities continues. We do have a wider margin in our model throughout the year. We do have a nice 3-5 expectation in the second quarter.

Got it. Thanks. Sorry if I missed that earlier. Appreciate the time, guys.

Our next question comes from Christopher Marinac from Brean Capital. Please go ahead with your question.

Hey, thanks. Good morning. I wanted to go back to Peach State Bank for a second. Would you only buy banks that have excess deposits? That seems like an attractive feature of this transaction. Is that something that will guide your M&A interest going forward?

I would say no to that question. We like that it had a low loan-to-deposit ratio. We think we can put those deposits to work. The one good thing about having an 82% loan-to-deposit ratio is that we can also buy banks, small banks that are loaned up as well and give them some more capacity for growth. That was a nice to have in this acquisition. We also think we can help out high loan-to-deposit ratio banks as well, if that type of bank came about.

Got it. Thanks for that, Jefferson. For the new hires that you have, is there a deposit mandate with these folks and how will that play out as 2027 comes into focus?

Certainly on the loan side, we are requiring a depository relationship whenever we do a loan. We'll start there. These people all have existing clients, and so we're hoping that the first thing they can bring over is the deposits. It's easier than the loans. We see that pretty fast. That's all part of the package.

Sounds great. Thank you all very much. Appreciate the information this morning.

Thanks, Chris. Thanks.

Our next question comes from Kyle Gierman from Hovde Group. Please go ahead with your question.

Hi, this is Kyle on for David Bishop. Thanks for taking my question. Just wanted to follow up back on fee income, wanted to go into mortgage banking. Saw some nice trends there. I was wondering how sustainable that might be going forward and any initiatives in place to enhance that line item.

I'll start maybe and then pass it to Rich on the initiatives. We have one thing working for us and one thing working against us as we go into the second quarter for mortgage. First, rates you had, mortgage rates dipped to the 6% range at the end of February, which helped promote a little mini refi boom that helped out this quarter. Also we're going into the second and third quarters, which are the strongest seasonal quarters for mortgage. You get a little bit of an offset as you go into Q2. I'll pass to Rich for initiatives.

I'd say on the mortgage side, obviously, we're expecting, as Jefferson said, a stronger Q2. The challenge in mortgage is interest rates drive so much of it, and so that's a little bit hard to say. We do have a few more shorter on-balance-sheet products that have driven some interest, so we'll continue looking at that.

Thank you. Maybe a final question. I saw a slight uptick in NPAs this quarter. I was wondering if you could provide some color on what drove that, and then maybe just a broad view of the credit quality trends?

Yeah, this is Rob. Thanks, Kyle, for the question. I sort of anticipate asset quality to be stable, and I would expect NPAs to kind of fluctuate up and down. If you look back maybe 10 basis points up or down over time. There wasn't any one credit that moved into NPA this quarter that's a highlight or anything. It's just a standard movement in and out of non-accrual.

Awesome. Thank you. That's all I have. I'll step back.

Ladies and gentlemen, with that, we'll be concluding our question and answer session. I would like to turn the floor back over to Lynn Harton for any closing remarks.

Great. Thank you, and I appreciate everybody joining the call. Again, any further questions, reach out to Jefferson or myself, and we look forward to talking to you again soon. Have a great day.

The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.